Cloud Business of Google Turns Profitable for the First time after Years of Heavy Investment

Google has been investing a lot of money into its cloud-computing business to compete with Microsoft and Amazon. Those high investments are ultimately turned into a profit.

Alphabet said that Google’s cloud-computing business is profitable for the first time after years of heavy investment.

According to Alphabet’s earnings statement, “The segment generated $191 million in operating income on $7.45 billion in revenue in the first quarter. In the year-ago quarter, the unit reported a $706 million loss on $5.82 billion in revenue.”

The cloud-computing business includes the Google Cloud Platform, which rents out cloud infrastructure and services that firms can use to build and run their own applications, and Google Workspace productivity software subscriptions. Together, the cloud-computing business now accounts for around 10% of Alphabet’s total revenue. Google’s Cloud customers include Major League Baseball, Deutsche Bank, PayPal, and UPS.

Google Cloud Platform has been vying to win cloud-computing business from big companies and government agencies that are deciding between major technology vendors as they move from traditional data centers to the cloud platform and rely on more compute-heavy applications involving technology like artificial intelligence.

Amazon Web Services (AWS) is the leader in cloud infrastructure. AWS popularized the cloud-computing market in the mid-2000s and it has been profitable every quarter since 2014. Microsoft is the second-biggest competitor in the cloud-computing space.

Alphabet started revealing cloud revenue in 2020, and the following year started providing information on the scale of its operating losses.

Last week, Alphabet began operating income for cloud computing and its other segments, resulting in lower cloud losses in the last two years. The restated numbers show the cloud unit had a $186 million operating loss in the fourth quarter, compared with $480 million before the change.

Alphabet said, “Certain costs associated with corporate initiatives supporting consumer-facing activities, previously reflected in unallocated corporate costs, are now allocated to Google Services; and centrally-managed shared research and development activities, including our shared developer tools, are now allocated based on an updated measure of the relative benefit derived from the services. As a result of these changes, more of the previously unallocated corporate costs are allocated to our segments, and more of certain previously allocated costs are allocated to our consumer-facing Google Services products and less to Google Cloud enterprise products.”