Alphabet, the parent company of Google, has announced that Google’s cloud business has turned a profit for the first time since it began reporting operating metrics for the division three years ago.
Google has been investing heavily in its cloud computing business to compete with Amazon and Microsoft, and these investments have finally paid off.
During the first quarter of the current year, the cloud business recorded $191 million in operating income and $7.45 billion in revenue, which is a positive change from the same quarter in the previous year when the segment had incurred a loss of $706 million on $5.82 billion in revenue.
The cloud business includes the Google Cloud Platform, which provides cloud infrastructure and services for companies to build and run their own applications, as well as subscriptions to Google Workspace productivity software. The business now accounts for 10% of Alphabet’s total revenue.
Google has been working hard to win business from large corporations and government agencies that are transitioning from traditional data centers to the cloud and relying more on compute-heavy applications involving artificial intelligence. Its cloud customers include Deutsche Bank, Major League Baseball, PayPal, and UPS.
Amazon Web Services (AWS) holds the top position in cloud infrastructure and has consistently made profits every quarter since 2014. While Microsoft is the second-largest player in the market, it does not disclose profitability figures for its Azure unit.
On the other hand, Google has been competing with AWS and Microsoft by attempting to win contracts from large corporations and government agencies who are transitioning from traditional data centers to the cloud and are increasingly relying on compute-heavy applications that use artificial intelligence.
Google’s investment in its cloud business appears to be paying off as it has finally turned a profit. This is good news for Alphabet as a whole, as the cloud business now accounts for a significant portion of the company’s revenue.
With the continued growth of cloud computing, it will be interesting to see how Google, Amazon, and Microsoft continue to compete in this space in the coming years.
Google’s Cloud Division Records Profit
Alphabet, the parent company of Google, started revealing the revenue generated by its cloud business in 2020, and later began reporting its operating losses.
Recently, Alphabet restated its operating income for its cloud and other divisions, leading to reduced losses in 2021 and 2022. For instance, the cloud unit reported a $186 million operating loss in the fourth quarter, which was lower than the $480 million loss before the change.
Alphabet has stated that certain costs that were previously associated with corporate initiatives that supported consumer-facing activities and were reflected in unallocated corporate costs are now being allocated to Google Services.
Also, centrally-managed shared research and development activities, including shared developer tools, are now being allocated based on an updated measure of the relative benefit derived from the services.
Consequently, more of the previously unallocated corporate costs are now being allocated to Alphabet’s segments, and more of certain previously allocated costs are now being allocated to its consumer-facing Google Services products, and less to Google Cloud enterprise products.
This restatement of operating income numbers is an effort by Alphabet to provide a more accurate picture of its financial performance, particularly for its cloud business.
By allocating costs more precisely, Alphabet hopes to show investors that its cloud business is on a path to profitability. The move comes as Google has been investing heavily in its cloud computing business to compete with Amazon and Microsoft.
In conclusion, Alphabet has restated its operating income for its cloud and other segments to more accurately reflect costs associated with corporate initiatives, shared research and development activities.
By allocating costs more precisely, Alphabet hopes to demonstrate that its cloud business is on the path to profitability.