Google Gets Apple to Jump Aboard Its Cloud Business (Though It May Not Last)

In its bid to raise its name in cloud computing services, Google nabbed a big-name customer: Apple. The iPhone maker recently started storing portions of its iCloud and services data with Google’s cloud platform, according to sources familiar with the deal.

It’s a win for Google, which is gunning for larger companies as cloud customers. But it might be short-lived, as it looks like Apple is also simultaneously building out its own system to bring data stored on its millions of devices in house.

Currently, much of Apple’s iCloud luggage sits with Amazon Web Services, the leading cloud provider by a long mile, and also with Microsoft’s Azure. CRN, the publication which first reported the news, claims that Apple is trimming its reliance on AWS by turning to Google. At minimum, Apple would seem to be adding Google to the mix.

Apple and Google both declined to comment.

Amazon, which often doesn’t disclose the identity of its customers, issued a statement implying that Apple hadn’t defected. “It’s kind of a puzzler to us, because vendors who understand doing business with enterprises respect NDAs [non-disclosure agreements] with their customers and don’t imply competitive defection where it doesn’t exist.”

For the record, Apple disclosed its reliance on AWS and on Azure in a 2014 white paper.

CRN pegged Apple’s spending with Google between $400 million and $600 million. One source simply said it was a “significant” amount. If the CRN report is accurate and the revenue figure refers to an annual rate, that would be significant for Google: The search giant doesn’t disclose its cloud numbers, but some analysts have pegged its total revenue last year at around $500 million.

For Apple, though, the deal might portend a move to cut costs ahead of creating its own cloud storage system. Google’s cloud team is in deal-making mode, aggressively seeking to bring in new customers to use its cloud services, and may have sweetened the deal — or been more willing than AWS and Azure to concede to Apple’s demands. (And Apple, if anything, is good at aggressive demand-making.)

Then there’s Apple’s next step. Morgan Stanley, in a note last month, laid out the tea leaves: Apple has announced three data centers opening soon and spent an estimated $1 billion last year on AWS. It’s a logical move for Apple if it wants more independence from its tech rivals. And it’s one Apple should make to store the growing media libraries from its mobile, TV and TBD products.

According to a source familiar with the matter, Apple already has a team working on this; it’s known internally as “McQueen,” as in Steve. It’s unclear if that project will materialize or when. But a source tells Re/code that the codename refers to Apple’s intent, sometime in the next few years, to break its reliance on all three outside cloud providers in favor of its own soup-to-nuts infrastructure.

Apple has reckoned, one source says, that given the fees it is paying Amazon and Microsoft, it could break even with its own data centers within about three years and not have the headache of negotiating with companies it considers rivals in other areas of its business.

In the interim, the deal is a boost for Google, which has very quickly accelerated its enterprise business after hiring industry bigwig Diane Greene to run it in November. To date, the company’s cloud has largely targeted startups and small businesses, but is making a concerted sales push for larger clients. Last month, Google announced it had signed on Spotify.

Update: We added some additional context on the codename “McQueen” and also added that Apple uses Microsoft Azure in addition to Amazon AWS for some of its cloud infrastructure. We also added a statement by Amazon and a link to an Apple white paper from 2014.

Additional reporting by Arik Hesseldahl.