Google Cloud eyes industry verticals as key to success as revenues jump 45%

By Derek du Preez

October 29, 2021

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Google Cloud this week posted its Q3 earnings, which saw the enterprise division of Alphabet bring in $5 billion in revenue, representing 45% growth year-over-year. The organization's operating loss also narrowed from $1.21 billion in the same period last year, to $644 million this quarter. 

The numbers come shortly after Google Cloud's annual user event, Next, which saw the company make a number of announcements that play to its strengths - including a focus on sustainability, Data Cloud, edge computing and collaboration. For diginomica's full coverage from Next ‘21, see our virtual events hub here. 

Speaking on the analyst call this week, Alphabet CEO Sundar Pichai outlined three key "unique capabilities" that are driving growth for Google Cloud. He said: 

First, our leadership in real-time data, analytics and AI is winning customers like Carrefour Belgium, Deutsche Post DHL, and Wendy's, who are unlocking data to deliver unique business outcomes. BigQuery, our leading data warehouse solution, is reducing costs and driving productivity at Cardinal Health and ATB Financial. Our differentiated AI and ML-based industry solutions are helping leading global companies. 

Second, customers see value in our open scalable infrastructure that enables them to run workloads anywhere, on our cloud, at the edge, or in their data centers. Rodan + Fields scaled its SAP environment. Siemens Energy is migrating its global network of data centers and Company-wide SAP systems, and Indonesia's largest technology, digital native, GoTo Group is supporting over a 100 million monthly active users with Google Cloud. General Mills, Bell Canada, and Wells Fargo are harnessing our leadership in multi-cloud and our open development environment.

Third, as consumers, businesses and schools continue to shift towards hybrid work, the threats of cybersecurity continue to increase. Customers are turning to Google Workspace and our cybersecurity platform to provide the ease of use, collaboration, and security they need. These include organizations like Discovery, Common Spirit Health, and the state of Maryland, who want to foster creativity while securely protecting their users. 

Google Cloud has done a decent job over the past few years of using its enterprise customer wins to showcase its capabilities, putting customers forward to speak about how they use the platform. And as diginomica has noted previously, Google Cloud's sales approach appears to be focused on working closely with buyers higher up the C-suite chain to target specific outcomes, working collaboratively. It's not adopting an approach that focuses on just selling cheap tools at scale. 

Industries are key

Tied closely to the point above, Google Cloud is taking a more traditional enterprise approach to getting its products in the hands of buyers - where it recognises that vertical specialization is often an advantage. It's early days for Google Cloud on this front, but both Pichai and CFO Ruth Porat pointed to it as a future priority. 

The hope is that by working closely with buyers and understanding their industry needs, this will create a level of stickiness with Google Cloud, compared to some of its competitors. Porat said: 

We remain focused on revenue growth and are pleased with the trends we're seeing. In GCP, our customer wins, as Sundar noted, reflect our multi-year investments in products and solutions that are purpose-built to solve for the biggest opportunities within our targeted industries. The benefit of these solutions to our customers is clear, and they are choosing to work with us as their long-term transformation partner.

Whilst Pichai added: 

Above all, I think we're very, very focused on industry value propositions, so really sharpening our solutions by vertical and that's really helped us get some of the bigger deals you mentioned as well. And we'll continue doing that.

The Google Cloud's industry solutions offering includes retail, manufacturing, consumer packaged goods, supply chain and logistics, energy and healthcare, amongst others. Gaining industry specialism isn't easy, as it requires both hiring the right people and high levels of investment. But if done right, it could prove to be a helpful differentiator for Google Cloud in the ongoing ‘cloud wars'. 

On the skills front, CFO Porat did point to the fact that Google Cloud will be driving headcount growth for Alphabet. She said: 

We continue to invest aggressively, both in growing our go-to-market and product teams, as well as building out our cloud regions. At the Alphabet level, headcount grew by nearly 6,000 in the third quarter, including our seasonal campus hires. And we expect robust headcount growth in Q4 for both Google Services and Google Cloud.

My take

A strong quarter for Google Cloud and all trends seem to be pointing in the right direction for its future outlook. The organization was late to take advantage of enterprise cloud demand, but it made some good decisions early on by hiring experienced enterprise leads and has been buoyed by the changes we've seen as a result of the COVID-19 pandemic. Google's broad data capabilities also stand it in good stead for buyers' AI demands. However, it's still early days and whilst an industry focus is a good strategic move, going deep into verticals isn't easy and will require huge investment. We will be watching closely for customer stories to monitor how this translates in the real world.