February 8, 2017
Snap has inked a deal for Google Cloud services worth $400 million annually over the next five years, for a total of $2 billion. The deal is a continuation of a partnership that dates back to 2013. Analysts say the $400 million will give Google a “hefty annual bump.” Google doesn’t report numbers specific to its cloud business, but rolls it into all non-advertising revenue. In Q4 2016, Google’s non-advertising sector earned $3.4 billion in sales. The partnership could presage future alliances or mutually beneficial projects.
Business Insider reports that, in early 2016, Snap and Google discussed creating a feature that would let Snapchat users point their cameras at an object and get information about it from Google search, but the project did not go forward.
Pertaining to the recent deal, TechCrunch notes that, “for each of the first four years, Snap will be able to roll 15 percent of that amount over to the next year, but otherwise it will be required to pay the difference if it doesn’t meet the minimum purchase agreement,” adding that, for Snap, the lease represents “a potential risk factor if the platform is discontinued or if it changes its terms of services or policies, among other things.”
The reliance on Google Cloud could also interfere with Snap’s ability to expand into China, where it has yet to establish an operating presence. In its IPO filing, Snap notes that “access to Google, which currently powers our infrastructure, is restricted in China.”
Business Insider Intelligence senior research analyst Christina Anzalone compiled a report on cloud computing looking at “the current business considerations for the various cloud solutions” and the state of the market. Her key takeaways are that 67 percent of companies used an Infrastructure-as-a-Service solution in 2015, like the cloud, up from 19 percent the prior year.
She adds that, “while hybrid cloud strategies will remain popular in the near term, the market is likely to shift toward the public cloud over time,” because of falling costs, solutions that address concerns about the public cloud and business practices that depend on the advantages of the public cloud. The exception involves industries that handle sensitive information, which “will likely prefer hybrid and private cloud strategies given regulatory restrictions.”