Snap is paying Google $400M a year for cloud services

Snap is paying Google $400M a year for cloud services

Over the next five years, the company behind Snapchat will pay Google at least US$2 billion in cloud bills.

On Thursday, Snap revealed in a filing with the US Securities and Exchange Commission that it signed a five-year contract to pay Google at least $400 million a year for cloud services. That's a steep figure, considering that Snap made roughly $404 million last year. 

In return for the massive commitment, Snap will receive reduced pricing, though it’s not clear how deep the company’s discounts will be. Sinking a bunch of money into Google Cloud makes sense, because Snapchat began its life built on top of Google’s AppEngine platform-as-a-service offering.

Furthermore, Snap’s commitment to Google is a massive vote of confidence in the latter’s cloud capabilities, at a time when there’s heavy competition in the cloud market.

Right now, Google’s cloud is an underdog compared to Microsoft and Amazon. But being tied to a rising star in the social media landscape like Snapchat could help draw other companies to at least give Google’s platform a chance.

However, the contract is not without risk. If Snap doesn’t use $400 million worth of Google Cloud services in a year, it’s still on the hook for the full value of the contract. What’s more, the company said in the filing that it uses Google for the “vast majority” of its “computing, storage, bandwidth, and other services.” If something goes wrong with Google Cloud, or if the tech titan gets out of the public cloud business, it could be bad news for Snap.

That last scenario seems highly unlikely, considering that Google continues increasing its investment in its cloud platform. Urs Hölzle, Google’s vice president of technical infrastructure, said last year that the company plans to launch new cloud data centers at the rate of roughly one each month this year.

All of this is tied to Snap’s plans to pursue an initial public offering in the near future. The filing released on Thursday is one of the company’s steps along that path. Snap’s IPO is being closely observed by the tech industry because of the company’s high-flying status.

It remains to be seen how Wall Street will receive the company, especially since it’s far from profitable and its losses have widened year over year. Plus, the deal with Google means that Snap will be saddled with hundreds of millions of dollars in liabilities for the foreseeable future.

IDG Insider

PREVIOUS ARTICLE

«Apple to start assembling iPhones in Bangalore by April

NEXT ARTICLE

AT&T extends NetBond service to secure IoT connections»
author_image
IDG Connect

IDG Connect tackles the tech stories that matter to you

Add Your Comment

Most Recent Comments

Our Case Studies

IDG Connect delivers full creative solutions to meet all your demand generatlon needs. These cover the full scope of options, from customized content and lead delivery through to fully integrated campaigns.

images

Our Marketing Research

Our in-house analyst and editorial team create a range of insights for the global marketing community. These look at IT buying preferences, the latest soclal media trends and other zeitgeist topics.

images

Poll

Will Kotlin overtake Java as the most popular Android programming language in 2018?