Google Will Accelerate Fiber, Cloud in 2016

Expect to see a faster ramp up of Google Fiber in 2016, with buildouts in multiple cities at a more rapid pace than in 2015, and a more aggressive cloud services push as well against Amazon Web Services and Microsoft.

Those were two insights shared during what was supposed to be a more insightful reporting of fourth-quarter earnings by Alphabet Inc. , the new holding company for Google (Nasdaq: GOOG) and its various other ventures, known as "Other Bets." For the first time, those results were broken out and showed that Google is doing quite well, improving revenues, margins and profits, while Other Bets is basically bleeding cash at this point.

The Google side posted $17.3 billion in revenue, or $8.67 earnings per share, beating analyst expectations of about $16.9 billion. Google also reported $5.6 billion in operating income, a margin of 32%, up a single percentage point.

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Other Bets brought in $448 million in revenue but posted a $3.57 billion loss, which included $869 million in capital expenses. As Ruth Porat, CFO for both Alphabet Inc. and Google Inc., repeatedly told analysts on the call, the bottom line for the Other Bets businesses will be "lumpy," considering it is heavily influenced by "project milestones set years ago" and contains businesses that are still largely pre-revenue.

That capex figure will be going up in 2016, largely to fund the Google Fiber Inc. buildout, Porat and Google Inc. CEO Sundar Pichai said. Porat described the fiber-to-the-home buildout to date as "measured," as Google has developed best-practice construction processes and established protocol with its construction process. But with more cities announced -- Atlanta; Nashville; Salt Lake City; and Charlotte, NC. -- that pace will be picking up. (See Alphabet Is Serious About Google Fiber.)

In short, it sounds like Google has discovered what telecom operators already knew: Building FTTH networks is hard stuff, and the success or failure can come down to the nitty-gritty construction details, and getting processes in place that allow you to scale.

Pichai devoted a significant portion of the call to Google's cloud effort, pointing to the hiring of VM founder and chief executive Diane Greene and a new more efficient way of letting users spin up virtual machines as signs of Google's intent to do better in cloud, where it has consistently trailed both Amazon Web Services Inc. and Microsoft Corp. (Nasdaq: MSFT) significantly.

Given Google's advantage in running data centers that handle the workload of Google's own products, including its massive search and ad sale operations, "we can take that infrastructure and computing power and optimize it for all customers," delivering the best price to performance ratio and the benefit of Google's expertise in machine learning and data structure, he said.

"This will be a major investment area for us in 2016," Pichai said, claiming the move is coming "just as the movement to the cloud has reached a tipping point."

Potential customers "are making sure we are very seriously committed to the space, which we are," he added. And Google will be adding feature requirements, based on customer feedback and taking greater advantage of its compute power.

"The product is ready to be used at scale and we expect significant traction in 2016," he said.

— Carol Wilson, Editor-at-Large, Light Reading

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