Google Looks Hungry to Grow Cloud and Hardware Sales

Growing cloud infrastructure revenue is a 2019 Alphabet/Google (GOOGL) priority, and so might be growing Pixel phone sales by moving downmarket.

During an informative talk at Goldman Sachs’ annual Technology & Internet Conference, new Google cloud chief Thomas Kurian — he joined the company last fall after leaving Oracle (ORCL) — said his new company is “investing aggressively” in growing its cloud salesforce and channel partner base. Google is trying to gain ground against Amazon Web Services (AWS) and Microsoft Azure (the public cloud market’s clear-cut No. 1 and No. 2 players). Kurian also noted Google — a company for which enterprise IT sales haven’t historically been a strong point — is working with system integrators to create industry-specific cloud solutions.

Kurian also gave a run-down of the Google Cloud Platform’s (GCP) competitive strengths. Some, such as the quality of Google’s cloud machine learning services and its strong support for open-source software platforms, are pretty well-known. However, he also highlighted lesser-known strengths, such as the tremendous scalability of Google’s database and data warehousing solutions, and GCP’s ability to pass on the cost savings delivered by Google’s data center infrastructure. Kurian claims that infrastructure is now handling 25% of the world’s internet traffic and says it’s far more power-efficient than the typical third-party data center.

A year ago, Google cloud chief Diane Greene, whom Kurian replaced, also talked up Google’s efforts to grow its enterprise footprint. Among other things, she noted GCP’s enterprise client list includes HSBC, Disney, PayPal and Colgate (many large enterprises, it should be noted, use more than one public cloud). Though GCP’s revenue is unlikely to surpass Azure’s (never mind AWS’) anytime soon, its unique technology strengths do position it well to win some business among enterprises relying on more than one public cloud.

Kurian’s remarks came shortly before Google CEO Sundar Pichai disclosed his company plans to invest over $13 billion this year in U.S. data centers and offices. On the Q4 earnings call, CFO Ruth Porat forecast that Alphabet, whose purchases of property and equipment grew 91% in 2018 to $25.1 billion, would grow capex again in 2019, albeit at a “meaningfully” slower rate.

Separately, Japan’s Nikkei reports Google plans to launch a “non-premium” Pixel phone this year that will cost less than Apple’s (AAPL) iPhone XR, which starts at $749 in the U.S. It adds Google has “hired hundreds of hardware engineers and supply chain specialists from Apple” over the last two years, and also plans to launch a new Google Home smart speaker, a new smartwatch and a new home camera this year, along with (as expected) new high-end Pixels.

For reference, Google’s Pixel 3 and Pixel 3 XL start at $799 and $899, respectively, in the U.S. Assuming that the cheaper Pixel is sold via carriers, its launch would — like the greater carrier distribution that accompanied the Pixel 3 launch — be a fresh sign that Google is becoming more willing to step on the toes of Android OEM partners to grow its hardware sales.


New Apple Services and Hardware Could Be Unveiled in March

Feb 13, 2019 | 1:47 PM EST

Tim Cook recently promised that Apple (AAPL) has new services launches planned for this year, and it looks like he won’t make us wait too long to learn about at least some of them.

BuzzFeed reported on Tuesday that Apple plans to host a “subscription services-focused” event on March 25 at the Steve Jobs Theater in Cupertino. Apple’s rumored subscription news service is expected to be shown off, and (though BuzzFeed’s sources declined to comment about it) it also wouldn’t be surprising to see Apple share details about its video service, which was recently reported to be set for an April launch.

The BuzzFeed report shortly follows one from the WSJ stating Apple is getting pushback from major news publishers — including the New York Times and Washington Post — over its insistence that it keep around half of the revenue produced by the news service (for comparison, Apple’s standard App Store cut is 30%), as well as its unwillingness to share subscriber data with publishers. The WSJ adds that the service, which will be integrated with the Apple News app, will cost about $10 per month.

Separately, although it’s worth pointing out this report comes from a lesser-known source, Greek website iPhone Hellas reported Apple plans to launch second-gen AirPods on March 29. A new standard iPad and iPad Mini will also reportedly launch, as will a wireless charging mat called AirPower. BuzzFeed, for its part, says new hardware won’t be unveiled at Apple’s services event.

Though only time will tell whether they arrive in March, Apple has been reported for a while to be prepping next-gen AirPods. Last year, Bloomberg reported Apple is prepping second-gen AirPods that would feature a new Bluetooth chip (that could yield better battery life) and support hands-free Siri activation. It added that Apple is also working on a more advanced set of AirPods that would support noise-cancellation and water-resistance, and potentially also contain biometric sensors such as a heart-rate monitor.

Recent reports have also suggested a new standard iPad and iPad Mini are on the way. In what might be an attempt to clear inventory ahead of a refresh, the standard iPad has seen a fresh round of discounts at major third-party retailers, following a series of holiday discounts.

The services event report comes two weeks after Apple broke out its services gross margin (GM) for the first time — it was reported to be at 62.8% in the December quarter, well above Apple’s product GM of 34.3%. The App Store’s momentum and giant search ad revenue-sharing payments from Alphabet/Google (GOOGL) likely had much to do with this figure.

AirPods, meanwhile, have been a runaway hit and (together with the Apple Watch) are believed to have much to do with the near-50% wearables revenue growth Apple reported for its December quarter. Apple analyst Neil Cybart recently shared an interesting write-up in which he highlighted the degree to which AirPods have become a cultural phenomenon.

Among other things, Cybart noted search activity for the term “AirPods” rose about 500% annually during the 2018 holiday season, and Cybart forecast that AirPods shipments will rise about 90% this year to roughly 40 million (at a current price of $159, that would spell retail revenue of more than $6.3 billion).


Netflix Apparently Has a Lot of Room to Grow in France

Feb 13, 2019 | 11:48 AM EST

Confirming a report from French newspaper Le Figaro, Netflix (NFLX) says it has over five million streaming subscribers in France. That, as Le Figaro notes, gives Netflix a larger French subscriber count than top French pay-TV provider Canal+, which had 4.757 million subs as of the end of Q3 2018.

The paper added that Netflix has gained 1.5 million French subs since last April. Canal+, by comparison, has lost 233,000 subs over the last year.

The disclosures are interesting, given that Netflix doesn’t normally share subscriber figures for individual foreign markets (rather, it only provides a total international subscriber count). With Netflix claiming 80.77 million international paid subs and 7.13 million international free trial subs at the end of 2018, slightly less than 6% of its international subscriber base might be in France, where the company launched in late 2014.

Notably, with France having an estimated 28.8 million households (per Euromonitor), Netflix’s French household penetration rate (though growing quickly) still appears to be below 20%. That compares with a household penetration rate of close to 50% in the U.S., where Netflix had 58.49 million paid subs and 2.07 million free trial subs at the end of 2018, and perhaps one slightly below 40% in the U.K., where Netflix was estimated last fall to be closing in on 10 million subs.

The French disclosure shines a light on how much headroom Reed Hastings’ firm, aided by a giant content budget that now includes considerable investments in foreign-language originals, still has in many large foreign markets, including some developed markets. Though its penetration rates in these markets won’t always approach U.S. levels — this particularly holds for developing countries — they don’t necessarily have to in order for Netflix, which now operates in 190 countries, to keep seeing strong international subscriber growth.

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