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The second largest publicly traded company in the world is currently in negotiations for a joint venture with the largest private company in the world (which would soon by market capitalization become the world’s largest trading company in the world). Alphabet (the parent company of Google) and Saudi Aramco are clearly in negotiations to create a technology hub and build data centers in different parts of the kingdom.
— Forbes (@Forbes) February 2, 2018
The size of the possible joint venture is unclear, though it may be large enough to be listed in the Saudi Arabia stock exchange
Powerful crown prince of Saudi Arabia, Mohammed bin Salman, has tried to attract the global technology company to the Kingdom as part of his ambitious economic reform and diversification plan beyond oil in line with his Vision 2030 plans.
The Middle East data center market is under-served and competition is heating up, and the large American tech companies are seriously looking to establish footholds.
Breakingviews – Google offers Aramco unlikely route to IPO heaven https://t.co/JqaWw5ngSM
— Deuza Haltiner (@DeuzaHaltiner) February 11, 2018
Alphabet’s Google is chasing both Amazon.com Inc. and Microsoft Corp. in the online computing power and storage rental game, and a joint venture with Aramco could give it a key strength in Saudi Arabia, as it rushes to develop its technology sector. None of the three companies has a massive data center known as “region” in the industry, although Amazon plans to open one in Bahrain and Microsoft has announced it will open two data-center operations in South Africa this year.
Amazon is also close to finalizing a $1 billion deal to build three data centers in Saudi Arabia, people familiar with that deal said. The deal is expected to be announced during a trip to the U.S. by Prince Mohammed early this year.
Google parent Alphabet and Aramco in talks to build tech hub in Saudi Arabia https://t.co/tSDAbOzwFW
— FOX Business (@FoxBusiness) February 2, 2018
A data-center region in Saudi Arabia could potentially help Google win business from oil-industry customers that are looking to shift their computing operations to the cloud. The costs for such centers can run into the hundreds of millions of dollars.
Most data for the Middle East is piped from Europe, slowing surfing to the most-trafficked websites, which are accessed via long-distance undersea cables, according to a person familiar with the Alphabet-Aramco talks. Local data servers which would store content but also the cache memory of personal-navigation data or social media content would speed up access and help the country be more competitive in the digital economy.
Alphabet and Saudi Aramco, in total worth an estimated $2.3 trillion, are in talks to create a joint venture that would ramp up tech in Saudi Arabia https://t.co/WUNB2itgKc
— WSJ Markets (@WSJmarkets) February 2, 2018
Alphabet and other digital giants in the tech business are somewhat reluctant to establish physical data centers in the Middle East, Africa and most of Asia due to data protection issues, unlike as obtainable in the United States, the police usually do not need a court order to access private data.
Internet experts say the lack of protection of online data users in Saudi Arabia and other Gulf countries remains an obstacle to the erecting of mass storage by American internet giants and more broadly, the region’s competitiveness in the internet economy. “Data servers located geographically close to customers means the speed of access is much higher,” according to Emily Taylor, an associate fellow researching internet governance and privacy at British institute Chatham House.
It is still unclear what this partnership between Aramco and Google will look like, but the creation of data centers is seen as a “tangible” area where both companies could co-operate.
— World Business (@dir__business) February 2, 2018
But Google and Aramco’s venture is particular to Aramco’s business and what the Saudi energy company needs to thrive. Aramco is already a technology innovator. Along with its subsidiaries, it’s already (in Saudi Arabia, the U.S., and Asia) developing cutting edge technology in robotics, plastics, energy production, combustion engines and nanotechnology. These and the general energy operations business require high-end computing and data support.
Aramco already has supercomputers used to model oil drilling, but in advanced industries today, cloud-computing capacity is vital. In partnering with Google, Aramco is employing a process it has used time and again to leverage the best technology than what other companies have to offer.
This strategy has given Aramco an edge over its competitors. Some observers apparently believe this news is a sign of power and leadership from the Saudi royal family. But, in fact, this indicates that Aramco (and Alphabet) are powerful companies at the forefront of their fields. It is natural for them to work together.
Google executives have visited Saudi Aramco’s eastern province headquarters in Dhahran (the location of the gargantuan project) in recent months.
The energy giant is the world’s largest oil production company and is seen as the most technologically advanced enterprise in the kingdom. It has long had a close relationship with Google.
Saudi Aramco’s board of directors held a meeting in 2016 in San Francisco and participated in site visits to technology companies in the Silicon Valley area including Google’s headquarters.
Discussions at the time focused on Google’s investment activities in technology-focused companies, according to a readout of the board meeting in a company magazine.
Aramco, widely believed to be on the cusp of a huge IPO, is partnering with a peer. These are two huge companies, soon to be two huge public companies working together. In this move, Aramco would be partnering with an expert to advance its own innovation and efficiency. This is akin to Exxon working with IBM to set up servers for the energy business 20 years ago. The news also reminds potential investors as its IPO approaches that Aramco seeks to continue its position at the forefront of technology in its industry.
Prince Mohammed has said the proceeds from the IPO would be used to invest outside of the oil industry.
“The future business case for oil is slowly shifting from energy to how much technology can boost the oil sector’s productivity,” said Sam Blatteis, chief executive of MENA Catalysts Inc., a Middle East public-policy advisory and research firm, and who was Google’s head of Gulf government relations until July of last year. “Technology is driving a dramatic reordering of the oil arena, becoming the single most important driver of innovation, competitiveness, and growth.”
While a potential joint venture between Alphabet and Aramco isn’t necessarily connected to the latter company’s IPO, if a deal is struck before the offering, advisers to the company could pitch the pact as a way for investors to bake in technology valuations.
Because of the outperformance of the technology sector and tech companies’ massive growth potential, investors have often been willing to value firms higher if they can successfully pitch themselves as technology companies. It is unclear whether Aramco would seek to do this in its IPO.