Google Cloud chief details how tech company is monetizing AI

Google’s cloud chief Thomas Kurian on Tuesday explained how the tech giant is already monetizing its various artificial intelligence services to generate revenue.

“We’ve made billions using AI already,” said Kurian, speaking at the Goldman Sachs Communacopia and Technology Conference in San Francisco.

Kurian said that Google Cloud’s backlog of customer demand is growing faster than its revenue.

“Our backlog is now at $106 billion — it is growing faster than our revenue,” he said. “More than 50% of it will convert to revenue over the next two years.”

During its most recent second quarter, Google parent Alphabet in July reported revenue of $13.62 billion for its cloud computing business, which was a 32% increase from the year prior. Alphabet’s net income increased to $28.20 billion, up nearly 20% from the previous year. While Google’s cloud unit lags Microsoft and Amazon’s cloud units, it’s growing faster than them.

Here’s what Kurian said about how Google Cloud is monetizing AI:

Kurian said some people pay Google by consumption, giving the example of AI infrastructure purchased by enterprise customers.

“Whether it’s a GPU, TPU or a model, you pay by token — meaning you pay by what you use,” he said. Tokens represent chunks of text that a AI models process when they generate or interpret language.

Some people use customer service systems, paying for it by what Kurian called “deflection rates.” Such rates are priced based on the business value customers get — things like uptime, scalability, AI features and security.

Google Cloud also provides tools like a “deflection dashboard,” that customers can use to track and manage agent interactions.

Last month, Google won a $10 billion cloud contract from Meta spanning six years. Meta had largely been reliant on Amazon Web Services for cloud infrastructure, though it also uses Microsoft Azure.

Some customers pay for cloud services by way of subscriptions.

“You pay per user per monthly fee — for example, agents or Workspace,” said Kurian, referring to the company’s Gemini products, which has its own subscription tiers with various storage options, and the Google Workspace productivity suite, which also has several subscription tiers,.

Google One, a popular personal cloud storage subscription, offers a basic monthly service to users for $1.99 a month. Earlier this year, the company offered a new subscription tier called “Google AI Ultra,” which offers exclusive access to the company’s most “cutting edge” AI products with 30 terabytes of storage for $249.99 per month.

Kurian gave an example of Google Cloud’s cybersecurity subscription tiers, saying “we’ve seen huge growth in that.”

Kurian said that upselling is another key aspect of Google Cloud’s strategy.

“We also upsell people as they use more of it from one version to another because we have higher quality models and higher-priced tiers,” Kurian said.

He said that once customers use Google’s AI services, they wind up using more of the company’s products.

“That leads customers who sign a commitment or contract to spend more than they contacted for, which drives more revenue growth,” he added.

Kurian says it is capturing new customers more quickly too.

“We’ve seen 28% sequential quarter-over-quarter growth in new customer wins in the first half of the year,” said Kurian, adding that nearly two-thirds of customers already use Google Cloud’s AI tools in a meaningful way.

“Selling to existing customers is always easier than selling to new customers, so it helps us improve the cost of sales,” Kurian said.

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