Google saves almost $3bn by running servers for six years

In its latest quarterly results, Alphabet, the parent company of Google, reported  $2.9bn savings on server life extension. For the quarter which ended on September 3, the company reported revenue of $77bn.

The internet giant’s latest quarterly results shows the company has made significant savings by extending the life of datacentre servers from five to six years. The effect is greater than the employee severance payout that occurred in 2023.

In January 2023, Alphabet announced a reduction of its workforce and started work on reducing global office space. While this was going on, it completed an assessment of the useful lives of its datacentre servers and network equipment and adjusted the estimated useful life of servers from four years to six years and the estimated useful life of certain network equipment from five years to six years.

The effect of this change over the nine moths to September 2023, was a reduction in depreciation expense of $2.9bn and an increase in net income of $2.3 bn, the company stated in its latest quarterly results filing.

CFO Ruth Porat, who is also Alphabet’s president and chief investment officer, said: “The fundamental strength of our business was apparent again in Q3, with $77bn in revenue, up 11% year over year, driven by meaningful growth in Search and YouTube, and momentum in Cloud. We continue to focus on judicious capital allocation to deliver sustainable financial value.”

During the earnings call, she said Alphabet was maintaining a slower pace of head count growth, reflecting product prioritisation and reallocation of talent to support the company’s most important growth opportunities: “We remain focused on optimising our real estate footprint, including how and where we work to reduce our expense growth.”

She said Alphabet is also focused on “engineering work streams” improve productivity across the business. “Given the magnitude of investment in our technical infrastructure, we have a superb team focused on efficiency of our operations there. We are also making progress in streamlining operations across the Alphabet through the use of AI.”

When asked about managing costs, Porat said there were efforts to enable the company to keep expense growth as moderate as possible while supporting the investment growth, especially in the area of artificial intelligence (AI).

Along with the internal focus on using AI, the technology is a key component of Alphabet’s growth strategy. CEO Sundar Pichai said the company’s focus has been on making AI more helpful for everyone.

One of the projects due in 2024 is Gemini from Google DeepMind, which he said “is laying the foundation of what I think of as the next-generation series of models”.

“The pace of innovation is extraordinarily impressive to see,” he added. “We are creating it from the ground up to be multimodal and highly efficient at tooling, API integrations and, more importantly, laying the platform to enable future innovations as well.”

Pichai said Alphabet was developing Gemini in a way that means its size and capabilities can vary: “We’ll be using it immediately across all our products and internally as well as bringing it out to both developers and cloud customers through Vertex.”