AI and security sets us apart from the crowd – Google Cloud CEO

Google Cloud is not winning the cloud battle with AWS and Microsoft Azure right now, but with security credentials and artificial intelligence smarts, CEO Diane Greene thinks the future looks profitable.

Speaking at Google Next ’18 event in London, Greene claims superior security and industry-leading AI are differentiators for Google Cloud which will lead it to the top of the rankings. This is a business which is not shy about spending its way to success, the last 18 months have seen huge amounts spent on infrastructure to fuel momentum in the cloud business, but it’s the value which Google Cloud can add to operations, not simply a pricing war and availability, which is the recipe for success.

“We’re still early in the cloud, only 10% of workloads are in the cloud, but this is where all the digital transformation is coming from,” said Greene. “There are bottom line and top line benefits. Cloud is becoming a working structure to how you can enforce change in companies.”

“It’s our AI, data analytics and security. AI is everyone’s biggest opportunity, and cybersecurity is everyone’s biggest threat, and Google has the best of these. AI is built into everything we do, completely infused into G-Suite. This is such a powerful technology and we’re so proud to have the world’s leading experts. It has such a power for good but we see the concerns in the world.”

This is of course not a new message. Artificial intelligence has been a talking point for Google Cloud for some time but why is it different today? Because the cloud is now normalised.

Considering how long the concept of cloud computing has been around, and the money which is spent each year, it is amazing to think only 10% of workloads have been moved to the cloud and there are still organizations out there who are resisting. However, most enterprise-scale or forward-looking businesses are taking a cloud-first approach to business. This is evidence the cloud has been normalised, and suggests the industry could become commoditized before too long.

Commoditization is not necessarily a bad thing, especially when you look at the room for growth. With the likes of Google, AWS and Microsoft Azure offering massive scale, the commoditization business model works and it also makes the cloud more accessible for those who have not considered migration so far. Initiatives like the Data Transfer Project, which aims to standardize cloud environments to allow for easier migration of data from one provider to another, will also help rollout cloud everywhere else, but this also helps Google.

With the idea commoditized, Google Cloud can start focusing further up the value chain, leveraging the capabilities which it has in-house. Security is an excellent differentiator to bring customers into the fray, though the value-added services in data analytics and artificial intelligence could set Google apart from the crowd.

AirAsia is a good example, as Greene ushered CEO Tony Fernandez onto the stage during the keynote session. AirAsia has leveraged the power of the cloud to continually build his business, the airline now has 250 planes, 200,000 staff and will serve 90 million customers this year, but this year the focus is on enhancing the business with artificial intelligence. The team are working on several areas from predictive maintenance of aircraft, through to weather predictions to inform customers of potential delays, and also using facial recognition to improve the customer experience. This is where Google Cloud can prove its worth; the value add for customers who have already embraced the concept of cloud computing.

Through Deepmind Google has created an artificial intelligence foundation which can be rivalled by few in the technology world. Having acquired the company for roughly $500 million, a bargain in an era of multi-billion dollar acquisitions, the Oxford scientists are providing value throughout the Google universe. On top of this, Greene highlighted investments in Google Brain, a separate deep-learning research team, an Advanced Solutions Lab in Dublin, as well as AI training workshops in 20 European countries.

Google might be losing the battle to secure the commoditized cloud business, AWS is a clear and runaway winner here, though the value-add segment of cloud is starting to emerge. The opportunity to build more advanced solutions on top of a basic cloud-orientated business model is perhaps another segment which will certainly be attractive. This is a segment which will be defined by artificial intelligence.

AWS and Microsoft Azure are both eyeing up the AI world with their own investments, though Google has arguably put itself in the lead through years of acquisition and investment in product areas with an eye on tomorrow’s profitability. The long-game might be starting to pay off.

AWS continues to fuel profits at parent company

Amazon has released the results for the first half of 2018, with cloud business unit AWS accounting for just over 61% of the total operating income.

Sales across the group stood at $103.9 billion, while AWS accounted for $11.5 billion, with an impressive $6.1 billion coming in the second quarter, beating market expectations. Net income was reported at $4.1 billion for the half, and $2.5 billion for the quarter. This is now the third consecutive quarter the business has reported more than $1+ billion in net income, perhaps a welcome surprise for investors who have become accustomed to minimal profits and losses every three months.

“We’re very happy with the results we’re seeing, and the backlog that we see, and the new contracts and new customers and the expansion of existing customer business that we see,” said Amazon CFO Brian Olsavsky. “Again, the business has accelerated the last three quarters, and we’re seeing great signs in a number of areas.”

While the success of AWS is unparalleled in the industry, there is still room for growth. Despite the cloud being old news, there are still a huge number of customers and workloads to migrate to the cloud, and new services to offer to these customers. AWS has already launched 800 new services and features so far this year, including the Database Migration Service which has been utilised 80,000 times over the six months, and there is scope for more. The cloud might seem like an old idea now, but with areas such as machine learning, AI, IoT, serverless computing and databases and analytics beginning to breach normality, the potential to make more cash is abundant.

As you can see from the market share graphic below, AWS is in a league of its own when it comes to the cloud services market. Google and Microsoft might be growing their own business at a faster rate, but these steps forward cannot bridge the sheer volume and breadth of customers in the AWS market share. Unfortunately for challengers outside the top four, it is looking increasingly unlikely the gulf will be bridged.

“Amazon Web Services and its three main challengers all turned in some exceptional growth numbers in the quarter,” said John Dinsdale of Synergy Research Group.

“Collectively those four firms alone accounted for well over three quarters of the sequential growth in cloud service revenues. In a large and strategically vital market that is growing at exceptional rates, they are throwing the gauntlet down to their smaller competitors by continuing to invest enormous amounts in their data centre infrastructure and operations. Their increased market share is clear evidence that their strategies are working.”

Looking at where money is being spent in the industry, public IaaS and PaaS services account for the bulk of the market, with these two segments growing by 53% over the last quarter. Total spend, IaaS, PaaS and hosted private cloud services, exceeding $16 billion for the quarter.