By Jillian Mirandi
Over the past year, we have begun to see a deviation across Google’s enterprise business from the company’s traditional strategy of innovative but unconnected products. In June 2012, Google announced Infrastructure as a Service (IaaS) product Compute Engine, and has spent the last year tightly integrating Compute Engine with Platform as a Service (PaaS) App Engine to create Google Cloud Platform. The company has also increased investment in development and integration across Google Cloud Platform to ready it for enterprise adoption. We believe that Google’s traditional strategy, where products are often killed or under-invested in (such as App Engine for Business that upon shutting down, took away many features), presents a hurdle to enterprise penetration, but one that Google will overcome as investments and integrations with widely adopted enterprise partners (such as those with HP and Red Hat) continues in coming quarters.
We estimate that Google’s cloud business (consisting of Google Cloud Platform and Google Apps) generated nearly $200 million in 2Q13 and grew 195% from the year-ago quarter. We believe the business will triple annually in 2013 to reach $885 million, in part driven by rapid adoption of Google Cloud Platform. However, Google Apps will continue to generate the majority (around two-thirds) of Google’s cloud business through 2014.
TBR believes Google Compute Engine will experience rapid adoption across the remainder of 2013 based on functionality, support and integration
Google Cloud Platform, made generally available in May, will leverage Google’s immense scale to enable Compute Engine to compete on price with AWS and Windows Azure while developing functionality, support and portfolio integration to drive appeal among enterprise IT, partners and developers.
In addition to Compute Engine’s general availability launch, Google launched several products in 2Q13 around tightening IaaS integration with its PaaS stack to drive enterprise IT appeal with simple, self-service offerings. Newly launched Cloud Storage Client Library improves App Engine access to Cloud Storage (a product in Cloud Platform), again depicting Google’s intent to integrate products to form enterprise-ready solutions.
Google is increasing direct sales engagement, expanding and improving support options, and partnering with enterprise ISVs to gain enterprise access
From an operational standpoint, Google is improving appeal to the enterprise by expanding direct sales and support investments around Cloud Platform, both internally via dedicated hiring, a four-tiered support system, and through partners in the Google Cloud Platform Partner Program.
In addition to sales and support, partners are also serving as key assets on the technological side toward extending enterprise IT appeal. In particular, Google announced a strategic partnership with Red Hat’s JBoss team to effectively implement App Engine in on-premises, private cloud environments. While TBR expects the partnership to expand Google’s addressable enterprise IT market, we believe more investments in private and hybrid cloud capabilities are necessary for Google as enterprises will begin to demand more integrated clouds that include private cloud deployment among more sensitive workloads.
A more integrated Google stack has also enticed partners such as IT and cloud management vendors, RightScale and Boundary, to sign on as Compute Engine Technology Partners in 2013. The increased functionality and services RightScale and Boundary bring to Compute Engine will extend Compute Engine’s appeal in the enterprise IT across the enterprise customer base, as management is increasingly important as clouds are added across IT environments. Google will continue to build its partner ecosystem with both traditional enterprise and pure-play cloud vendors to add value through extended functionality and support, to improve perception as an enterprise and cloud vendor, and to expand distribution.
An increasingly competitive PaaS market will continue pushing Google to invest in programming and mobile back-end services
Among developers, TBR believes accelerated investments around App Engine functionality and cross-product integration will help strengthen the cloud platform’s appeal. However, we anticipate that an increasingly competitive PaaS market will require Google to maintain high level of investments in subsequent quarters. Adding App Engine support for PHP will place Google on more competitive footing due to the programming language being among the most favored languages for Web development. Additionally, opening Maps and Google+ APIs will serve as extensions for Google to generate developer attention and user adoption through simplifying integration between those applications and business products. TBR expects Google to continue expanding mobile back-end functionality for developers in 2H13 to support its enterprise mobility push following the June launch of a ready-made mobile back end for Android developers in conjunction with enterprise Back End as a Service provider Kinvey.
By increasing enterprise and developer appeal in Cloud Platform, Google is generating new opportunities for partners to develop on and resell Cloud Platform solutions. Although Google has made some direct sales and support hiring to support enterprise accounts, TBR expects Cloud Platform’s go-to-market strategy will be partner-led (similar to Google Apps).
Google will continue to emphasize simplicity and integrated end-user products at competitive price points to drive international Apps adoption
While TBR expects 2H13 product investments to primarily focus on Cloud Platform enhancements, we anticipate Google will continue deepening integration of Google Apps with QuickOffice, the Microsoft Office documents editing tool (developed outside of Microsoft) Google acquired in June 2012. Through deeper integration, Google will capture more opportunity from and ahead of Microsoft, which is making efforts to mobilize licensed Office users to its cloud-based Office 365.
Internationally, Google Apps continued to win major deals in 2Q13 with its targeted Apps for Business, Education and Government offerings, including the U.S. National Archives and Record Administration, the Canadian Broadcast Company, University College Dublin in Ireland, and Kubota and Fujifilm in Japan. While Google will emphasize Apps’ simplicity at competitive price points, TBR anticipates Google will continue to deepen Apps integration into end-user facing products such as Google+, Maps and Chromebook Pixels to maximize cross-sell opportunities.
Privacy issues will serve as a competitive disadvantage for Google Apps that Microsoft has encouraged its Office 365 channel to exploit against Google. In June Google Apps’ agreement with a Stockholm, Sweden–area municipality was overturned by Sweden Data Inspection Board due to its agreement violating data privacy laws, an area that TBR expects Microsoft and localized vendors to exploit.
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