Hacker News Reader

Comment by AgentK20 | Hacker News Reader

HOW?

Google Cloud Platform has MASSIVE markups compared to equivalent service providers, either from "the big three" or smaller service operators. These smaller service operators have far less margin to work with, yet manage to not only break even but to turn a profit! Either GCP has some product that is a metaphorical black hole consuming all of their excess revenue, or Google generally is spending far too much money doing the same thing that everyone else is doing.

One of the things I've noticed GCP prides themselves on is uptime, and I'm wondering whether they're doing something like _doubling_ their costs to have seven nines of uptime for the entire platform, which practically doesn't matter for anyone other than a handful of clients (healthcare, government, military, etc)

View on HN

They are in a huge growth phase. Any rate-based service in a hyper-growth mode is going to lose money as they make capital and personnel investments.

I used to run a pre-O365 large exchange shared service that topped off at ~200k users. When we were growing 50% year over year, we were “losing” a fortune depending on how to measure it. You want to do that, as making a profit today may mean losing the lifetime value of a long term customer.

I think Google has a good thing going. AWS is the incumbent, but has its own legacy to deal with. Microsoft dangles carrots for Azure, but the Microsoft sales culture will start beating customers over the head with the carrots.

The partner distribution network Microsoft has cultivated for decades is a real differentiator over Googles misguided approach to partner sales.

> Microsoft dangles carrots for Azure, but the Microsoft sales culture will start beating customers over the head with the carrots.

I reckon a good deal of Oracle sales force now works at AWS. Thomas Kurian, GCP CEO, is ex-Oracle and has likely hired more in leadership positions. MSFT would do fine, if not better, with their in-house sales team.

> I reckon a good deal of Oracle sales force now works at AWS. Thomas Kurian, GCP CEO, is ex-Oracle and has likely hired more in leadership positions.

Sorry just want to clarify: did you mean to say "reckon a good deal of Oracle sales force now works at GCE", so a typo? Or are you saying that a lot of the Oracle sales staff now work at AWS (even though Kurian who is ex-Oracle works at GCE)?

Not critiquing, just a honest question since I couldn't tell if it was a typo or not.

No problem. I did indeed mean that per my estimates, AWS sales is likely bustling with ex-Oracles; while GCP may have them too, since the CEO himself was, by some accounts, #2 at Oracle.

They likely are making large capital investments, but that shouldn't show up all that much in operating numbers. Personnel expenses would though.

that could be a choice in the accounting department not to separate R&D and operational expenses when accounting for software engineers. Many engineers bristle at such accounting measures.

"The increase in operating loss in both periods was driven by an increase in total expenses of $5,103 million from 2019 to 2020…Operating expenses increased primarily due to compensation expenses (including SBC), largely driven by an increase in headcount. Additionally, data center and other operating costs increased in both periods."

This may not be a bad financial investment if the effect is to centralize internal google infrastructure investments under the "cloud" banner e.g. If google requires a Tier-1 cloud service for their operations but cannot use an alternative cloud for strategic reasons.

There is another option... Creative accounting.

It's possible that the figures have been shifted, bent, and twisted to report a loss on what could actually be their biggest profit, as you so question.

I think they may be investing a lot on future cloud infrastructure. they're pouring a lot in AI chip design which will dominate in 5+ years specially when cars become fully self-driving.

If they put things like TPU development and TPU advertising costs (Google Colab) into the Google Cloud budget I can easily see that being responsible for a notable part of this loss.

It says in the article this is mostly due to headcount and compensation. That’s a recurring expense and not a TPU that can be sold

TPUs are developed by people (aka headcount that gets compensation).

The fixed costs (chunky engineering & product salaries) are ~ the same no matter how much revenue you have. Just take a napkin and do the math thinking through each part of the cost structure v AWS.

AWS just has as much uptime if not a bit higher, so can't be that...

Reply on news.ycombinator.com