As Google, Microsoft Face Off, Small Cloud Companies Get Hurt

NEW YORK (The Street) -- As Google  (GOOG) wants more companies in its cloud, it's going to hurt companies that do not have varied offerings and rely solely on attracting new customers for added revenue.

The entry of one of technology's biggest companies into the competition for corporate cloud computing, with its Google Drive for Work program, makes an already crowded space far more cramped, and competitive. According to Ahmet Tuncay, CEO of the cloud-computing provider Soonr, the announcement is going to have a dramatic impact on the cloud computing market.

"They probably have one of the best infrastructures for offering cloud services," Tuncay said in a June 27 phone interview.

With the announcement of Google Drive for Work, Google is bundling various offerings from Google Docs to Android and Chrome with Drive storage and offering it at a price likely to undercut competitors.

"The low price offering is what will be most painful for competitors," Tuncay noted. "They have taken the various pieces and have shrink-wrapped the bundle. They've said, 'you can buy as much as you want. It's all you can eat -- $10 a month for unlimited storage.'"

Designed with collaboration in mind, Google's seamless additions include Native Office Editing (which allows users to edit Microsoft Word documents) within the suite of editors of Google Drive. The company will also add Google Slides, software that will allow users to create presentations from mobile devices, to the Drive's editing suite.

Google Senior Vice President for Chrome and Apps at Google Sundar Pichai announced the firm's initiative to combine all of the elements "seamlessly" for users. One of those key tools added to help the initiative is Android for Work. This Android feature, designed to help divide professional and personal communication, allows users to maintain two separate identities on Android devices. "As we bring Android for Work one of the important use cases we care about is productivity, documents collaboration, which is why we have invested so much in Google Docs and the whole suit of editors," Pichai said during the conference.

The move will keep adding pressure to Microsoft  (MSFT) (via its OneDrive platform) and other companies vying for contracts from companies eager to safely store their data and information. Since launching two years ago, Google Drive now has 190 million 30-day users working in its cloud for both personal and professional projects.

Microsoft has proved to be a top competitor in the cloud space, with commercial cloud revenue doubling in the fiscal third quarter according to an April earnings call. Despite first quarter revenue, Tuncay projected Redmond, Wash.-based Microsoft will feel a hit after Google's announcement. "I think the pressure is going to be on Microsoft, because Google can drive with zero and still make money and Microsoft can't, Tuncay said during the interview. "Microsoft is going to continue to charge the kinds of dollars that they are charging today."

Microsoft may follow Google's plan in the near future, according to Tuncay, since the company has an advantage when it comes to the corporate world. "Microsoft will start to shrink wrap their sets of apps too. Google has Google Docs but what businesses want is Office 365 because that is what they're used to using."

The announced pricing for Google's services at I/O sent waves beyond the big names of the cloud sphere, and Microsoft wasn't the only company who will be pressured by this move. While the prominent names are squaring off over pricing, smaller companies will have to work to build trust among potential clientele - a necessity, if they want to store businesses' information in their clouds.

Sanjay Parthasarathy, founder of Indix and former corporate VP at Microsoft, said security is a primary concern for businesses. "What is happening now is enterprises are moving more and more business operations in cloud but have to be comfortable to do this," said Parthasarathy in a phone interview.

Proving reliability may be hard for Box, a smaller player in the cloud space that is battling speculation. After filing for an IPO in March, Box has yet to go public. Box blames the market for its delay, citing a market correction for software-as-a-service (SaaS) companies that occurred days after its IPO was filed as the reason the company stalled. On top of a reported net loss of $169 million and $124 million revenue according to the company's S-1 filed in March, Box announced it is seeking more funding from private equity investors as it waits to go public. 

Serving clients like General Electric (GE) and McAfee (INTC) as well as 225,000 other businesses, the smaller cloud company is still in the competition for cloud business solutions.In response to the Google Drive for Work announcement at I/O, Box CEO, Aaron Levie insisted on looking beyond storage when determining a clouds value.

"We already offer unlimited storage for our customers on our Enterprise plan, and you can expect more news on this front in the coming weeks. Ultimately, the value we offer our customers isn't about storage, it's about the capabilities we deliver that make content stored on our platform more valuable than ever before possible," Levie said in a comment to TheStreet

Dropbox, another firm in the cloud space and Box competitor, has over over 300 million users, but its services cost significantly more than the $10 per month Google is charging. Dropbox currently has 4 million businesses signed up for its services, and charges an entry level price of $75 per month or almost $800 per year. 

The San Francisco-based Dropbox has made moves that point to a potential IPO in the next year which include appointing its first CFO and filing a goal of $450 million in debt financing with $325 million already secured in February. Dropbox could not be reached for comment.

As Box waits to join the market and Dropbox has no official filing date set, both public and private cloud competitors move forward with innovation. 

With new collaboration techniques pioneered by Google as well as its unlimited storage offering, Parthasarathy said there still a long road ahead when it comes to cloud companies courting businesses. "Conductivity and storage is important but not everything a business does," said Parthasarathy.

"There is a lot of work to be done."

-Written by Kathryn Mykleseth in New York

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