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Microsoft and Alphabet's Q3 2017 earnings calls highlighted that artificial intelligence (AI) and the cloud are not only major catalysts of growth for the tech giants, but also centerpieces of their long-term strategies.
While Alphabet's overall revenue grew 24% year-over-year (YoY) to reach $27.8 billion in the quarter, the company’s “Other Revenues” segment — which lumps together everything from its Pixel smartphone and hardware products to its cloud computing and storage offerings — generated $3.4 billion, a 12% share of total revenue. And Microsoft reported revenue of $24.5 billion, up 12% YoY, with 28% coming from its Intelligent Cloud segment.
Here’s how Alphabet and Microsoft are doubling down on AI and the cloud in the near term:
- Both Alphabet and Microsoft continue to build up their cloud platforms. Microsoft CEO Satya Nadella said the company will focus on developing its key cloud value propositions in their hybrid cloud offering — applications, infrastructure, data, and AI. Revenue from Microsoft’s Intelligent Cloud segment, which houses Azure, increased 13% YoY and Azure revenue, which jumped 90% YoY, was a key driver of that growth, growth due in part to numerous cloud products released over the past year. Google’s cloud platform remains one of the fastest-growing businesses across Alphabet according to CFO Ruth Porat, and will remain a key strategic focus for the company moving forward; Alphabet’s largest headcount addition in Q was for cloud. The company doesn't break out specifically how much of its cloud business drove revenue, but its “Google other revenues” segment, which includes Google cloud, saw 40% YoY increase in the quarter.
- Voice assistants and visual search technology are at the core of their strategic offerings. Google’s put AI at the center of its new hardware line. For instance, the Pixel 2 is infused with the Google Lens, a way of searching Google just by pointing your camera at a landmark, object or storefront. And Microsoft’s voice assistant Cortana is has been a major focus for the company for years, and will be a crucial offering in Microsoft’s augmented reality endeavors.
Alphabet and Microsoft will face stiff competition from Amazon as their AI and cloud pushes continue. Last quarter, market leader Amazon accounted for 34% of the global public cloud market, ahead of Microsoft with 11%, and Google with 5%. And Amazon’s Alexa is currently leading the nascent voice assistant space. Alexa has 25,000 voice apps, or “skills," compared with Google's 378, and Microsoft’s Cortana's 65.
As Alphabet and Microsoft continue to focus on AI and its related applications, they will help to lay the foundation for what will play an integral role in the future of AI. Doubling down early helps to position the tech giants at the forefront of this transformation. The global AI market is projected to hit $36 million by 2025, at a compounded annualized rate of 57%.
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