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Google Just Closed a Big Cloud Acquisition

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Google (NASDAQ:GOOGL) completed the acquisition of Looker. The company announced the deal about eight months ago. Google purchased Looker for $2.6 billion—its biggest cloud acquisition under new cloud computing business boss Thomas Kurian.

Notably, the Looker acquisition closed about two months outside of Google’s target timeline. The company wanted to close the transaction by the end of 2019. Britain’s antitrust watchdog had some concerns about the deal and decided to escalate its review. The watchdog finally cleared the deal. However, the long review resulted in the transaction closing outside the original timeline.

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Google wants to close the gap with cloud market leaders

Looker provides tools that help businesses use cloud resources effectively. Google needs acquisitions like Looker to supercharge its cloud business, which currently lags behind Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT).

Google generated $8.9 billion in cloud revenue in 2019—sharp growth from $5.8 billion in 2018. However, Amazon makes more money in the cloud market. The company’s cloud revenue hit $35 billion in 2019. Overall, cloud is Amazon’s most profitable operation. Cloud contributed over 60% of the company’s total operating profit in 2019.

Microsoft doesn’t break out its cloud revenue. However, Synergy Research ranks the company second in the global cloud market with an 18% market share. Amazon tops the chart with a 33% market share, while Google is third with about an 8.0% market share.

Google has set its sights on becoming the largest or at least the second-largest cloud company in the world. The company tapped former Oracle (NASDAQ:ORCL) executive Thomas Kurian in 2019 to run its cloud business.

Under Kurian, Google’s cloud division has been pursuing large enterprise customers. Last month, Google inked a huge cloud deal with Airtel—one of the leading telecom companies in India. The company had another important cloud business win from Vodafone (NYSE:VOD) last fall.

Google has staffed its cloud team with executives from enterprise software companies like Oracle, SAP SE, and Microsoft in an apparent bid to boost its chances of winning big enterprise cloud contracts.

$266 billion revenue opportunity in 2020

In the cloud market, Google is pursuing a $266.4 billion revenue opportunity this year. The uptake of cloud services has risen. The market is on track to hit $355 billion in 2022.

In addition to the tremendous growth opportunity, the cloud business also checks an important box for Google—diversifying revenue sources. For a long time, advertising has been Google’s staple. Advertising contributed nearly 90% of Google parent Alphabet’s revenue. However, as advertising becomes more challenging with fierce competition and intense regulatory scrutiny, Google wants to diversify its revenue sources. The company has a big bet on the cloud market to achieve this goal.

Alphabet stock has gained more than 40% since Google announced the Looker acquisition.

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