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April 15, 2014

Google Computer Engine's IaaS Predicted to Match or Exceed Amazon by 2020

The future of Infrastucture as a Service (IaaS), according to the Bernstein Research Group, is expected to be dominated by only two to three companies by the end of the decade: Amazon, Google, and potentially Microsoft (News - Alert). Carlos Kirjner, an analyst working with Bernstein Research, made a statement on Friday saying that he expects Google to turn the Google Computer Engine into a $20 billion business by the end of the decade. This competition could come as a heavy blow to Amazon, which is expected to reach the same revenue at around the same time.

“Together, Amazon and Google (News - Alert)'s cloud business could very well exceed $40 billion in revenues by the end of the decade, and perhaps much more,” wrote Kirjner in an official statement from the research group. IaaS is a model that allows organizations to use the equipment owned by a larger third party service provider like Google or Amazon for storage, networking components and servers through a cloud network, while the service provider is responsible for owning, operating and maintaining the equipment.

Other groups like Verizon, AT&T, Cisco, CenturyLink (News - Alert), Microsoft and IBM all offer services like these, but Amazon and Google both have a greater ability to maintain the equipment as well as house larger quantities of them, which means that they can offer competitive price figures. Among these groups only Microsoft has the resources necessary to deliver a comparable IaaS, and according to Kirjner, “we have very little doubt that they do not have the right computer science and engineering skills and assets to compete with Amazon, Google and Microsoft.”

Amazon's IaaS platform, known as AWS 2013 revenues pushed past the $3 billion mark, with an increase from 2012 levels by more than 65 percent. Conversely, Google Computer Engine earned under $100 million in revenue in the same period – as did Microsoft's IaaS service. And despite recent price cuts into Google Computer Engine, gross profit margins are expected to remain the same or even increase since less money spent on hardware also means less spent on maintenance.

Ultimately, Kirjner states, “[We] think the public cloud business works at scale because AWS and possible Google Computer Engine will be able to operate at very high server utilization; high enough to drive gross profits on a per server basis and at a large enough scale to offset the fixed costs (R&D and G&A).”

Edited by Alisen Downey

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