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Google Cloud Puts Amazon and Microsoft on Notice

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Google (NASDAQ:GOOGL) wants to close the gap with Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT) in the cloud computing market. This week, Google cloud announced plans to invest $10 billion to develop its infrastructure in the US this year. The investment will allow the company to add more cloud computing capacity to better serve its large enterprise customers. Last year, the company announced plans to invest $3.3 billion to expand its cloud capacity in Europe.

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Amid the aggressive investment in capacity, Google wants to become at least the second-largest cloud company in five years. Currently, Google is ranked third with about an 8.0% share of the global cloud market, according to Synergy Research estimates. The company is way behind Microsoft, which is ranked second with an 18% global market share. Amazon tops the chart with a 33% market share.

In addition to capacity expansion, Google is also expanding its cloud salesforce. The company wants to triple its cloud salesforce in the next few years. To grow the cloud business quickly, Google is pursuing large corporate customers. The company has raided Oracle, SAP, and Microsoft for sales executives with extensive experience selling to large enterprise customers.

Google cloud leans on Alphabet’s massive war chest

Google parent Alphabet finished 2019 with $120 billion in cash reserve. Therefore, the company has a huge war chest to bankroll its campaigns for a bigger share of the lucrative cloud market. Microsoft, which Google wants to overtake, also has a big war chest. The company exited 2019 with $134 billion in cash reserve. Meanwhile, Amazon closed 2019 with $36 billion in cash reserve.

Google makes strategic acquisitions to complement efforts like capacity and salesforce expansion in growing its cloud business. Recently, the company purchased Cornerstone—a startup that assists companies in migrating their mainframe workloads to the cloud. The other recent Google cloud acquisitions include Looker and CloudSimple.

Diversifying revenue streams

Currently, Google relies on advertising for most of its revenue. For instance, advertising contributed 83% of the total revenue at Google parent Alphabet in 2019. The advertising market is becoming more difficult, which increases the need for Alphabet to diversify its revenue sources.

Cloud is one of the businesses that the company counts on to diversify its revenue streams. More than $266 billion in revenue is up for grabs in the global cloud market this year. Google cloud revenue hit $8.9 billion in 2019—a big increase from $5.8 billion in 2018. The cloud business contributed 5.5% of Alphabet’s revenue in 2019 compared to 4.2% in 2018 and 3.7% in 2017.

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