Struggling with AWS and Microsoft
Google's cloud platform will lower fees from software developers to expand its range of offerings to customers and better compete with Amazon AWS and Microsoft Azure, according to a CNBC report.
On Monday, shares in Google's parent company Alphabet (GOOGL, GOOG) fell 0.8%. As a result, the stock has declined slightly over the past month.
Alphabet shares have gained 61% since the beginning of 2021.
On Monday, news broke that the company's cloud division may cut commissions for third-party software vendors on its Google Cloud Platform. CNBC, citing anonymous sources, reported that Google Cloud would cut fees from 20% to 3%, close to the 5% listing fee charged by global cloud computing leader Amazon Web Services, according to analysts at UBS.
In July, the world's second cloud giant, Microsoft (MSFT), said it would cut fees from 20% to 3%.
All of this comes amid both fierce competition in the cloud computing market and tighter regulatory pressure from the authorities.
In July, for example, Google reduced the commission percentage for app developers on the Play Store from 30% to 15% for the first annual revenue of $1 million that a developer receives.
Apple (AAPL) has also had to make concessions for app developers on the Apple Store this year because of lawsuits and allegations of monopoly.
Google Cloud is increasing its revenues quarter-on-quarter, but the company is struggling to compete with AWS and Microsoft. Google is still in the investment phase of its cloud business, which has yet to turn a profit.
While Google Cloud's revenues grew to: $5.8bn, $8.9bn and $13bn from fiscal 2018 to 2020 respectively, losses also increased: $4.3bn, $4.6bn and $5.6bn respectively.
Nevertheless, investors see Google Cloud's losses shrinking in the 2021 quarterly reports. Google Cloud's second-quarter losses more than halved from last year's figure: $591 million versus $1.43 billion.
So while the current decline in commissions may have a negative impact on the profits of Google's cloud division, it may allow the company to attract and retain more customers, which is important for long-term growth.
Google's capital investment in data centres and development of its technology should benefit the company in the future as Google seeks to reduce its reliance on advertising revenue.
