Google is slashing the amount it keeps from sales on its cloud marketplace as pressure mounts on app stores
- Google is matching Microsoft's revenue share terms for purchases of third-party software through cloud marketplaces.
- The change could bring attract more cloud business, which could help Google further reduce dependence on advertising.
Google is reducing the amount of revenue it keeps when customers buy software from other vendors on its cloud marketplace, as the top tech companies face increasing pressure to lower their so-called take rates.
The Google Cloud Platform is cutting its percentage revenue share to 3% from 20%, according to a person familiar with the matter who asked not be named in order to talk about internal policies.
It's the cloud group's latest effort to become more competitive since Thomas Kurian joined as CEO in 2019 after a career at Oracle. Google, which trails Amazon Web Services and Microsoft Azure in cloud infrastructure, is trying to attract independent software makers to sell their products on Google's cloud.
"Our goal is to provide partners with the best platform and most competitive incentives in the industry," a Google spokesperson told CNBC in an email. "We can confirm that a change to our Marketplace fee structure is in the works, and we'll have more to share on this soon."
Big Tech companies in recent months have been decreasing the amount of money they retain on their platforms, whether it's for consumer apps or business products. Some of the pressure is related to competition, while regulatory and legal concerns are also mounting.
In July Google decreased the percentage it keeps from purchases through its Play Store, where consumers buy apps, to 15% from 30% for the first $1 million in revenue a developer earns each year.
Also this year, Apple provided the same reduction for app developers with under $1 million in annual sales. As part of a lawsuit filed by Epic Games, a judge in California ruled this month that Apple will no longer be allowed to prohibit developers from providing links or other communications that direct users away from Apple in-app purchasing.
Meanwhile, in August, Microsoft lowered the percentage of sales it keeps from game purchases from its Windows app store to 12% from 30%.
On Google's cloud marketplace, customers can find products from prominent software companies, including Confluent, Elastic, MongoDB and Twilio. But it lacks products from companies such as Accenture, Equifax, FactSet, Freshworks, Hewlett Packard Enterprise and Xilinx, which all have listings in the AWS marketplace.
AWS, the market leader, charges a listing fee of about 5%, according to an estimate earlier this year from analysts at UBS. The AWS marketplace generates about $1 billion to $2 billion in annual revenue, they said. Amazon declined to comment.
Microsoft said in July that it had cut its rate from 20% to 3%.
"Our fees are only intended to offset our operational costs of invoicing and billing customers, and operating the marketplace," Charlotte Yarkoni, chief operating officer for cloud and artificial intelligence at Microsoft, said in a statement. "We are not trying to take a share of our partners' revenue. Our ecosystem is a channel for us to help partners sell their solutions, not the other way around, unlike other cloud vendors."
Google has yet to turn its cloud platform into a profit engine for parent company Alphabet. In the second quarter, Google reported a $591 million operating loss from its cloud segment on $4.6 billion in revenue. Alphabet still counts on advertising for about 82% of revenue and substantially all of its profit.
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