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Understanding Alphabet’s Focus on Google Cloud

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Oct. 9 2017, Updated 10:37 a.m. ET

Google Cloud on investors’ radar

Alphabet’s (GOOGL) cloud computing business is on the radar of many investors as the company gets ready to report its 3Q17 results, which are expected on October 26. Google Cloud is getting a lot of attention because of the crucial role it’s expected to play in weaning Alphabet from its dependency on advertising.

In 2Q17, Alphabet’s advertising sales rose 18% YoY (year-over-year) to $22.7 billion, but the online advertising industry is heating up with competition. Alphabet is thus looking for new ways to grow without relying on ad sales, and cloud computing is one of Alphabet’s major revenue diversification bets.

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How Alphabet views cloud computing competition

Another reason Google Cloud is so much in focus comes from what the company has said about its cloud computing strategy. According to Alphabet, it wants to focus less on waging pricing wars with Amazon.com (AMZN), Microsoft (MSFT), and Oracle (ORCL) in the cloud computing arena in favor of working to differentiate itself from the competition on the basis of service quality and product innovation.

Cloud segment revenue up 42%

Alphabet doesn’t break out its cloud sales but reports them under its Google Other segment, which also includes the sales of hardware products like its Pixel smartphones. So the closest we can come to understanding how Alphabet’s cloud computing business is fairing is by looking at the revenue growth of that segment.

In 2Q17, Google Other revenues reached $3.1 billion, which was 42% higher YoY.

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