Google On Track To Connect the Cloud to Space Superfast

Google and SpaceX are about to connect the cloud to space, and it’s a really big deal.

Last week, managers at Google Cloud, a subsidiary of Alphabet Inc. (Nasdaq: GOOGL), announced the company won a contract to supply ground services to Starlink, a fledgling constellation of internet satellites.

The deal merges Google’s data centers with potentially the world’s fastest internet.

Most investors know SpaceX as Elon Musk’s pet project for colonizing Mars. In 2015, the rocket company started Starlink as a vehicle to fund interstellar travel.

The big idea was to build a constellation of low earth orbit satellites capable of providing fast, reliable internet to rural and underserved locations. Early documents reported by the Wall Street Journal projected the business could generate $30 billion annually by 2025, and potentially service 40 million customers.

And there’s good reason to believe the service will be a winner.

Starlink beta launched in October 2020 as an invite-only service. Unlike satellite internet businesses of the past, the Hawthorne, California-based company relies on many small spacecrafts in orbit only 340 miles from Earth, 60 times closer than conventional geostationary satellites. When complete, the Starlink constellation will have 42,000 satellites, crisscrossing the globe at an astonishing 4.4 miles per second (mps).

Related Post: Google Continues To Find Success

The beta service now has 1,500 satellites, and customers are raving. In some parts of rural Montana, subscribers are routinely getting 130Gb download speeds. For context, subscribers can’t even get reliable cellular service, yet Starlink allows them to make WiFi video calls and watch Netflix, Inc. (Nasdaq: NFLX) in 4K resolution.

The secret is low latency and physics.

Starlink is blazing fast, even with a smidgeon of its ultimate satellite deployment because light travels faster in the vacuum of space. This is a huge advantage over fiber optic cables strewn across ocean floors or buried in concrete connected to office towers.

Amazon.com, Inc. (Nasdaq: AMZN) and Microsoft Corp. (Nasdaq: MSFT) built a big lead in the first phase of cloud computing by selling their data center excess capacity. Corporations bought scalable computer processing and data storage on a pay-as-you-go basis.

Instead, Google managers focused mainly on linking its global data center system with a private fiber optic network. The foundation of the agreement with Starlink is leveraging that infrastructure and the combination should be the fastest connection anywhere, by a lot.

In 2019, Musk tweeted that Starlink is aiming for 20 milliseconds (ms) latency when it comes out of beta and sub 10ms over time. Today, with only 1,500 satellites in operation, Starlink internet signals travel between New York and London in 50ms. The best current conventional internet is 70ms. A London to Singapore jump takes 90ms compared to 159ms on optical fiber.

Saving milliseconds could be worth billions of dollars for enterprises.

The Goldman Sachs Group (NYSE: GS) invested $100 million in 2019 to shave only a few milliseconds from their trading platform, according to a report from CNBC. Managers at the giant investment bank want to attract quantitative hedge funds that routinely execute computer-driven stock trades lasting no longer than a millionth of a second.

Related Post: New Space Fund Starts Like a Rocket

Thomas Kurian, chief executive at Google Cloud, understands the size of the opportunity. In a prepared statement on Thursday, Kurian said he believes low latency, coupled with Google’s lead in machine learning, will lead corporations to deploy applications inside Google’s cloud.

Fast universal connectivity is a big competitive advantage.

Investors are currently focused on the business opportunity at Starlink. Musk announced last week that 500,000 people have preordered the service. The bigger payoff is Google Cloud.

Alphabet is best known for digital ads and YouTube. That is a great business to be in … yet the real strength of Google is the machine-learning technology behind all of those advertisements.

Company engineers have a huge lead in building algorithms that parse and make sense of enormous streams of digital information. Kurian and his sales force are on a mission to monetize that knowledgebase. Adding the fastest connectivity will help incentivize customers.

 

Savvy investors should consider using any near-term weakness as a buying opportunity.

Best wishes,

Jon D. Markman

About the Editor

Jon D. Markman is winner of the prestigious Gerald Loeb Award for outstanding financial journalism and the Society of Professional Journalists' Sigma Delta Chi award. He was also on Los Angeles Times staffs that won Pulitzer Prizes for coverage of the 1992 L.A. riots and the 1994 Northridge earthquake. He invented Microsoft’s StockScouter, the world’s first online app for analyzing and picking stocks.

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