Tech giant Google has huge revenue and profit but a major cause for concern is that over 80% of its revenue comes from Internet advertising. The most promising opportunity for Google to diversify revenue sources is by expanding its cloud services for organizations.
Cloud computing is one of the fastest growing and important markets in the world, especially since the emergence of the Covid pandemic and remote working has accentuated the need for large organizations to migrate to the cloud, rather than building large, independent computer servers.
But Google finds itself struggling in this sector. In the third quarter of 2021 the cloud services infrastructure spending topped $45 billion, up 37% from the corresponding quarter of 2020. But Google only had 10% of the market, in which Amazon Web Services (AWS) led with 37%, while Microsoft Azure had 20%.
The acquisition of Israeli cybersecurity company Siemplify this week for $500 million is designed to improve Google's position in the cloud infrastructure services market and increase its revenue and profits from that sector. The acquisition of Siemplify raised many eyebrows in Israel because Google is not usually associated with the acquisition of cybersecurity companies. The main buyers in this field in recent years in Israel have been Palo Alto Networks and Microsoft.
Google's acquisition of Siemplify can be seen as an attempt to expand its product offerings in cybersecurity, as part of its pledge last summer to US President Joe Biden to invest $10 billion in cybersecurity over the next five years. That is certainly part of the reason for the acquisition. But according to market sources, the acquisition also fits in with Google's strategy of enlarging its activities with organizations in the cloud and increasing its revenue. Just as mobile phone operators once tried to launch Internet use services, when each megabyte cost money, in order to increase subscribers' bills, so the tech giants are seeking ways to increase spending by organizations on cloud services. Siemplify contributes to this strategy.
The battle to conquer cloud market share
In the battle to conquer cloud market share, Google and its rivals are prepared to spend big. Google, for example, is known as a company that tries to hire the best salespeople for the cloud who receive the highest salaries that can even reach $600,000-$700,000 per year including bonuses. But that is a relatively speaking small sum. Google is also investing billions of dollars in trying to become the cloud infrastructure of strategic companies that have especially large and expensive cloud resources needs.
For example, Google invested hundreds of millions of dollars on Spanish language media giant Univision (formerly controlled by Haim Saban) to make it and its activities part of Google Cloud. Similarly Microsoft invested even bigger sums on Cruise, the autonomous car venture of General Motors. One of the conditions of the investment was that Cruise would use Microsoft's Azure cloud platform. This strategy was probably one of the reasons that Oracle planned acquiring a stake in the applications of TikTok in the US - a plan which has since been abandoned. Sometimes these investments end in acquisitions, such as Oracle's $28 billion acquisition of healthcare digital information services company Cerner.
In addition to investments and acquisitions, tech giants also themselves develop functions that will increase use of the cloud by their customers. This was one of the factors that led to Google developing Chronicle in 2016, in its secret trial laboratory Google X. Chronicle develops software for managing SIEM security information and events. This is a software for coping with the confusing load of cybersecurity systems that organizations have today. Chronicle merges and distributes all the important alerts and warnings for analysts in security teams of the various systems. In 2019 after Chronicle's development was completed, it was introduced by Google Cloud.
Tools like Chronicle are heavy and require major computing resources. Traditionally such tools were installed on the servers of the organizations that bought them but in contrast Chronicle sits in the cloud. Chronicle competes with similar tools developed by AWS and Microsoft. The aim of acquiring Siemplify adds to the capabilities that are supposed to make the life of analysts in security teams easier, for example, by adding automation that makes solving some of the warnings and alerts more convenient.
Improving the functionality of Chronicle, through the acquisition of Siemplify, is supposed to attract the large corporations in the cloud market in which Google is weak, especially among Managed Security Service Providers (MSSP), companies that operate cybersecurity centers for small enterprises that cannot do so independently. Revenue from this service is probably less interesting in itself to Google. What is more interesting is the cloud account of these corporations and companies.
Published by Globes, Israel business news - en.globes.co.il - on January 5, 2022.
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