Alibaba is not very popular for its cloud computing services worldwide, but it surely wants to be among the top options. In 2009, the e-commerce giant took its first step into the cloud computing market, just three years after Amazon added its cloud division dubbed AWS.
Alibaba’s cloud segment growing but still no match for AWS
The Chinese giant started taking the cloud part of its business more seriously two years ago and expanded the business outside China with a billion-dollar investment in Alibaba Cloud, or Aliyun. At that time, Simon Hu, president of Aliyun, made a huge prediction. Hu told Reuters that their aim is to supersede “Amazon in four years, whether that’s in customers, technology, or worldwide scale.”
Alibaba’s cloud unit has been increasing at an amazing pace with triple-digit y-o-y growth for the past seven quarters. In December, the online retailer reported 115% growth. Based on this brisk growth, it may be a quarter or two away from reaching profits or at least a break-even point, notes TechCrunch.
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Alibaba’s cloud business has already exceeded the $1 billion mark thanks to the $254 million revenue recorded in its latest quarter. Of course, that is not even close to AWS, which grew at a 47% rate for overall income of $3.53 billion for the quarter. AWS, the biggest cloud business in the world, had $11 billion in sales last year.
How it plans to narrow the gap
To narrow the gap with AWS, Alibaba is boosting its cloud computing efforts and pursuing the cloud business aggressively. Alibaba Cloud doubled its data center capacity this year in Hong Kong.
The Chinese firm is also taking inspiration from its U.S. rival to grow its own business. Since its launch, AWS has dropped prices 52 times, and the rates it charges are now half of those charged by smaller competitors. Similarly, in October, Alibaba almost halved its core product prices, notes the Financial Times.
Elinor Leung of CLSA’s Asia internet research team told the FT that the potential for the Chinese e-commerce giant in cloud is the same as it is for AWS.
“It’s about scale and technology. The bigger you are, the less costs you pass on to the customer,” said Leung.
Another thing in favor of the Chinese firm is the growing spending on the cloud in the region. Though it is still minute compared to the growth in the U.S., it is growing rapidly. According to research firm Gartner, total spending in China on public cloud services is expected to increase to $14.2 billion (one-tenth of the $141 billion anticipated to be spent this year in the U.S.) from $11.2 billion in 2016 this year.