Google To Allow Crypto Payments With New Coinbase Deal

Key Takeaways

• Google and Coinbase have signed a deal which will see Google accept cryptocurrency for some of its cloud computing clients
• It’s a move which will allow Google to go after cutting-edge crypto and Web3 companies who want to use digital currencies as their payment method
• Coinbase will receive a percentage of these payments and it will allow them to continue to diversify away from revenue based on trading volume

While Google’s Cloud Next conference may not pull the crowds like Apple’s annual presentation or even Tesla’s AI Day, there have nonetheless been some interesting developments to come out of this year’s event.

Given that Google is now one of the aging stalwarts in the tech industry, it may come as a surprise to some that they plan to begin to accept crypto as payment for some of their cloud computing services.

They’ll be relying on Coinbase to facilitate these transactions, which is expected to be operational in early 2023.

This has the potential to be a major boon for both companies as they look to expand their offerings and diversify their business models. For Google, it allows them access to fast growing companies operating in the Web3 space, which many still believe has big potential despite recent hiccups.

From Coinbase’s perspective it will provide them with a revenue stream which isn’t directly tied to trading volumes. This is vital for the stability of the company, who recently laid off over 1,000 employees as a result of plummeting trading volumes due to the crypto winter.

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What we know about the deal

Google’s cloud computing business is seen as a key factor for their future success. The sector is growing all the time, is very lucrative and allows them to diversify their revenue away from advertising.

This deal with Coinbase allows Google to plug a gap in the market by allowing companies in the crypto space to pay for their cloud storage using digital currency. Currency there aren’t any major competitors who allow companies to do this.

It’s a big deal because underpinning the philosophy of many crypto and Web3 companies is a fundamental philosophy that wants to move away from using fiat currency such as the US dollar. Given the opportunity, many of these businesses would opt to use services that allow payments in crypto, but right now they simply don’t exist on the scale that is required.

The offer won’t be widespread to begin with. Google plans to offer the service to a select number of Web3 clients whose payments will be routed through Coinbase Commerce. This platform accepts ten different digital currencies which include all the names you’d expect such as Bitcoin, Bitcoin Cash, Ethereum, Litecoin and yes, even Dogecoin.

So for Google, it allows them to provide an offering they don’t currently have the capability for, which will widen their user base and increase revenue. For Coinbase, they’ll charge a percentage of the fees that go through their platform and will diversify their own revenue stream away from retail trading fees.

It’s similar to the way that any other payment provider works, whether that’s Apple Pay, Amazon Pay, or even Visa and Mastercard. All of these networks function by taking a small percentage as payment for facilitating the transaction.

The only difference here is that these transactions are denominated in cryptocurrency rather than fiat currencies.

Future cryptocurrency plans on the table

This could be just the beginning of Google’s foray into the world of crypto and Web3. They have also stated as part of the new partnership, that they plan to consider how they might get involved with helping other organizations manage their crypto portfolios.

This is still an area in its infancy, but hardcore Bitcoiners beleiver that over time we can expect to see more and more companies holding Bitcoin on their balance sheet. So far the takeup of this strategy has been limited to a small number of, admittedly pretty big, companies including Tesla, Coinbase, Microstrategy, Block and Riot Blockchain.

The challenge for these companies is how to store these assets. Traditional finance relies on trusted intermediaries to hold assets on a company’s behalf. Companies like Amazon, Apple and Microsoft hold billions of dollars in cash at any given time and this is held in accounts with major banks like JP Morgan Chase, Goldman Sachs and Bank of America.

These institutions are heavily regulated and trusted, meaning companies can expect their cash to be safe. Things get a little complicated with crypto.

Digital currencies are, by definition, decentralized. This means there are no trusted third parties required to facilitate transactions and generally speaking the onus on the security of the assets comes down to the holder.

There are options available, such as holding assets on exchanges, but the sector has been famously involved in many high profile collapses where investors have lost millions.

Like the gap in payment services Google is looking to fill, there is a potential opportunity to insert a trusted third party into the storing of crypto. Pretty ironic when you consider Bitcoin was created in order to avoid just that.

Coinbase already offers a service that facilitates this through a program known as Coinbase Prime. It will be interesting to see whether Google decides to push this service and whether it would entice more conservative organizations to dip their toes in the crypto waters.

The fight for cloud market share

Cloud computing is becoming the next major battleground in big tech. The industry has grown dramatically in recent years and is now worth a combined $203.5 billion. Cloud computing is an IT service which allows companies to offer resources like data storage on essentially a rental model.

In essence, it works exactly the same way as your iPhone cloud or Google Drive. By offloading your photos or your documents to Apple’s or Google’s servers, it means you can still access the files without needing to increase the storage on your phone or your laptop.

For companies, it’s the same. Rather than needing to build out huge server rooms to store all of their data, they can simply rent more and more storage from a cloud computing provider as they grow. This means they don’t need to pay for storage they don’t yet need, and can scale up quickly as their business grows.

It’s a profitable business and the list of companies dominating the market share of the cloud computing space is a who’s who of Silicon Valley.

Amazon Web Services is the dominant player with 34% of the market, followed by Microsoft’s Azure at 21% and Google Cloud at 10%. Alibaba, IBM, Salesforce, Tencent and Oracle make up a combined further 17%.

This growth is expected to continue, with some reports suggesting the industry could be worth $1,143 billion by 2028. That’s a compound annual growth rate of 15% per year.

What does this mean for investors?

This is another example of the innovation potential of the tech industry. As long as technology continues to evolve and develop, companies will find new services to offer and efficiencies to share that will generate new sources of revenue.

Cloud computing is still relatively new and yet it’s now an industry worth over $200 billion.

It’s one of the reasons why the tech industry can be such an attractive investment. That doesn’t make it easy though. The sector has experienced a huge amount of volatility recently, and one of the hallmarks of the industry is the ability for new players to come in and disrupt the status quo.

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