Over the next five years, Snapchat is committing to spend $2 billion in running its business on Alphabet Inc (NASDAQ:GOOGL) Google Cloud. This was made public during the company’s initial public offering filing and the same stamped through the signing of a detailed the new contract on January 30, 2017. The terms of the deal dictate that Snap, which was formerly Snapchat will be partying with $400 million every year to use the cloud services from the search giant.
According to Snapchat Google Cloud is a risk factor. They say, “We have committed to spend $2 billion with Google Cloud over the next five years and have built our software and computer systems to use computing, storage capabilities, bandwidth, and other services provided by Google, some of which do not have an alternative in the market.”
It is in the public image that Snap uses Google cloud infrastructure
Snap has the popularity of being a popular messaging-and-photo sharing app. However, it is known that Snap has been running its operations on Google’s cloud infrastructure. Nonetheless, there were no details of prior contracts but there are speculations that it may at some point in the future, it may build its own infrastructure.
The Los Angeles-based Snap claims over 158 million active users. It is currently valued at between $20 billion to $25 billion. This gives it a likelihood of being the largest tech IPO to overtake its chief competitor, Facebook, which went public five years ago.
Google could increase pricing terms or re-establish relationships with rivals
Snapchat has been running the fast of its majority of computing on Google Cloud. However, they must wary about losing their customers or partners if they are not able to access their services through Google Cloud. There are also chances of having increased hosting costs user engagement grows.
At this point, Google may have to take drastic decisions for example to increase the pricing terms, modify the service or re-establish relationships with its rivals.