The Six Five team discusses Google’s latest earnings release.
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Daniel Newman: So, let’s talk about Google, which is different than Microsoft. People were absolutely thrilled with how Google did, and here’s the funny thing is Google only grew single digit percent too. They beat on top, they beat on bottom. And guess who doesn’t provide guidance? But, what happened? Look, the long and short is that I talked about this in Microsoft. There’s been a bit of a concern with Google’s sort of false start on AI, that maybe this was going to come back to bite, it didn’t. That’s the truth. Whether it’s Palm, whether it’s Barred, whether it’s the work of DeepMinded Brain, whether it’s search generated experiences that they’re calling SGE inside of their traditional search, Google seems to have found a way to wrap itself around the search industry and keep it “search.”
Google also are proving to be the absolute above the fold item, meaning as it pertains to search, Google no matter what happens to market, no matter what happens to ads, you saw Snap got absolutely whacked this week, terrible. Snap sucks by the way. I still do not like… Other than faces that are like this, I really have no idea why anybody uses it. Again, my kids will explain it to me and I’ll just make a face like this. So, the end of the exercise though, is Google has shown its robustness. The second thing is Pat, Cloud is growing. So Google cut it 8 billion this quarter, so you’re starting to see this. This is ramping, but Google cloud’s going to be, it’s a 32 billion annual pace. They’re growing very quickly, and remember this quarter Microsoft put out some numbers to talk about its business and it’s about 110 million in its whole 110 billion in its overall cloud, and about 50% of it they said is Azure.
They gave some round numbers, for the first time ever. So, that Gulf that everybody’s been wondering about, how big is the Gulf between Azure, AWS, Google, it’s becoming a bit more apparent, but Google grew a couple percentage points higher than Microsoft, and as Bloomberg so profoundly called the header of my segment, yes, technically speaking, if you grow faster than another company in the same category, you’re taking market share. I think that’s a technicality and I hope people can kind of wrap their head around what I’m saying there.
Patrick Moorhead: Well, by the way, I don’t even know if that’s accurate or not because in a growing market, you can grow on a percentage basis without taking market share from somebody.
Daniel Newman: It’s possible, except if it’s the exact same stuff, it’s not possible.
Patrick Moorhead: Boy, well I’m going to crank up a spreadsheet right afterwards.
Daniel Newman: You know what? The problem is if you’re only talking about two players, so the second, now that you’ve added a third player, all this growth, it could technically be Microsoft. The technical headline is that Microsoft and Google, if Amazon’s growing slower than them, are taking share from Amazon.
Patrick Moorhead: Well, let me give you a simple example. If the market doubled, and that’s just for raw numbers, simple numbers, if the market size doubled, you could increase that. Anyways-
Daniel Newman: It’s an interesting thesis. It’d be fun to sit down and try to spreadsheet it out, but I think in the end is, you always want to be the company with the highest growth rate. If you are the one with the highest growth rate over time, typically you’ll be taking overall market share, but not necessarily share from another specific company. So anyways, it’s an interesting thing, but yes, they’re growing there, but their revenue’s growing, their profit is growing, the company just makes money like crazy. It’s like 20% net income on their revenue and it’s just a wildly successful business.
Pat, their AI strategy though, in the cloud, also pretty robust. The generative AI app builders, the Vertex Solution, these are definitely driving customers to Google and that whole strategy path, this is a really interesting question that I have about Google kind of going forward is, with multi-cloud fabric, but Gen AI and potentially being built in one place, there is a potential where people could leave lots and lots of infrastructure running in AWS, but could choose Google to do their Gen AI, or vice versa. You see what I’m saying? Gen AI becomes its own sort of category, AI and Gen AI, but specifically these app building is where tools you use to build the app and then where you see the data and then how you build the fabric, the multi-cloud becomes more compelling and the winner takes all, becomes less and less probable, in this whole thing, and it’s getting very, very interesting.
