A recent hire at Alphabet's (GOOG) - Get Alphabet Inc. Class C Report (GOOGL) - Get Alphabet Inc. Class A ReportGoogle shows that the company is getting serious about its cloud business, but Amazon (AMZN) - Get Amazon.com, Inc. Report is unlikely to even bat an eye at the news.
Last week, Google announced that it had hired one of its board members, Diane B. Greene, to lead its cloud business. Greene formerly co-founded and ran virtualization and cloud services company VMware (VMW) - Get VMware, Inc. Class A Report and is well respected in Silicon Valley. In 2012, Greene also founded a stealth cloud software development startup called Bebop Technologies, which Google is acquiring.
Appointing such a strong entrepreneur at the helm of its cloud business shows that Google is taking this business seriously, despite the fact that it lags far behind others in the space -- particularly, Amazon. Google currently only holds 6% of the cloud market, according to Synergy Research Group, while Amazon Web Services (AWS) has 29% market share, more than its four chief competitors -- Salesforce (CRM) - Get salesforce.com, inc. Report , Microsoft (MSFT) - Get Microsoft Corporation Report , IBM (IBM) - Get International Business Machines Corporation Report , and Google -- combined.
AWS is a $7.3 billion business -- up 81% year-over-year -- and now has more than one million active enterprise customers, including Airbnb, Slack, and Netflix. Google does not break out specifics for its cloud business in its financial reporting.
Customers on average spent $124,000 last year on AWS, according to a Cowen & Co survey, twice the amount of money as those that use Google's Cloud Platform and IBM's (IBM) - Get International Business Machines Corporation Report Soft Layer. And the average for AWS is expected to rise, according to Cowen, which estimates that spending on AWS by existing customers will increase 43% in 2015 and 21% in 2016, while spending on cloud services from other vendors is expected to stay relatively flat.
According to Google, 60% of the Fortune 500 companies use a paid Google cloud service such as email or online office documents. Nonetheless, Piper Jaffray analyst Gene Munster can't see Google gaining too much market share from Amazon.
"AWS has the development community behind it," he told CNBC. "They give a ton of features away to small businesses to get on AWS. It's growing at a wicked rate. And while it's important that Google is there, the reality is this is going to be a placeholder business for them longer term."
Google could try to drop prices and use that as a way to attract some of AWS's current clients, but Munster noted that it's not that easy for a business to switch from one provider to another. "This is not a pricing game," he said. "Players out there have cut prices by 60 to 70 percent and haven't been able to gain share. This is about functionality and time to market."
Plus, AWS clients in particular are increasingly less price sensitive, according to Credit Suisse analyst Stephen Ju. "Despite the lack of punitive contractual terms, [AWS clients] elect to stay on the platform for the breadth and depth of services, the accelerating pace of these products and features remains an encouraging development," Ju wrote in a note in October.