Google, Microsoft Find Strength in the Cloud Computing Business

Image Credit: iStock, rvolkan

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The sky may be falling for Big Tech this year, but there’s at least one giant silver lining in the dark, stormy clouds. Literally.

Microsoft and Google-parent company Alphabet missed analysts’ expectations in earnings calls earlier this week. But a deeper look at their latest results reveals a bright spot that’s most typically associated with blotting out sunshine: the cloud.

On Cloud Nine

Most core financials for both tech giants were down in the dirt. Alphabet recorded the slowest ad sales growth in two years. YouTube, in particular, saw ad revenue increase just 5%, compared to 84% a year ago, as ad buyers flock to the fast-soaring TikTok. Microsoft meanwhile experienced a considerable slowdown in its “More Personal Computing” segment, which includes Xbox video game consoles, Windows OS, Bing, and Surface devices. The amorphous group saw revenues increase just 2%.

Fortunately for both tech titans, the headwinds weighing down online ad spending and hardware sales aren’t strong enough to slow the tide of ever-expanding online footprints. That’s where cloud services — the migrating of on-premise data storage (mostly found in loud and hot closets near the office bathroom) to data farms outside major cities — comes in:

  • Google Cloud’s revenues lifted 36% year-over-year, to $6.28 billion. The unit did record an operating loss of $858 million in the second quarter, but that’s a mere reflection of Google’s free-spending attitude as it attempts to shove its way through Amazon and Microsoft’s control of the industry.
  • Microsoft generated nearly $21 billion from its Intelligent Cloud segment, with revenue from its Azure service jumping 40%. “We are seeing larger and longer-term commitments and a record number of $100 million-plus and $1 billion-plus deals this summer,” CEO Satya Nadella boasted about Azure.

Big Tech Team-up: Microsoft is calling for Google and Oracle to join in an attempt to pry some sweet, sweet federal government cloud computing contracts from shared rival Amazon, according to a Wall Street Journal report. Amazon’s Web Service division dominates the global cloud computing industry, with a 40% market share to Microsoft’s second-place 21% share (Google and Alibaba are neck-and-neck as distant thirds and fourths).

Amazon holds an even higher share of public-sector cloud market share in the US, and pushing the government to pursue a more diverse multi-cloud system could unleash tens of billions of dollars worth in revenues. When it comes to government contracts, when it rains, it pours.