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What You Need to Know about Alphabet’s Cloud Business

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Alphabet’s $30 billion investment

Alphabet (GOOGL) recently revealed that it has invested ~$30 billion towards building its Google Cloud Platform, or GCP. Could it recoup that investment and earn profits?

According to Alphabet, it is making progress in the cloud and hopes to someday turn tables on market leaders. At a cloud event last month, Diane Greene, who heads Google’s cloud department, said that although Google wins 50% of contracts when it competes directly with Amazon (AMZN) and Microsoft (MSFT) for clients, it still lags behind them in several areas. To highlight Alphabet’s progress, Greene named several large clients that have adopted GCP, such as Verizon (VZ).

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The potential is enormous

Research company IDC predicts that global spending on public cloud services will hit $141 billion in 2019, doubling the $70 billion spent in 2015. However, that’s only a portion of the cloud computing market. Therefore, Alphabet’s growth potential in the cloud is enormous. Although Alphabet doesn’t report cloud sales independently, the business segment that includes cloud registered 62% sales growth in 4Q16, reaching $3.4 billion.

Strategy to gain more market share

To bolster its competitive edge, Alphabet is extending its availability and taking its cloud to more regions. The company is also using price discounts to encourage adoption, which could help it steal some of the market from its larger rivals. For example, it has cut cloud compute engine prices by 5% in the United States (SPY) and Europe, and by 8% in Japan.

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