Google has been pouring money into its cloud-computing business to compete with Amazon and Microsoft. Those hefty investments are finally turning a profit.
Alphabet said Tuesday that Google’s cloud business is profitable for the first time in the three years it’s been reporting operating metrics for the division.
The segment generated $191 million in operating income on $7.45 billion in revenue in the first quarter, according to Alphabet’s earnings statement. In the year-ago quarter, the unit reported a $706 million loss on $5.82 billion in revenue.
The cloud business includes the Google Cloud Platform, which rents out cloud infrastructure and services that companies can use to build and run their own applications, as well as Google Workspace productivity software subscriptions. Together, the business now accounts for 10% of Alphabet’s total revenue. Cloud customers include Deutsche Bank, Major League Baseball, PayPal and UPS.
Google has been vying to win business from big corporations and government agencies that are deciding between major tech vendors as they move from traditional data centers to the cloud and rely on more compute-heavy applications involving artificial intelligence. Amazon Web Services, the leader in cloud infrastructure, popularized the market in the mid-2000s and has been profitable every quarter since 2014. Microsoft, the second-biggest player in the space, doesn’t report profitability figures for its Azure unit.
Alphabet started disclosing cloud revenue in 2020, and the following year began providing information on the scale of its operating losses.
Last week Alphabet restated operating income for cloud and its other segments, resulting in lower cloud losses in 2021 and 2022. The restated numbers show the cloud unit had a $186 million operating loss in the fourth quarter, compared with $480 million before the change, for example.
“Certain costs associated with corporate initiatives supporting consumer-facing activities, previously reflected in unallocated corporate costs, are now allocated to Google Services; and centrally-managed shared research and development activities, including our shared developer tools, are now allocated based on an updated measure of the relative benefit derived from the services,” Alphabet said in a filing.
“As a result of these changes, more of the previously unallocated corporate costs are allocated to our segments, and more of certain previously allocated costs are allocated to our consumer-facing Google Services products and less to Google Cloud enterprise products.”