Google’s third-place cloud business is a winner

Bronz lining. Google’s third place rank in the cloud has its an advantages. Parent Alphabet reported strong revenue growth and notched healthy operating profit in that division on Tuesday as a mooted $23 billion deal with cyber security firm Wiz evaporated. The company run by Sundar Pichai is nowhere near Microsoft and Amazon.com when it comes to remote IT data storage. But catching up has its benefits.

The cloud division notched $10 billion in revenue, a 29% increase during the three months ending June 30 compared to the same period a year ago. That beat last quarter’s rise of 28%, and was by far the fastest growing division of the company. Revenue in search and YouTube grew just above 14% and 13%, respectively. Moreover, operating income from the cloud tripled to $1.2 billion. For a company that is mainly reliant on advertising – it represents three quarters of Alphabet’s $85 billion in sales – the cloud and its prospects are the future.

Google has had some catching up to do. It only has about 10% of market share, according to data from Canalys while Microsoft has 26% and Amazon claims 31%.

But as recent events suggest, Google has an edge as a laggard. A series of high-profile data security breaches has put Microsoft under the microscope of the U.S. government. The global outage on Friday started by an update by cyber defensive player CrowdStrike that caused the Redmond, Washington company's operating system Windows to crash illustrates the need for securing data in the cloud. But it also shows clients why they should diversify, and in some ways, Google simply benefits from others’ decisions to spread around their data.

Given the importance, Alphabet has reason to shore up the cloud, perhaps working harder to ink that deal with Wiz or a similar security firm. Amazon meanwhile illuminates the promise of what lies ahead. Operating margin for the company’s AWS division was a chunky 38% in the first quarter, well above Google’s 11%. Pichai has gotten creative in other ways, striking deals with AI-maker Anthropic aping Microsoft’s tie up with Open AI. Coming up the ranks has its merits.