Generating revenue growth of 28% for the second consecutive quarter, Google Cloud is demonstrating precisely why recently they earned the right to leapfrog Amazon’s AWS on my Cloud Wars Top 10 rankings via a very strong Q2 highlighted by enormous AI-centered momentum.
Seven weeks ago, I elevated Google Cloud to the #2 spot on the Cloud Wars Top 10 weekly rankings and moved AWS down to the #3 spot based on my belief that Google Cloud’s much higher rate of growth, wider-ranging software prowess, data expertise, and comprehensive artificial intelligence (AI) capabilities make it more influential and important in today’s cloud market. You can read the full story on that at Google Cloud Leapfrogs Amazon to Become #2 on Cloud Wars Top 10.
Now, while I remain fully aware of my sainted mother’s frequent admonition of “don’t break your arm patting yourself on the back,” I also feel it’s important to underscore what Google Cloud achieved in Q2 and why I believe it’s fair and appropriate that Thomas Kurian’s company should now be recognized as second only to Microsoft in driving customer innovation, success, and growth in the booming cloud market.
Plus, to be as fair as possible to AWS, Amazon has not yet released its Q2 numbers — it will do so on Aug. 3 — and it is certainly within the realm of the possible that Amazon will report that AWS has “re-accelerated” and reversed a long and precipitous decline in its growth rate that, over the past six quarters, looks like this (starting with Q4 of 2021 and ending with Q1 of 2023):
- 40%, 37%, 33%, 27%, 20%, 16%.
Given that unmistakable trend, is it reasonable to assume that AWS is going to bend that trajectory upward? I don’t think that it is — and I’m projecting that when Amazon releases AWS Q2 results on Aug. 3, we’ll see that AWS Q2 growth will come in at 14%.
So back to Google Cloud: from last week’s Alphabet earnings call and release, here are what I believe are the key developments:
Q2 revenue of $8 billion, up 28%: This means that the moderating growth rates experienced by Google Cloud have leveled off — a market-demand result that AWS would dearly like to match. But if I’m right with my prediction of 14% AWS growth, then that means Google Cloud is growing twice as fast as AWS. Or course, AWS’s revenue is over 2.5X larger than Google Cloud’s, and that certainly needs to be considered — but the larger issue is that Google Cloud has continued to grow at a 28% clip for two straight quarters; can AWS do the same?
Operating profit of $400 million: For the second straight quarter, Google Cloud has demonstrated that it has reached a point where, even as it continues to invest heavily, it is also able to turn a significant profit.
Infrastructure optimized for AI: Alphabet CEO Sundar Pichai emphasized this point during his opening remarks to underscore the fact that Google Cloud is up and ready to tackle some massive new generative AI infrastructure engagements with customers because Google itself has been, as Pichai put it, “AI-first for the past seven years.” On this strategic issue, here are a couple of revealing points from Pichai:
- “Our AI-optimized infrastructure is a leading platform for training and serving generative AI models. More than 70% of gen AI unicorns are Google Cloud customers.”
- “We provide the widest choice of AI supercomputer options with Google TPUs and advanced NVIDIA GPUs, and recently launched new A3 AI supercomputers powered by NVIDIA’s H100. This enables customers like AppLovin to achieve nearly two times better price performance than industry alternatives.”
Generative AI customer count grows 15X in three months: “Our new generative AI offerings are expanding our total addressable market and winning new customers. We are seeing strong demand for the more than 80 models, including third-party and popular open source in our Vertex, search, and conversational AI platforms, with the number of customers growing more than 15X from April to June,” Pichai said.
AI is enhancing cybersecurity capabilities: “We have integrated AI throughout our portfolio, winning organizations like Pfizer, who are using Google Cloud to transform their security operations,” Pichai said. “Chronicle Security Operations Suite, with Mandiant fully integrated, is helping customers stay protected at every stage of the security lifecycle. In the first half of 2023, we saw a 35% increase in incident response engagements compared to the same period last year.”
Final Thought
AWS has long been the dominant player in cloud infrastructure. And as noted above, cloud infrastructure remains incredibly important — provided it is oriented toward the future and not the past.
In early 2019, very soon after being named Google Cloud CEO, Thomas Kurian was asked at an investors conference how he planned to catch up with category leaders AWS and Microsoft. Kurian replied that what customers want from the cloud today — and bear in mind this was 4½ years ago — is very different from what they’ve wanted in the past, and that Google Cloud would be looking not to chase the past but to help customers create the new capabilities of the future.
That is precisely what the Cloud Wars are all about — and it’s precisely why Google Cloud’s Q2 results have surely solidified its position as the #2 company on the Cloud Wars Top 10.
Gain insight into the way Bob Evans builds and updates the Cloud Wars Top 10 ranking, as well as how C-suite executives use the list to inform strategic cloud purchase decisions. That’s available exclusively through the Acceleration Economy Cloud Wars Top 10 Course.
