Google announced its first cloud service in 2008, but its cloud business has yet to turn a profit (for comparison it took less than 10 years for Amazon to report that its cloud business AWS was profitable).
But Google Cloud CEO Thomas Kurian has a strategy for how the unit will get there, which he laid out Wednesday during a keynote at the Goldman Sachs Technology and Internet Conference.
The unit has more than doubled its revenue in the two years since Kurian became CEO, generating $13 billion in 2020 per its most recent earnings report. However, it also reported a loss of $1.2 billion in the fourth quarter and $5.6 billion in 2020 overall.
In order to eventually convert those losses to profits, Google Cloud will continue to invest heavily in growing its business while working with Alphabet CFO Ruth Porat to improve its operating margins, Kurian said.
He mentioned three main areas Google will continue to focus on: Building more data centers to expand its footprint, refining its products to reach new markets, and broadening its sales strategy.
"They're all fixed-cost structures that, as scale happens, will amortize over a much larger business," Kurian said at the conference.
For example, Google Cloud has built data center regions in Indonesia and South Korea to win over customers in Asia and focused on rolling out products that work with a multi-cloud strategy, because that gives customers more choice.
"It allows them to move quickly and with speed, and it allows them to get a consistent way to manage their entire infrastructure," Kurian said.
Finally, Google Cloud has been "laser-focused" on having its sales teams target specific industries.
"All of this work in bringing our technology to many regions around the world, maturing our products, and scaling our distribution has helped us rapidly win new customers," Kurian said.
Google Cloud now has over 7.5 million cloud customers and closed several deals over a billion dollars last year, Kurian said. He also name-checked recent partnerships with Ford, Twitter, and TELUS.
"These are all examples where they want to build long-term platforms, and they want our expertise to work with them to transform the business," Kurian said.
Google's overall backlog grew from $19 billion in Q3 to $30 billion in Q4 – largely from Google Cloud – which represents "meaningful long term commitments" from customers, Kurian says. Right now, the company is investing in converting that backlog to revenue.
"We continue to focus on accelerating revenue growth to capture the secular shift that's occurring," Kurian said. "And as we scale that, we will see improvements in not just the top line but also operating margin, and we're working closely with [Porat] to enable that."
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