On the other hand, Pat, just the straightforward stuff, company saw YouTube grow and beat as well. So. Ads beat YouTube, beat Google, beat Cloud, made money for the second quarter, a row in a row, and I didn’t get into it yet to see if there’s any funny accounting stuff, but it seems pretty straightforward. Thomas Kurian and team strategy is working, and the company as a whole, seems to be moving in the right direction. Now, Ruth Porat, their CFO took a new role this quarter. She’s going to be moving into the president and chief innovation officer for the company, so big transition, but not one that you and I particularly… Well, now Ruth will be much more interesting than when she was CFO. So, it’ll be interesting to see what she’ll do in that new role.
Patrick Moorhead: You done?
Daniel Newman: No, keep going.
Patrick Moorhead: Okay. So, I think Daniel, Google has done very well in its first, I would say the last five years with analytics data and AI. It’s funny, I do a bunch of case studies and I don’t talk to a hundred people in IT every week, like other industry analysts proclaim, but I do talk to a lot of them, and invariably, everybody’s multi-Cloud already, it’s just that it’s a pain in the butt to do it, but they’re using Google for AI, and they’re using AWS for something else or maybe their primary is Azure. So, it is possible that Google could get their unfair share of this.
Now, the reality, and this is just the data and Google hasn’t said this isn’t true, is that AWS runs more AI workloads than anybody out there, and I think that has a lot to do with the competitiveness of their IAS, but it could be all bets off here, with Bedrock versus Vertex versus Azure AI, and that’s what I think is getting everybody so frothy about this. Again, I would like to see higher numbers from Google, just because it is on a small base, but I mean if you look at $8 billion, that number is gigantic now. They continue to narrow the losses, which is great, and here’s one thing that not a lot of people were talking about, and maybe because it comes as a definition, that 70% of generative AI unicorns are Google Cloud customers. I think that again, what’s a unicorn? A billion dollar valuation on a startup, probably a lot of the stuff that you’ve been tweeting lately and putting on LinkedIn, Daniel, which is a cornucopia of “Hey, look at these 20 tools you can use,” it’s probably customers like that. And then, there are some large customers as well.
Just like I’m excited about Microsoft 365 and pressing a button on my PowerPoint and having it create a word and vice versa, I’m a subscriber to Google Workspace. In fact, my entire backend of my company is Workspace, so I’m looking forward to that coming out. I haven’t seen pricing on that. I hope that they bring it out shortly. But, in the end, Dan, whether it’s Google, whether it’s AWS, whether it’s Azure competition is good, I am going to be monitoring the can the smaller companies make money on this. Now, I do know we’re seeing with these unicorns, these are smaller companies and they are being enabled, but it’s important for a healthy ecosystem and for innovation and cost, that we have even more competition than we have now. I am really enthused about these open models, these open source models that people can pull off the shelf and apply their own proprietary data to, that is going to be a game changer for businesses, and we haven’t even scratched the surface.
It was funny, I made a post a couple weeks ago about me not using generative AI tools as much as I used to, and some people took that as, “Okay, Pat, you’re poo pooing this technology or don’t get it.” It’s like, no, you don’t understand, the enterprise SaaS stuff, which is my company that I personally use, it’s not ready yet. It’s at best, in preview and there is nothing in GA, except for… Actually, Salesforce and a lot of their tools did go, but I use the Microsoft tools and my company more these days.
Daniel Newman: Yeah, I think we’re going to start to see this stuff become more generally available. But, there’s some time, and I’ve actually said the same thing, I used a lot of this stuff enthusiastically. I think people on our team are using it a lot. Things like excerpts for blogs, meta descriptions, picking up keywords is a great way to do it. Synthesizing transcripts into abstracts, that can work pretty well. But, I’m more enthused about when I can easily access my enterprise data and have it tell me something meaningful, using a large language model? Because it’s like what I said last week, Pat, what’s old is new. It’s basically become a way to synthesize search and give a good abstract. But, I’ve gotten pretty proficient at search, so I’m not actually sure it’s faster for me, most of the time.