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Google trying to play catch-up in cloud services

Google (GOOGL) is holding a cloud developer conference on Tuesday to try to attract more business for its lagging cloud platform.

The search giant trails far behind Amazon’s (AMZN) web services division. It’s closer to second-place Microsoft’s (MSFT) Azure offering but still remains buried in the pack with late-comers like IBM (IBM), upstarts such as Rackspace (RAX) and others.

It’s not just that Google got a later start than Amazon. The search giant also initially wanted developers renting its server capacity to use a lot of Google’s own software. Amazon went with a more open approach, as the Wall Street Journal noted on Tuesday.

The result was a big, early lead for Amazon, which captured high-profile customers like Netflix (NFLX) and the Central Intelligence Agency. Google, Microsoft and the others have been cutting prices and adding features in an all-out effort to catch up. And on the whole, Amazon’s market share has slipped a bit, though Google has not been the prime beneficiary. At Tuesday's conference, Google announced a slew of additional price cuts, some new features and closer ties with some of the largest Internet service providers.

Google also loosened up its platform last year by offering virtual machines that could run different operating systems, such as Linux, to better compete with Amazon's Elastic Cloud Compute product. Now it’s ready to make a new pitch to developers who’d prefer to power their cloud services with industry standards.

And it has been making acquisitions and establishing partnerships to gain greater traction. Last month, it bought mobile cloud app developer Firebase and announced a partnership with PricewaterhouseCoopers to help big companies use Google’s cloud services.

Still, there’s no sign that Google has truly differentiated itself from the pack. Over the past year, not including Tuesday's price cut, Google largely closed the price gap with Amazon but Microsoft and IBM are still cheaper in a typical usage cases, according to research by RBC analyst Jonathan Atkin. In market share, Google has been falling further behind Microsoft, led by CEO Satya Nadella, who used to run the Azure unit and is intensely focused on winning the cloud race.

An even bigger question is whether boosting its cloud business will benefit shareholders in the end. Debate continues on the ultimate structure of the market. Will one or two cloud providers dominate and accrue monopoly-level profits? That’s what happened with PCs, mobile networks and some other technology markets. Or will cloud platforms end up as a low-margin, commodity business?

The price war has already hit profit margins. The move to industry standard software makes it easier for customers to switch to the cheapest provider, adding pressure for even more price cuts. To be sure, some customers value reliability, security and other features more than a low price.

If the market ends up as a chaotic, cutthroat, commodity bazaar, fourth place may not look so bad.

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