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Google Cloud Faces Amazon, Microsoft Over $25 Billion ‘Jump Ball’

With Alphabet ( GOOGL )-owned Google Cloud Platform snaring more major customers, there’s a three-company race between it,  Amazon ( AMZN ) Web Services and  Microsoft ( MSFT ) Azure that will only intensify. Cowen & Co. analyst John Blackledge wrote in a report on Thursday, after the first day of the Google Cloud Platform Next Conference in San Francisco, that “our sense from talking to potential customers at the event is that they are giving Google Cloud Platform another look.” Blackledge said press reports have highlighted “recent wins” for Google’s cloud business, including Spotify, Coca-Cola Enterprises ( CCE ) and Snapchat, which “were featured prominently in customer use-case discussions. Other customers include Home Depot ( HD ), Electronic Arts ( EA ), Zulily, Sony ( SNE ) Music, HTC, Best Buy ( BBY ), TiVo ( TIVO ), Wix ( WIX ), Philips ( PHG ), Volkswagen ‘s ( VLKAY ) Audi, (and Tata Group’s) Jaguar and Range Rover,” Blackledge said. Public clouds “are likely to be a highly competitive market where customer stickiness will be challenged by new technologies that make it easier to move workloads between public cloud vendors,” Macquarie Research analyst Ben Schachter wrote in industry research note on Wednesday. “It clearly has become a major focus area for Google and one in which it intends to compete directly against Amazon and Microsoft.” Competition between the three groups will rise “particularly as enterprises become increasingly comfortable migrating select workloads to public cloud environments,” according to Cloud Computing Today . Cloud services is “a $25 billion jump ball” that will likely be captured by the big three competitors: Alphabet’s Google Cloud Platform, Amazon’s AWS and Microsoft’s Azure, Pacific Crest Securities analyst Evan Wilson said in a Wednesday industry research note. “With it being early in this opportunity, we think there will be wins and losses along the way, but we believe (Google) will be a significant competitor in the years to come, and it could help drive growth.” Apple recently signed a contract worth between $400 million and $600 million to use Google’s Cloud Platform, according to CRN . Apple now uses cloud services from Amazon and Microsoft, but it intends to end its reliance on all its rivals in the next few years as it builds its own data centers, according to Re/Code. In February, music service Spotify, a high-profile customer of Amazon’s Amazon Web Services, said it would use  Google’s cloud for some computing infrastructure. Google’s cloud business generated about $500 million in revenues last year, according to analysts at Goldman Sachs, as cited by Reuters . That compares with $74.5 billion overall for parent company Alphabet, but the cloud business is one of its fastest-growing business areas. Overall, Reuters said Google ranks as the No. 4 player in the cloud infrastructure industry, with 4% of the market last year, according to Synergy Research. Amazon’s Amazon Web Services had a 31% share, Microsoft’s Azure had a 9% share, and IBM ( IBM ) had 7%, according to the group. Google is also building up its data centers across the world, launching two new regional centers in Japan and Oregon to bring the number of regions it serves to five. Cloud computing is an increasingly popular way for companies to run their IT operations, and the $20-billion-a-year business is forecast to grow 35% over the next year, according to Gartner Inc. Alphabet stock was down a fraction in late afternoon trading in the stock market today , near 755. Microsoft stock was up a fraction, near 54. Apple stock was down marginally, near 106, and Amazon stock was up more than 2%, near 581.

