In its first quarter earnings call Thursday, Internet giant Alphabet touted an increased investment in the cloud computing business owned by its subsidiary, Google. The company’s offerings are currently third place in that market, behind Amazon (AMZN) Web Services and Microsoft (MSFT) Azure.
Justin Post, an analyst with Merrill Lynch, asked why Alphabet (GOOG) is ramping up its investment in the cloud now, when it has been a growth area for its competitors area for years.
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Google CEO Sundar Pichai outlined three points of inflection:
1. Google’s data centers are finally ready to scale.
“We’ve always been doing cloud, it’s just that we were consuming it all internally at Google,” Pichai said. “But as we have grown really mature in terms of data center investments—and how we can do this at scale—we have definitely crossed over to the other side, where we can thoughtfully serve external customers.”
2. Google’s artificial intelligence is finally good enough.
“We have been investing in machine learning and AI for years, but I think we are at an exceptionally interesting tipping point where these technologies are really taking off.” Said Pichai “That is very, very applicable to businesses as well, so thoughtfully doing that externally, we view as a big differentiator we have over others.”
3. Diane Green.
In November 2015, Alphabet acquired Bebop, a stealthy startup founded by Diane Green, co-founder and former CEO of VMware (VMW), for $380 million. (Green also sits on Alphabet’s board of directors.) Green became senior vice president of Google’s enterprise business, which includes its cloud investments. “I wanted to scale our efforts thoughtfully when it is set up with a great leader who understands this business deeply,” Pichai said.
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Alphabet CFO Ruth Porat addressed the potential return on Google’s investment in its cloud business. “One thing that’s really powerful here is we’re benefiting from our heritage, from our differentiated strength, [and] the scale of our infrastructure—those are investments we’ve made over many years that give us efficiency,” she said. “We have robust security—again, we invested over many years.”