Google’s parent Alphabet Inc. announced better than expected second-quarter earnings, despite the record 4.34 billion euro (US$5 billion) antitrust fine slapped by the European Commission against the unit.
While Google continued to achieve double-digit growth in advertising revenue due to its strong mobile search traffic, the company is seeking to extend its advantage to online shopping and cloud services in a bid to challenge Amazon’s dominance in the two businesses.
In the three months to June, Alphabet’s operating income, excluding the impact of the EC fine, reached US$7.9 billion, up 15 percent from the same period last year, with an operating margin of 24 percent. Operating cash flow was US$10.1 billion with free cash flow of US$4.7 billion. The company ended the quarter with cash and marketable securities of approximately US$102 billion.
Google has once again demonstrated its strength in its core search business with revenue up 25 percent year-on-year at US$32.5 billion. In particular, Google Sites’ revenue rose 26 percent to US$23.3 billion while network revenue increased 14 percent to US$4.8 billion. The strong growth was driven by mobile search, YouTube and desktop search.
But going beyond its comfort zone, Google now wants to take on online shopping giant Amazon in the cloud service and online retail business, and Microsoft Azure, also in the cloud business. Right after the release of the earnings results, the company hosted the Google Cloud Next conference in San Francisco with representatives from more than 20,000 small and medium-scale businesses in attendance; that’s up from just over 2,000 at its Cloud conference in 2016.
The search engine giant, which has largely relied on its advertising platform for revenue, has found that it’s Google Cloud offers a powerful platform to lure enterprises as IT partners. In order to compete with other players in the market, Google announced that it is bringing artificial intelligence to its cloud platform by expanding its Cloud AutoML, the software that automates the creation of machine learning models. AutoML makes it possible to build custom machine-learning models without any specialized machine-learning knowledge.
Google chief executive Sundar Pichai spent a lot of time elaborating on the importance of Google Cloud to the success of its vertical strategy and customer-centric approach. So far, key clients include Domino’s Pizza, SoundCloud and PricewaterhouseCoopers. US department store chain Target is also migrating three areas of its business to Google Cloud.
Pitchai noted that a growing number of financial institutions are also turning to cloud to modernize their systems, explore new business models and improve customer experience.
Google is also seeking to boost its hardware business, which is customized with the cloud platform. Pichai said the company is seeing an acceleration in the business adoption of Chromebooks, pitched as the most secure and cost-efficient way for businesses to enable their employees to work in the cloud. In the second quarter, unit sales of managed Chromebooks grew more than 175 percent year-over-year.
While Google is still lagging behind in the cloud service sector, its dominance in search advertising should give it the advantage to lure enterprises to use the full array of the company’s services and avail themselves of better technical support.
Google is now trying to turn its search customers into partners. Pichai said the company has been driving deep advertising relationships with many enterprises in different sectors.
Shopping is another area which Google is starting to harness and where it is achieving a lot of traction.
In June, chain store Carrefour forged a partnership with Google to offer a new shopping experience through the Google shopping website in France. The website will be available from early 2019, using Google Assistant and Google Home.
Google has also tied up with China’s JD.com for a similar partnership. Google Express, a shopping website for the US market, has over 100 merchants including national retailers like Walmart, Costco, Target, Walgreens and PetSmart.
While it may take years for Google to catch up with rivals in the cloud and online shopping fields, the fact remains that the company is not resting on its laurels. With its huge talent pool, the company is just waiting for the next tipping point to beat its rivals.
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