An interesting cloud story is tucked inside Snap Inc.’s S-1 filing for an initial public offering (IPO). It turns out that Google, considered the No. 3 player in the public cloud infrastructure market, has a hefty $2 billion deal with the company behind messaging app Snapchat. According to the terms of the deal, Snapchat must spend $400 million on the Google Cloud each year, beginning on January 30, 2017. And if that doesn’t happen — for each of the first four years — as much as 15 percent of the $400 million can be rolled over to the following year.
Assuming that Snap will do the full $400 million each year, that works out to more than $33 million per month — a huge cloud spend. For some context, public cloud market leader Amazon Web Services (AWS) last year succeeded in getting Salesforce to agree to spend $400 million spread over four years.
It’s not as if Snapchat is a new addition to Google’s servers. The app has been hosted on Google infrastructure for four years or more; nowadays the “vast majority” of Snapchat runs on Google, according to today’s filing.
The thing is, while Google has been opening up new data centers around the world for its public cloud, it doesn’t currently have the geographical reach that other clouds do. To narrow down the focus to one country, it does not have a footprint in China. AWS does, and so does Microsoft Azure. Both rely on partners based in China (Sinnet and 21Vianet, respectively) to operate their data center infrastructure in the country.
But more generally, Google pulled out of mainland China in 2010 as a result of censorship issues. “Access to Google, which currently powers our infrastructure, is restricted in China, and we do not know if we will be able to enter the market in a manner acceptable to the Chinese government,” Snap said in the filing. Plus, Snap only recently opened an office in China. “We have very limited access to the China market, as we have not yet established an operating presence in China to support Snapchat,” Snap said in the filing.
China is important because it’s a place where there’s lots of advertising spend — second only to the U.S., according to the IDC data Snap included in its filing — and that’s important because Snap’s primary revenue stream is from ads. So it’s probably safe to say Google not being there is at least an inconvenience.
Because of the contract Snap signed with Google, which comes with discounts but does allow for a reduction in payment in the event of “a significant revenue decline,” Snap’s not really in a position to very easily transfer to another cloud or hosting provider.
“Any transition of such services to another cloud provider would be difficult to implement, and may cause us to incur significant time and expense,” Snap said in the filing.
But that isn’t to say Snap isn’t being smart and preparing for a future without Google.
“We are currently negotiating an agreement with another cloud provider for redundant infrastructure support of our business operations. In the future, we may invest in building our own infrastructure to better serve our customers,” Snap said.*
That’s not unheard of. Dropbox switched off AWS and onto its own infrastructure. But that step is, I would guess, a few years away for Snap.
Google did not immediately respond to a request for comment.
*It’s got to be either AWS or Azure. If you know, tell me!
This article was written by Jordan Novet from VentureBeat and was legally licensed through the NewsCred publisher network.