Free cloud service aims to hook start-ups early

Google gives away credit now to gain later

Google announced Friday a new program to give start-up companies as much as $100,000 in credit on its Google Cloud Platform to help eligible young companies get access to the wide range of back-end computing services known as "cloud services," as well as accompanying technical support.

According to the Google Cloud Platform Blog, the offer is available to start-ups around the world through top incubators, accelerators and investors, though Google doesn't go into detail about whom these investors are. Google limits the program to companies with less than $5 million in funding and less than $500,000 in annual revenue.

The program may seem like charity, but Google is no good Samaritan. By offering start-ups free access to its cloud service, the Internet giant not only aims to promote its technology, but more importantly, also hopes to hook new clients early in their development. The idea is that the companies will continue to use - and pay for - Google Cloud Platform after they run out of credit.

The program sounds more like a publicity stunt than sound business strategy. Compared with the $60,000 in credit available through Microsoft's start-up funding program BizSpark Plus, Google's generous offer is designed to attract more fledgling companies that are in dire need of funding and technical assistance. But the real power of the program is its assembly effect.

Take Amazon Web Services (AWS), Google's rival in the business, as an example. With its cloud computing division, Amazon has put together a bundle of services for start-up mobile application developers. Because developing an app usually requires some common core technologies, AWS provides these technologies on its cloud platform where start-up developers can share, thus allowing them to focus their budgets on creating innovative products.

It doesn't cost much for novice developers to get computing and data storage through AWS. The service has since attracted many prominent and thriving application developers. Some of these early businesses, such as Dropbox, have grown very large, and their success has helped attract much bigger companies, such as Netflix. Few would doubt that Amazon beat almost all of its competitors to the market. Google now seems to be following in its footsteps.

It's clear that Google is gambling on the theory that start-ups will choose to stay with their cloud service after their businesses take off. If this turns out to be the case, Google's gamble will begin paying off with the success of the first batch of start-ups that took advantage of the program.

According to a report by Synergy, a market research firm, cloud computing generated $2.5 billion in revenue in the third quarter of 2013, up 46 percent from the same quarter of 2012. Not only did Amazon grab most of that, its own cloud revenues soared 55 percent. It also increased its overall market share. By the end of 2013, Amazon reported $2.7 billion in "other" revenue, most of which came from its Web services division.

However, the market is dominated by only a few, mostly US, technology companies. They operate globally and provide identical services to their clients, so there is little room for cloud service providers to maneuver to compete with each other. It seems that a lower price is the only available option.

Actually, it's not the first time that Google launched a start-up funding program, and it remains unclear whether Google will be able to hook its clients by providing a larger amount of funding than its competitors. But because cloud computing has become a pillar of growth for small and medium-sized enterprises (SMEs), there is no doubt that the industry will experience robust growth. According to a McKinsey report, the SME cloud market could be as much as $28 billion in 2015, which would account for 40 to 50 percent of the entire market.