Cloud Computing: Google's Gambit

Image: Vikas Khot

Dave Girouard, president for the enterprise business at Google Inc

Three years ago MAQ Software, a Redmond, Washington based software company, started by a bunch of ex-Microsoft employees, decided to move its entire messaging system to Google. Almost overnight 350 employees — spread over Redmond, Bangalore and Hyderabad — got a free 7 GB email account, managed by Google but carrying the MAQ domain name. Along with it came free software Google Docs for running a word processor and spreadsheets, calendar for scheduling tasks and appointments and Google Sites for creating web pages on the intranet. Vikram Kumar, Director, Program, says moving to Google Apps helped save the company Rs. 12-14 lakh annually that it would have to pay for licensed software from companies like Microsoft or IBM.

In 2006 when Google launched Google Apps — a suite of collaboration and productivity software, very few people thought Google would succeed in this business. Google was a consumer brand known mostly for its search engine, no one thought it was capable of selling enterprise software, a space that was ruled by Microsoft. And then instead of selling shrink wrap software that could be installed on a desktop or laptop, it was asking consumers to go to the Internet to access applications like Google Docs (Google’s version of Office) and calendar. And all the data owned by a company was not going to reside in the company’s own server but rather be sitting on machines owned by Google in a location vaguely referred to as a “cloud”. Plus Google was offering this service for free. (Google launched a paid version of its Apps business in 2007)

But today things are very different. Google claims that “it has signed up over 2 million enterprise customers” since launch with about 100,000 enterprises (businesses, educational institutions, and NGOs) in India alone. Most of these are small and medium sized companies or educational institutions, and a few large ones like India Infoline. How many are paid customers is difficult to say. Google offers two versions — a standard version (which is lighter, offers less email space and does not guarantee service levels) used by companies like MAQ, and a premium version with a 25 GB storage space, guaranteed uptimes and SLAs for which it charges $50 per user per year. The company doesn’t say how much of its revenue comes from the enterprise business, but according to Dave Girouard, President for this segment, the figure runs into “hundreds of millions of dollars”. Google earned $23.6 billion in revenues last year — 97 percent of which came from advertising .  

Google’s entry into the enterprise IT business marks an important turning point — for the company, the global IT industry and its bete noir Microsoft, which has ruled this business for over two decades now. While the global advertising market is $400 billion, the IT industry is $1.3 trillion. Going after the enterprise IT business helps Google expand its reach and diversify its portfolio.

It’s advantage at a time like this is the emergence of a new technology called cloud computing. “Cloud computing is the biggest shift in the IT industry. When a shift as big as this takes it is an opportunity for a new leader to emerge. In the same way when PCs came and Microsoft grabbed leadership from IBM which was the leader in the mainframe era. We think likewise in cloud computing it is the time for Google to be the leader” says Girouard.

Cloud computing enables enterprises to convert fixed IT costs into variable costs. Google Apps are delivered over the Web. Which means that an organisation does not require an upfront capital investment in hardware (servers that store the data for running emails) or software. Instead an enterprise pays a per user fee to use all these applications. It’s the difference between driving your own car or using a public transport to travel to office.  

India Game Plan
Over half of Google’s revenues come from international markets. For cloud computing too, emerging markets like India where IT penetration is still low and businesses are rapidly adopting technology will play an important role. “It is easier for new businesses and startups to move to a cloud since they do not have investments in their own data centers” says Peeyush Ranjan, Google India’s R&D head. Like in the case of any new technology the early adopters of cloud computing and Google’s Apps business around the world have been small and medium enterprises like MAQ Software. SMEs look for affordable solutions and Google says that running Google Apps costs only one third of competing solutions. To go after these customers in a big way  Google has tied up with systems integration partners like TCS in India.  

There is another crucial reason to be in India. As businesses migrate from a proprietary environment  to cloud computing,  Google will have to help them move their data to its cloud. A significant part of that work will be done out of Google’s R&D centers in Hyderabad and Bangalore. Ranjan says that India will be the center of excellence for cloud computing and  that he plans to hire “hundreds of engineers” in India going forward. Google’s Hyderabad team is already one of its largest on cloud computing today and have helped in migrating 2 billion email  messages running on Microsoft Exchange to Google’s cloud.

But more than engineering capability the one question that Google really needs to address is trust. “Large businesses like telcos, banks and government institutions are sceptical about moving mission critical applications and sensitive data to a public cloud for fears of security and privacy” says Andy Karandikar, head of Marketing at Red Hat, India.

It is something that Google understands. “We will never win them all. When you have a major technology shift, there are those who adopt early and the others wait longer, this is no different” he says adding that they have large customers like Genetech, JLR and Sabic using Google Apps. “A simple analogy is that before there were banks, everyone kept their money under their mattress where they could see it and felt it was safer. Over time they realised that it is safer in the banks” he adds. The same thing will happen to corporate IT and cloud computing.

Illustration: Minal Shetty

As far as trust is concerned he says “Google’s service is available everywhere. We replicate every user in three locations, so their data is live all the time even if there is a hurricane or flood in any place. This is the way computing should work and not out of some machines in your basement, which the IT guy kicks every once in a while to keep it going. “

David vs. Goliath
One company that can definitely spoil Google’s party is Microsoft. Close to one third of Microsoft’s $62 billion turnover comes from the business division of which Microsoft Office is a big chunk. It is also a highly profitable business for them with operating margins of 60 percent. Nine out of 10 PCs in the world use some version of Office. Its unlikely that Microsoft will give up that franchise without a fight.

That’s just what the company did when it launched the latest version of Office 2010 (its thirteenth since Office was first launched) in June this year. Microsoft announced a free online version of Word, Excel and Power called Office Web Apps. Microsoft has tried to downplay the threat that Google Apps poses to Office, by saying that the real competition to Office 2010 are older or pirated versions of Office. Microsoft’s logic is that of the 500 million copies of Office installed so far (across all its version), close to half are unpaid (pirated or copied). Its contention is that this is way more than what Google Apps has sold so far. By launching a free version of Office on the web, it can retain these users without losing them to competitors like Google.

It’s the kind of news that companies like MAQ Software welcome. Says Kumar, “We have started testing the Microsoft free version in our office. It is easier for us to work on Microsoft because people have been using the software for years. Google’s software is simple but you have to learn new commands while using a formula on spread sheet”. The only thing missing, he says, is that Microsoft’s free version of corporate email doesn’t allow the email ids to be generated in the company’s name, unlike Google. Girouard isn’t too worried about Microsoft’s cloud offerings. “Google is the true native of the cloud computing world. Unlike others we don’t have a legacy business of hardware and software that we have to maintain. That’s all we do for a living from day one”

Google continues to feverishly expand its offering for cloud computing by working with other developers like Intuit and TripIt to launch applications like payroll and CRM to be delivered online.

For now it is applications like email, video conferencing, word processors, and calendars which have starting moving to the cloud. Over time business applications like CRM will also shift. The last to move will be core banking solutions and enterprise software like SAP that runs factories.  “it’s not going to change in a year or two. it will change in a decade” says Girouard.

“If I started a 50-person company today, I wouldn’t buy any computers, servers and data centers. I would just give my employees some money each month and tell them to buy anything they want. All the software and hardware they need would be available through the browser” says Giraourd.