Bloomberg News

Google Plays Catch-Up to Amazon in Fight Over Cloud

May 10, 2012

Google Inc. (GOOG:US), which has watched Amazon.com Inc. (AMZN:US) dominate the market for Web-based computer services, is boosting spending to carve out a bigger piece of the cloud for itself.

It’s going to be a long campaign. Amazon Web Services, started six years ago, is used by hundreds of thousands of companies in 190 countries, allowing them to rent servers for their websites, support mobile applications and store customer data. Google has offered cloud-computing services for four years without gaining much traction.

“We missed it,” said Amit Singh, vice president of enterprise at Mountain View, California-based Google. “We have to get better.”

Google is hiring more engineers and salespeople, increasing marketing efforts and rolling out new features for businesses that are demanding faster computing speeds, more storage capacity and lower costs. Google said its customer roster has jumped by at least 10 percent each month this year, with clients ranging from car-sharing startup Getaround Inc. to established retailers such as Best Buy Co.

The push into Web hosting reflects the urgency of Google’s search for new revenue streams outside of online advertising, which now contributes 96 percent of total sales. The company already operates data centers across the globe to manage more than 12 billion Internet searches a month and videos uploaded from 800 million YouTube users.

‘Important Endeavor’

Making products for businesses is an “incredibly important endeavor” for the company, Google Chief Information Officer Ben Fried said today at the Bloomberg Enterprise Technology Summit hosted by Bloomberg Link in New York.

Yet it’s Amazon that’s taken the lead in a market expected to grow to $10.5 billion by 2014 from $3.7 billion last year, according to Gartner Inc. Additional competitors include Rackspace Hosting Inc. (RAX:US) and Microsoft Corp. (MSFT:US)

“Cloud computing is a very large, very attractive market segment,” said Adam Selipsky, vice president of Amazon Web Services in Seattle. “We’ve actually maintained and, in many cases, extended that early lead.”

It’s not hard to see why. The percentage of companies planning to use Amazon Web Services rose to 44 percent last year from 35 percent in 2010, according to a survey by Forrester Research Inc. Google’s App Engine, the business that provides online server computers, was preferred by just 13 percent in 2011, down from 23 percent the previous year.

George Zachary, a partner at Charles River Ventures in Menlo Park, California, estimates that about 90 percent of startups he meets with use Amazon Web Services.

‘Incredible Scale’

“Amazon is just running away with the game right now,” said Zachary, whose investments include Twitter Inc. and Yammer Inc. Google has “plenty of technology and incredible scale. They just have to execute,” he said.

Amazon’s record isn’t spotless. Its service crashed one morning in April 2011, knocking out the websites of companies including location-based mobile service Foursquare and question- and-answer-site Formspring.me. The same month, hackers used Amazon Web Services in an attack against Sony Corp.’s online entertainment systems, according to a person with knowledge of the matter.

“This could have happened from any computer, and as Sony stated, there’s no evidence showing the attacks came from AWS,” Tera Randall, a spokeswoman for Amazon Web Services, said in an e-mailed statement.

Limited Languages

Google’s efforts have been hampered because it offers a limited number of languages for programmers and doesn’t let companies control the operating system and security features. Its customers tend to run smaller, simpler programs, while Amazon clients are willing to hand over their entire Web service, said James Staten, an analyst at Forrester.

Amazon, by contrast, is more flexible. It provides the infrastructure and lets customers maintain everything in those servers and storage boxes at its data centers. Google is building what startups want -- a product that lets companies focus on developing software and apps without having to spend extra time and money with mundane matters like server capacity, said Greg D’Alesandre, project manager for App Engine.

“What we’ve gotten is an enormous amount of experience in understanding what it takes to run someone else’s application,” D’Alesandre said. “That’s where we want to focus, and that’s what we want to be really good at.”

Storage Service

While Google entered the market in 2008, the company started getting serious about it a year ago, Singh said. It brought its storage service out of beta testing and released a product to manage databases. It also started distributing programs created on App Engine to at least three data centers, not just one, to ensure the apps keep running.

The company has beefed up customer support and plans to spend more on sales and marketing around the world. To help publicize these moves, Google is placing its executives on industry panels and conferences, according to Shailesh Rao, director of new products and solutions for enterprise. The products are getting more attention from within the company as well, he said.

“We’re innovating at a faster pace than I think we have before because the demand is there, the investment is there,” he said. “This is also turning out to be a great place to be from within Google. I get transfer requests almost every week.”

Early Tester

Elliot Kroo, co-founder of San Francisco-based Getaround, has seen the improvements. Getaround has been using App Engine since the company’s debut in 2009, partly because Kroo previously worked at Google and was an early tester of the product. Only in the past six months has it been complete and reliable enough for him to recommend it to other entrepreneurs, he said.

For Getaround, App Engine has helped keep costs down because the company doesn’t have to spend resources monitoring its apps and adding servers as needed.

“As a startup, there’s not much systems administration I want to do,” said Kroo, Getaround’s director of engineering. “It’s just becoming possible for App Engine to provide anything you need as a startup.”

Meanwhile, the market is getting more competitive. Amazon’s business is approaching $1 billion in revenue, according to analyst estimates. San Antonio-based Rackspace increased sales at its cloud unit by 88 percent last year to $189.2 million. Microsoft is promoting its Azure services, while traditional technology providers International Business Machines Corp. and Hewlett-Packard Co. also are competing.

DNA Technology

DNAnexus Inc. Chief Executive Officer Andreas Sundquist expects Google to be the biggest challenger to Amazon. His Mountain View-based startup, which provides analytical tools for DNA sequencing, uses Google’s storage service for the data it collects. Yet it uses Amazon for servers, because App Engine is too limiting.

“Certain parts of Google cloud are still playing catch-up with Amazon,” said Sundquist, whose company is backed by Google’s venture arm. “Cloud storage is one area where they’re at parity or even better.”

Looking to the future, Sundquist said if he could only place two bets on the winners, “they would definitely be on Google and Amazon.”

To contact the reporters on this story: Brian Womack at bwomack1@bloomberg.net; Ari Levy at alevy5@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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