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Why Snap Is Dancing in the Cloud with Amazon and Google

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$400 million annually for Google Cloud

Snap (SNAP) is spreading its cloud operations across both the Alphabet (GOOGL) and Amazon (AMZN) cloud platforms. The company will spend at least ~$3.0 billion on cloud resources over the next five years.

Why is Snap’s cloud spending going to be $3.0 billion over the next five years and not $2.0 billion as widely reported? Snap initially disclosed in its IPO (initial public offering) filing that it intended to spend $400.0 million per year for the next five years to use Google Cloud. That would have brought its cloud bill $2.0 billion.

But later, Snap amended that filing to state that in addition to buying cloud from Google, it will also use Amazon’s AWS (Amazon Web Services). Snap will spend $1.0 billion on AWS, paying Amazon $50.0 million this year and increasing the amount by $75.0 million each year until 2021.

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Spending on cloud grows

AWS is the leading provider of cloud infrastructure, with a market share larger than competitors Google, Microsoft (MSFT), and International Business Machines (IBM) together, according to research firm Canalys. The firm further estimates that spending on cloud infrastructure services will rise to $55.8 billion in 2017, from $38.1 billion in 2016. You can see this spending trend in the above graph.

Spreading risk

Snap’s decision to run its operations on two cloud environments hints that it’s taking precautionary measures to reduce risk. Its other risk mitigation move is its expansion into the hardware business with Spectacles, its camera-equipped sunglasses. Some media reports, including a New York Times article, also claim that Snap is considered developing consumer drones as part of its revenue diversification.

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