Google Cloud cut its revenue margin from software purchases on its cloud marketplace down to 3% from 20%. This is among several moves the company has made with ex-Oracle president Thomas Kurian at the helm to surge ahead in the cloud race.
Google Cloud is bidding to close the gap with cloud leaders AWS and Microsoft Azure, by cutting down a significant portion of the revenue source from customers. The search giant’s cloud division is thus positioning itself to become more competitive with respect to other players in the burgeoning cloud space.
As such, the company is significantly slashing the revenue it earns from customers when they purchase additional software from third-party vendors on the Google Cloud marketplace. Google Cloud will henceforth charge a mere 3% for software purchases, compared to 20% it previously charged.
CNBCOpens a new window , who first reported about the possibility of Google slashing its revenue from the cloud marketplace, confirmed the revenue revision with a Google spokesperson over email. They said, “Our goal is to provide partners with the best platform and most competitive incentives in the industry. We can confirm that a change to our marketplace fee structure is in the works, and we’ll have more to share on this soon.â€
The decision was possibly arrived at in response to Microsoft’s decision to slash its share to 3% in JulyOpens a new window . Before that, Microsoft Azure also charged 20%. AWS, the biggest cloud vendor by revenue which leads both Azure and Google Cloud respectively, has set its cut to 5% since a while.
Cloud or infrastructure-as-a-service (IaaS) is proving to be a lucrative business. The space is registering an over-the-top growth rate, especially in the face of the COVID-19 pandemic. It grew 40.7% in 2020Opens a new window , according to Gartner.
A closer look at the market reveals that relatively smaller vendors such as Google Cloud, Huawei, and IBM grew at a pace much higher than AWS or Microsoft Azure did. But since AWS and Azure command a much larger market share,32% and 19% respectivelyOpens a new window as of May 2021, the law of large numbers comes into effect.
See Also: How To Reduce the Cost of High Availability in Google Cloud Platform
According to the law, maintaining a high percentage rate of growth becomes increasingly difficult as the business keeps on ballooning. This basically means that it is relatively easier for Google (7% market share) and others to keep on outpacing AWS and Microsoft when it comes to the growth rate.
However, this doesn’t seem enough for Google. The company roped in the former Oracle President Thomas Kurian recently to compete aggressively with the other two giants in the field. It is safe to say that Kurian is rapidly achieving what was expected of him. He started off with realigning Google Cloud’s sales strategy to focus on enterprise customers, and reorganized the sales command lines.
His subsequent efforts helped the company double its revenue and cut down losses. However, Google Cloud is yet to turn profitable. It’s latest Q2 2021Opens a new window results revealed losses of $591 million from a revenue of $4.62 billion.
Kurian’s latest move, besides slashing the company’s cut from customers, is restructuring the entire cloud division. To do that, he hasn’t shied away from discharging some long-term Google veterans from their roles, who now have to look for other avenues within Google.
Going forward, a smaller commission for Google can incentivize third-party vendors who currently maintain a presence of AWS and Azure to also sell their wares on the Google Cloud marketplace. Not only can this generate value for vendors and customers alike, but it also allows them a considerably higher margin which can be leveraged for further investment.
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