Google Cloud started running its servers for an extra year, still loses billions
- Reference: 1643783410
- News link: https://www.theregister.co.uk/2022/02/02/alphabet_q4_2021/
- Source link:
The search and ads giant in 2021 revealed that it extended the operational lifespan of its cloud servers from three to four years and found it could squeeze an extra couple of years out of some networking kit, sometimes going five years between refreshes.
In its Q4 2021 [1]results announcement Google's parent company Alphabet revealed the financial impact of that change: for the full year Google Cloud reduced depreciation expenses by $2.6 billion.
[2]
But even with those old servers generating savings, Google Cloud produced losses: $890 million in Q4 and $3.1 billion across the year.
[3]
[4]
Google Cloud's last four years produced the following numbers.
Year
2018
2019
2020
2021
Revenue in millions
$5,838
$8,918
$13,059
$19,206
Profit (loss) in millions
($4,348)
($4,645)
($5,607)
($3,099)
On Alphabet's earnings call, execs preferred to focus on Google Cloud's revenue growth, which was up 45 per cent year-over-year. CEO Sundar Pichai also revealed that Alphabet's backlog revenue increased more than 70 per cent to $51 billion – most of which is attributable to commitments to spend on Google Cloud.
He rattled off a list of blue-chip clients that have committed to the Goog-Cloud to demonstrate where that money will come from, noted a more-than-tripling of the sales force, and channel partners more than doubling their revenue contribution.
Those customers are presumably happy to have their code run on old servers, despite Intel [5]promoting its most recent Xeon Scalable silicon as delivering "1.46x average gen-on-gen performance improvement".
[6]
Google Cloud's red ink didn't dampen Pichai's overall mood, because Alphabet hauled in $257.6 billion revenue in 2021 – up 41 per cent year on year. Net income was a tick over $76 billion. Do the math: that's over $200 million profit each day of the year.
[7]Google and Facebook's top execs allegedly approved dividing ad market among themselves
[8]The Omicron dilemma: Google goes first on delaying office work
[9]Google to build cut of its cloud operated by France’s Thales, for French government clients
[10]Google creates 'optimized' Android for one smartphone — that will only be sold in India
Ad sales grew, and Pixel handsets set new sales records. The company's share price briefly topped $3,000 in the quarter. Alphabet announced that in July it will conduct a twenty for one stock split, meaning shareholders will be granted 19 new shares for each they currently hold. That's a tactic often used to make investment less intimidating for small buyers.
The company now has its sights set on connected televisions to drive that profit even higher.
Senior veep and chief business officer Philipp Schindler told investors that connected tellies have become Alphabet's "fastest-growing screen, and we think there's a ton of runway ahead."
"Brands… can personalize ads at scale and use video ad sequencing to tell powerful stories," he said, adding that advertisers can target connected televisions "which means users get a more helpful viewing experience and brands get to drive more online sales and/or leads."
[11]
Right into your eyeballs, at home. And quite possibly powered by software running on four-year-old servers and five-year-old routers. ®
Get our [12]Tech Resources
[1] https://abc.xyz/investor/static/pdf/2021Q4_alphabet_earnings_release.pdf?cache=d72fc76
[2] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offprem/paasiaas&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=2&c=2YfpkXCg1u5@gAKMtThAASAAAAMM&t=ct%3Dns%26unitnum%3D2%26raptor%3Dcondor%26pos%3Dtop%26test%3D0
[3] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offprem/paasiaas&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44YfpkXCg1u5@gAKMtThAASAAAAMM&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
[4] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offprem/paasiaas&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=3&c=33YfpkXCg1u5@gAKMtThAASAAAAMM&t=ct%3Dns%26unitnum%3D3%26raptor%3Deagle%26pos%3Dmid%26test%3D0
[5] https://www.intel.com.au/content/www/au/en/products/docs/processors/xeon/3rd-gen-xeon-scalable-processors-brief.html
[6] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offprem/paasiaas&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44YfpkXCg1u5@gAKMtThAASAAAAMM&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
[7] https://www.theregister.com/2022/01/15/googles_facebook_advertising/
[8] https://www.theregister.com/2021/12/06/google_omicron_lockdown/
[9] https://www.theregister.com/2021/10/06/google_thales_sovereign_cloud/
[10] https://www.theregister.com/2021/06/25/google_jiophone_next/
[11] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offprem/paasiaas&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=3&c=33YfpkXCg1u5@gAKMtThAASAAAAMM&t=ct%3Dns%26unitnum%3D3%26raptor%3Deagle%26pos%3Dmid%26test%3D0
[12] https://whitepapers.theregister.com/
They'd have to pay tax first :)
The losses are probably distributed around high tax environments, just like their licensing costs...
