Snap Enters into an Agreement with Google Cloud

Snap and Google have entered into a five-year agreement, under which Snap has committed to purchasing Google services to the tune of $400 million each year. When this deal expires in 2022, Snap would have spent $2 billion on Google cloud. Already, Snap relies on Google Cloud to run many of its operations, and this agreement will only strengthen the partnership between the two companies.

This agreement is a big win for Google Cloud, as it is looking to take on competition from AWS and Microsoft. Recent results show that AWS is still at the top, followed by Microsoft. Though Google has been working hard in its cloud segment, it hasn’t been able to take on these two giants. While this deal is not expected to help Google surpass its competitors, it will nevertheless increase the chances for Google to gain a better footing in the cloud segment. It is worthy to note that last year Google secured similar agreements with Apple and Spotify.

In addition, this agreement is expected to bump up the annual revenue of Google in a big way. Currently, Google doesn’t separate the revenue from its cloud business, rather it combines it with its other non-advertising revenue such as Google Play Store. With this agreement, we can expect the non-advertising revenue to increase greatly over the next five years. In the fourth quarter of 2016, the revenue from this segment was $3.4 billion.

An another good aspect of this deal is that Snapchat users are a highly engaged bunch of people, with an average user opening the app at least 18 times a day. Further, mobile video is an integral part of Snapchat, and this could give a boost to Google’s aspirations to become the leading mobile video provider.

As of now, mobile video accounts for 55 percent of the total Internet traffic, and this is expected to reach 75 percent by 2020, according to Cisco. Also, data from mobile video is expected to grow at an astounding rate of 62 percent each year from 2017 to 2020. This will include not just videos, but also video-related technologies such as augmented reality (AR) apps like Pokemon Go.  All this means, Google stands to gain much from this partnership, not just in terms of revenue, but also from a wide market presence.

For Snap, this partnership can open the door for new possibilities that are sure to enhance the usability of its software. In early 2015, both the companies talked about a partnership in which Snap users can point to an object, and Google will provide all the information pertaining to it from its search database.  Though that partnership did not take off then, this agreement can lead to similar collaboration between the two companies.

This partnership, in many ways, reflects the growing importance of cloud and its presence as a central component in the operations of any company. As cloud industry increases further in strength, we can expect more such partnerships that will augur well for not just companies, but also for users and the cloud industry at large.

About The Author
Lavanya Rathnam is a professional writer of tech and financial blogs. Creative thinker, out of the boxer, content builder and tenacious researcher who specializes in explaining complex ideas to different audiences.
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