The Rising Alibaba Cloud and the Future of Global Marketplaces

Alibaba Cloud

Like Amazon with AWS, Alibaba is building out its cloud business in the hope of building a massive business like AWS. And it looks like Alibaba may achieve this. Alibaba’s cloud already is the undisputed no. 1 in China. Which gives Alibaba some advantage: With Cloud computing it’s all about the scale effects. (That is why everyone has a hard time competing with AWS.)

TechCrunch recently run an extensive portrait of Alibaba’s cloud efforts:

Alibaba entered the cloud computing business in 2009, just three years after Amazon launched its cloud division, AWS — and Alibaba’s cloud computing efforts are among the ambitious projects that the Chinese e-commerce giant is pursuing aggressively. […]

Two years ago, Alibaba decided to take the cloud part of its business more seriously and expand outside of China with a billion dollar investment in Aliyun (now known as Alibaba Cloud in English). […]

Alibaba’s cloud unit has been growing at a brisk pace with triple digit year-over-year growth for its last seven quarters including 115 percent in its most recent report in December. Based on that growth, Alibaba Cloud is probably one or two quarters from reaching break even or profit, but already it has surpassed the $1 billion run rate mark courtesy of $254 million in revenue in its most recent quarter. Not bad, but not close to AWS, which grew at a more modest 47 percent rate for a total income of $3.53 billion for the quarter or a run rate over $14 billion.

​According to the analysts at Synergy Research Group Alibaba is sixth in the world:

According to Synergy Research Group, Alibaba is sixth in the world behind AWS, Microsoft, Google, IBM and Salesforce in infrastructure, platform and hosted private cloud services (this number does not include Salesforce’s more substantial SaaS business).

But as I said above, Alibaba already has (home) advantages to get to scale faster than everyone else besides AWS: Alibaba itself runs a massive online operation. And as a Chinese company it will always have the Chinese market to serve, where the company already is the no. 1 cloud provider.

Alibaba says the cloud unit now counts 765,000 paying customers. That represents an increase of 114,000 customers to the previous quarter. (+17.5%)

Alibaba now has 14 global data centers, with 8 of those outside of China.

Make no mistake, these efforts are meant to make Alibaba into a global conglomerate with several equally important income streams.

TechCrunch:

The cloud unit and Ant Financial, which is close to raising $3 billion in debt funding for M&A deals, are two areas Ma and Alibaba look to for the future. Meanwhile, Alibaba’s core e-commerce business is performing above expectations — it smashed analyst forecasts for its final quarter of 2016 and raised its expectations for the remainder of the financial year — but the e-commerce giant wants to develop businesses that can reduce its reliance on its core services in China.

Those services accounted for 87 percent of the RMB 53.25 million ($7.67 billion) revenue grossed in the last quarter. […]

Alibaba Cloud contributed just $215 million to that figure — with a small $49 million loss — but revenue was up 50 percent on the previous quarter alone and 115 percent on the previous year.

Although these growth figures are impressive, it would take years to reach $1 billion per quarter so Alibaba has focused on expanding its geographic footprint, pushing its cloud business into Europe, Australia, Japan and the Middle East by opening of four new data centers last November.

Like Amazon, Alibaba is diversifying.

One consequence, on a strategic level, is that both companies don’t have to rely solely on e-commerce margins and marketplace fees. It frees them up to establish new business models and stronger cross-subsidization, making in turn the marketplaces they provide more resilient against potential upheaval by competitors.

Late last year, Tech in Asia wrote in detail about Alibaba Cloud, which itself is rather obviously on a PR spree:

“It’s the feeling of marching with troops and waging war,” He Yunfei, senior product manager at Alibaba Cloud, tells Tech in Asia. “It’s thrilling.” […]

Singles Day, originally a kind of anti-Valentine’s day celebrated by single people, happens every year on November 11th. It’s Chinese consumerism on full and terrifying display, where sales – which totaled US$17.5 billion this year – eclipse that of Black Friday and Cyber Monday combined. […]

During this year’s Singles Day, for example, Alibaba Cloud processed 175,000 transactions and 120,000 payments per second at peak traffic. […]

“We have good large scale training opportunities for our computing power and big data ability, like Singles Day,” says Yunfei. Alibaba Cloud also services other clients with large volumes of traffic, such as 12360, the train ticket booking website created by the Chinese Rail Ministry. Every year during national holidays, 12360 gets swarmed by tens of millions of users. […]

Taobao has developed into an incredibly complex platform with almost 10,000 applications, says Yunfei. For example, there’s an application that lets users shake their phone to get promoted products during the Singles Day gala. In order to prevent bottlenecks and deal with surging volumes of traffic, Apsara leverages Alibaba Cloud’s own data centers and computing power. […]

According to the company, a single Apsara cluster can be scaled up to 10,000 servers with a total of 1 billion gigabytes worth of data storage and analysis capacity.

With the US under Trump sailing into unknown territory, Alibaba may have a hard time expanding into the US market. But the company’s European data centers, combined with sufficient data encryption, could make Alibaba Cloud into a formidable competitor to AWS in short time.

Just another front in the global war between Amazon and Alibaba.

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