I suspect this does not apply to Alphabet.
I suspect the rules that apply to you or I do not apply to them.
Google Cloud is only a division within Alphabet so any profits or loss are entirely notional and have no effect on the parent company's situation. Indeed, classic conglomerates favour loss-making companies in high growth areas: the cash cows bankroll the supposed businesses of the future. And, of course, the accountants get to move profits and losses around the world for the most favourable tax treatment.
For reference:
That is a profit of just over $32 for each and every human being on this planet.
Turns out all that 'free stuff' they give away isn't quite so free...
Re: For reference:
Not $32 profit, $32 revenue. Profit was $9.62 per person. That said, we can expect people in developed countries reading tech news are worth more, and we are contributing maybe up to $1 a day to Google's wealth. Ha! Who said I was worthless?
Hope GCP survives
I confess, I *like* working with GCP!
Having used the "Big 3" extensively, I found GCP is really great to work with as a dev/devops guy. Whatever else I think about Alphabet/Google, at least they managed to put together a great cloud platform.
However, with Google's record of cancelling on short notice whatever doesn't bring in as much profit as ad flinging, I'm worried.
Re: Hope GCP survives
Agree, I've only used GCP in anger but colleagues who have used AWS as well say GCP is easier to work with. I'm also worried about the future of GCP. I think its probably unlikely that they would can it completely but we use some fairly niche services and I'm concerned they might start removing the less popular ones!
Re: Hope GCP survives
At the moment, they're all in on cloud, whether on data center investments or on hiring. There's a limit to how much of a goldfish they can be.
So, costs of sales and customer retention on the up, then
That's how I read trippling the sales force to achieve a 50% revenue increase.
Re: So, costs of sales and customer retention on the up, then
The fact depreciation expense was cut by $2.6 billion yet net income rose by only $2 billion is also testament to that.
Old kit
I thought that part of the idea of 'cloud' computing was that individual servers are commodity items. So if one dies it doesn't particularly matter. Much like RAID, but for whole servers.
So why not run the hardware for much longer? Like 7-8 years. It works for many small businesses and kit is far more reliable now than it used to be. Replace it only when it dies or you need more powerful kit in that space.
Re: So why not run the hardware for much longer?
Marketing.
It's in the article, other cloud vendors trumpet the cores that your workload will run on. "It's a pentium 6" doesn't cut it.
Re: Old kit
There's a cut-off point at which you're better replacing older servers because the hardware cost is made up pretty quickly in reduced footprint/power costs. If you're running 6 year old servers with 6 cores/socket, you can probably half your running costs with a newer 12 core CPU because you'll get twice as many cores in each rack.
For a standard company, you often have to reckon in the project costs of doing such a replacement and getting budget approvals etc, and that's before you potentially get into licensing issues with replacements. If you're used to simply swapping out boxes on a daily basis and your software stack is free/internal, it becomes a much cheaper option to replace old kit, so that breakpoint of saving money happens sooner.
So where's the problem ?
Revenue is trending up, losses are trending down. Everything's fine.
Alphabet has enough in the bank to survive until Google Cloud gets in the black, and it will.
I'm not sweating over the fact that one bit of Alphabet is not contributing to the increase of its already absurdly large money pile.
Can't wait to get this
"Brands… can personalize ads at scale and use video ad sequencing to tell powerful stories," he said, adding that advertisers can target connected televisions "which means users get a more helpful viewing experience and brands get to drive more online sales and/or leads."
I am looking forward to Google sending me my new Googlgoggle box, so that I can have a helpful viewing experience.
How much will they pay me to watch endless ads while recording all of my viewing habits through their Telescreen.
NB: Need a ssrcasm icon!
We're there, eventually....
https://www.youtube.com/watch?v=hj7c0J_V1L8
I'm curious on how the IRS views a business, or a portion of a business, losing money year after year after year. I know that as an individual who tracks business profit/loss on their 1040 return, having this pattern of repeated loses would lead the IRS to call the business a failure and treat it as a "hobby" instead. You can't apply hobby losses against your other income, unlike business losses.
I suspect this does not apply to Alphabet.