Google Cloud turns profitable after 15 years

Google Cloud, after 15 years of losses, is making strides towards its first profitable year. In contrast, Amazon Web Services (AWS), with 34% market share, has been a significant profit driver for Amazon, generating $23 billion in annual profits. Google’s cloud struggles stem from its emphasis on consumer-facing tech products, which differ significantly from the enterprise market.

Despite launching after Microsoft’s Azure, Google fell behind in the cloud race due to its focus on simplicity rather than functionality and customer-centricity. The company experienced significant growth, but its costs soared, including expenses related to hiring and data centers. Attempts to compensate for organic shortcomings through acquisitions, such as the $550 million Firebase deal, did not immediately improve its cloud profitability.

A turning point occurred with the hiring of Thomas Kurian, a cloud veteran from Oracle. Under new leadership, Google Cloud recognized that AWS and Azure were creating closed ecosystems, presenting an opportunity for Google to differentiate itself. Rather than directly engaging with clients, Google Cloud sought to win over channel partners who were being undercut by competitors.

By championing open-source initiatives and attracting third-party developers, Google Cloud diversified its offerings and compensated for its lack of enterprise acumen. The company reduced marketplace commission charges for partner firms and adopted a co-selling approach. This strategy attracted over 35,000 entities to its Partner Advantage Program, with most enterprise wins now occurring through co-selling with partners like Accenture, Deloitte, and Tata Consultancy Services.

As a result, Google Cloud posted profits of $395 million in the latest quarter, contributing to over 10% of Alphabet Inc.’s revenues. While the company has made progress, it holds a 10% market share, making it the third-largest cloud provider behind Azure and AWS. The question remains whether Google Cloud can close this gap and compete more closely with its rivals.