Will Google’s Increased Focus on Cloud Technology Give Its Stock Price a Boost?

Google recently hired VMware's Diane Greene to lead a new cloud business division. Will the hire and ambitious cloud-business plans help the search company's stock soar?
By William Craig ,

On Nov. 19, Alphabet's Google (GOOG) - Get Report (GOOGL) - Get Report  announced it had tapped Diane Greene to lead its new cloud business division. This includes Google for Work, Cloud Platform and Google Apps. As part of the deal, Google acquired Greene's secretive cloud-computing start-up, Bebop Technologies.

With the hiring of Greene, Google signaled its intention to expand into the cloud market and challenge industry leaders Amazon, Microsoft and IBM. Greene has the background to head the expansion. She is co-founder and former CEO of software virtualization company VMware (VMW) - Get Report . Since 2012, she's also been on Google's board of directors.

How will this big step impact Google's stocks? Will investors take Google as seriously as the company wants?

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What Greene Brings to The Table

Greene is ideally suited to manage Google's growth within the cloud. A major contributor to VMware's startup in 1998, Greene also served as its CEO until 2008. In 2007, the company reported revenue of $1.33 billion.

Greene's 2008 firing from VMware was surprising and controversial at the time. The company's investors certainly didn't approve, and the company's stock price quickly dropped 25%.

Greene's cloud experience is in the corporate world, which is exactly the clientele Google hopes to attract. The company is heavily reliant on ads for revenue, and its goal is to have cloud earnings surpass this.

Her success at VMware gained Greene tremendous respect in the business world Google wants to dominate. The use of VMware there is pervasive, so Greene brings with her an air of achievement. That confidence could certainly influence stock prices.

More Is Better

Google's push to expand its cloud services is supported by what the company already has out there, and it's a lot. Its search engine and software are already staples for many users.

Google is already working to provide corporations with cloud alternatives. It has plans in place to create a hybrid cloud program that gives companies both private and public options.

Google's partner in this venture is none other than VMware. With this canny partnership, Google could create a must-have product. Cue rising stock prices.

Spending on public cloud services is expected to top $127 billion by 2018, which is more than twice 2014 numbers. To achieve this, cloud companies will soon need "more and better."

Google is already a strong technology firm, and it has positioned itself to expand and develop. Investors could respond quickly and favorably to Google's forward thinking.

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An Uphill Battle

Even with everything Google brings to its new cloud unit, Amazon is going to be tough to beat. In fact, it may be too late to overtake Amazon Web Services. It already has almost 30% of the market. Even added together, competitors Microsoft, IBM, Salesforce and Google don't have that reach.

Amazon Web Services brings in more than $7 billion annually and has more than 1 million customers, including power-players Netflix and Airbnb. Amazon's current customers are likely to expand their usage by more than 40% in 2015 and another 20% the following year.

It could be hard for Google to lure away Amazon's clients. In the past, other cloud companies that have tried by significantly undercutting prices have had little success. Amazon has a loyal following because of the continual development and magnitude of its services. Analysts have said that Amazon's active engagement with the business and the loyalty of its customers will be hard for any challengers to overcome

If Google can't make a serious dent in Amazon's cloud coverage, it'll be hard for Google stocks to soar.

The Crystal Ball Says...

Even with Google's expansion plans, its cloud success isn't a slam-dunk. Amazon is not sitting idly by. Customers will surely benefit from the competition, as will investors. It's not clear, however, that either will be Google's.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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