Snap commits $2 billion for Google Cloud infrastructure
Most of today’s Snap coverage will be about its revenue and daily average usage numbers, but there was one small tidbit that emerged that will mean big business for the company’s cloud infrastructure partner, Google.
In Snap’s S-1 filing, the company announced a license platform agreement it struck with Google for its cloud infrastructure services. Under the terms of the deal, which was completed just a few days ago (on January 30), Snap committed to purchasing at least $400 million in cloud services for each of the next five years.
Snap has been using Google infrastructure since at least 2013, but the size of the deal will likely make it one of Google’s largest and most important cloud customers.
For each of the first four years, Snap will be able to roll 15 percent of that amount over to the next year, but otherwise it will be required to pay the difference if it doesn’t meet the minimum purchase agreement. All told, that means Snap will be paying Google at least $2 billion for its cloud infrastructure through 2022.
Google doesn’t break out revenues from its cloud infrastructure, choosing to lump it in with other non-advertising businesses like hardware and Google Play sales. But that segment totaled $3.4 billion in sales in the most recent quarter. In that case, $400 million a year is actually a significant portion of the segment’s business.
For Snap, the deal represents a huge future commitment, and is even listed as a potential risk factor if the platform is discontinued or if it changes its terms of services or policies, among other things.
Relying on Google Cloud could also potentially limit Snap’s ability to expand into markets like China. As the company notes in its filing:
“We also face regulatory challenges that may affect our ability to grow in certain markets. For example, we have very limited access to the China market, as we have not yet established an operating presence in China to support Snapchat. Access to Google, which currently powers our infrastructure, is restricted in China.”