Game On! Virtual Reality Race Starts As Facebook Oculus Rift Ships

Virtual reality will get its close-up on Monday when Facebook ( FB ) starts shipping its hot Oculus Rift headsets. Facebook sees Oculus Rift as a big game changer that starts with games and later moves to virtual front-row seats at sports games, as users slap on the Rift goggles for deep-seated immersion. Preorders for the $599 Oculus Rift headsets began in January. Facebook has not said how many Rift orders it received but did say they span 20 countries. When it ships,  30 games will be available, with more than 100 games expected by the end of this year. Game prices range from $9.99 to $59.99. High-performance PCs will be needed to power the Rift system. Oculus-ready PCs and Rift bundles are available from Dell, Dell’s Alienware unit, and Asus, which start at around $1,499. They’re available through Amazon ( AMZN ), Best Buy ( BBY ) and the  Microsoft ( MSFT ) Store. Research firm CCS Insight estimates  that virtual reality devices, including the related augmented reality field, will exceed $4 billion in sales in three years. It projects 2.5 million virtual reality and augmented reality devices will sell this year, growing to 12 million devices next year, and more than 24 million in 2018. Later this year, Facebook will also ship its Oculus Touch controllers that allow people to interact more naturally in VR through hand movements and gestures. Facebook says it’s working with thousands of developers on entirely new VR experiences. Facebook acquired Oculus for $1.9 billion two years ago. Facebook CEO Mark Zuckerberg announced the Oculus acquisition with a Facebook post , saying the technology goes far beyond being a system for gaming. “After games, we’re going to make Oculus a platform for many other experiences. Imagine enjoying a court-side seat at a game, studying in a classroom of students and teachers all over the world or consulting with a doctor face-to-face, just by putting on goggles in your home,” he wrote in the post. In a conference call when Facebook announced fourth-quarter earnings on Jan. 27, he said: “This Oculus launch is shaping up to be a big moment for the gaming community. Over the long-term, VR has the potential to change the way that we live, work and communicate as well.” As to the revenue contribution Oculus will make to Facebook’s bottom line, the company is downplaying that for now. “With Rift, it’s early in the evolution of VR,” Facebook CFO David Wehner said on the conference call. “It’s early to be talking about large volumes. So, at this point, I don’t think we’re giving a lot of color around supply chain and that sort of thing. It’s not going to be material to our financials this year.” The arrival of Rift could have a big benefit for chipmaker and computer game-card maker Nvidia ( NVDA ), as the demand for virtual reality accelerates. Nvidia provides the graphic processors needed in computers for Oculus Rift performance and that of other VR systems. The virtual reality field is expected to be intensely competitive, with a host of companies jumping into the game. Samsung has already shipped its Gear VR. Sony ( SNE ) is releasing a PlayStation VR system later this year, which will have a $400 price tag. Sony VR will have the benefit of leveraging its installed base of 30 million PlayStation 4 users. Also coming is the Vive VR system from Taiwan-based HTC, in joint development with U.S. game developer Valve. The HTC VR headset will begin shipping on April 5. Likewise, Microsoft is working on its “HoloLens” technology.

Akamai Web Security Bet May Help Offset Apple, Facebook Issues

Akamai Technologies ’ ( AKAM ) push into cloud and security services could offset challenges in its media business related to Apple ( AAPL ), Facebook ( FB ), Amazon.com ( AMZN ) and Microsoft ( MSFT ), says RBC Capital, which initiated coverage with a sector perform, or neutral, rating. RBC analyst Mark Mahaney set a price target of 62. Akamai stock was down a fraction, near 55, in midday trading in the stock market today . Shares have edged up about 4% in 2016 but are down 24% in the past 12 months. Cambridge, Mass.-based Akamai is the No. 1 provider of content delivery network (CDN) services to media and entertainment companies. Akamai’s CDN technology speeds up e-commerce transactions, business software downloads and video streaming to mobile devices. Akamai has expanded into higher-margin cloud infrastructure services and security, aiming to offset price cuts in the CDN business. “We believe the company can continue to see double-digit revenue and EBITDA (earnings before interest, taxes, depreciation and amortization) growth driven primarily by cloud security and Web performance,” wrote Mahaney in a research report. “Excluding the company’s two largest media customers (presumably Apple and Facebook), we expect media delivery to remain in the very low double digits/very high single digits. “Given deceleration in revenue contribution from Akamai’s top two media customers (Apple and Facebook) in 2016, our estimates call for 9% year-over-year topline growth in 2016.  The company would need to grow 20% over the next four years to reach its $5 billion target. This would be impressive acceleration. Management has pointed to (Internet video) volumes, international revenue and strategic M&A as the key levers to support this growth inflection.” Amazon Web Services, part of the e-commerce leader, is not yet a serious rival to Akamai, while Microsoft has partnered with Akamai, noted Mahaney. Microsoft and Amazon are Akamai customers, though both also  operate commercial CDNs. “Microsoft and Akamai recently announced a partnership whereby (Microsoft’s) Azure CDN would leverage Akamai’s platform. Microsoft already uses Akamai for delivering software updates to the Xbox platform as well as updates to Office products, such as Windows 10 and Office 365,” Mahaney wrote. “Amazon’s use of Akamai is unknown, but since the company’s commercial CDN, AWS CloudFront, targets the low end of the market, we suspect Amazon leverages Akamai for large applications that have a high-performance standard and are delivered globally.” On Apple, Mahaney added: “We believe Akamai’s material OTT (over-the-top video) investments in 2015 targeted a potential Apple TV launch in Q4 2015 that never materialized. If Apple can make the economics work and moves forward with a new OTT offering, we expect Akamai will deliver a portion of this content.” IBD’s Internet-Network Solutions group ranks No. 88 out of 197 industry groups that IBD tracks. Akamai has a composite rating of 67 out of a possible 99. Image provided by Shutterstock .