[Veelox]

I agree with you that the cost of TPU development probably out ways the number of dollars that Google will earn renting TPUs. The thing is, no one else has a TPU but Google. That doesn't look like it will change any time soon. That means that if you want to run the fastest machine learning models, you have to use Google Cloud. Now, Google doesn't just benefit from the TPUs, they can now sell more customers to come to their cloud. After that starts happening, all of the best machine learning people will have Google Cloud experience. Then when they start something new, they will use what they know: Google Cloud. Also, they will create the tooling that only works with TPUs and gives an advantage you cannot use outside of Google Cloud. So, it will be a net win for Google even if it is more expensive to run a TPU than what they are renting them for.

tl;dr TPU helps Google Clouds' network effect.