The Rise of Alibaba Cloud (AliYun)

Alibaba Cloud, AliYun, CIO, Cloud, Cloud Computing, CTO, Strategy

The Rise of Alibaba Cloud (AliYun)

A little history

Alibaba Cloud is an Alibaba Group company, headquartered in Hangzhou China and is the top provider of Cloud computing services in China. Alibaba launched its cloud business back in 2009, just three years after Amazon unveiled AWS. Alibaba Cloud or “AliYun” made an investment of $1B in 2015 to get more focused in competing with the big Cloud providers. The ROI on that investment is showing up now as it is being ranked in the top five or six top global cloud providers list according to two separate industry reports. At home in China, it is the #1 cloud provider with over 40% market share along with Microsoft and AWS are which are in the top five list. Recently Alibaba Cloud made a big splash in the media with their recent cloud offerings to non-Chinese customers in Europe. At the Mobile World Congress which took place this in Barcelona Spain in early March, they unveiled a new cloud-based quantum computing platform, Analytics and other Artificial Intelligence (AI) services to European customers. This heralds a beginning of a new strategy to offer international products specifically designed for overseas markets, rather than just “internationalizing” the Chinese offerings. This seems like a move to compete head to head with the other top cloud providers like IBM, Microsoft, Google and Amazon. Microsoft is working with Cray Inc. to bring supercomputers to the Cloud for their customers where IBM is offering it IBM Quantum Cloud platform with its 20-qubit system for researchers and selected customers. They have a 50-qubit system under development. Alibaba Cloud on the other hand will offer their supercomputer service with an 11-qubit processor.

Data Centers and global expansion

Alibaba Cloud is partnering with Equinix , which operates more than 100 data centers world-wide, to grow it s data center footprint globally. It has 17 data centers in Hangzhou, Beijing, Hong Kong, Malaysia, Singapore, India, Silicon Valley, Frankfurt, Dubai, Tokyo, and Sydney with a recent addition of a data center in Indonesia. As expected because of China’s influence in the region, Alibaba Cloud has 10 data centers in Asia and Pacific region whereas only two in the US and only one in Europe. With the recent strategy shift to woo non-Chinese customers in Europe, it sure is to expand its footprint in Europe with additional data centers other than just having one in Germany. As it continues its westward march into US markets, it is also sure to expand from just two data centers in East and West US to more data centers depending on the need from its current and potential customers. Up to this point it has primarily been catering to Chinese customers based in US. It has and will continue to face stiff competition in the US from Amazon, Microsoft and Google as expected for US-based companies looking to move to the Cloud. For this reason it maybe slow to expand in USA and will concentrate more on other countries and continents.

Services

Alibaba Cloud offers common services comparable to its competitors including virtual machines (Elastic Compute Service), Web hosting, API gateways, and Relational Database services (ApsaraDB) for common business scenarios and workloads. These services are still a fraction of the slew of services which other providers such as AWS and Azure offer for its customers. However, with its recent offerings unveiled in Barcelona it seems to be going after niche and future trending services of Cloud Computing including AI, Analytics and Quantum Computing services.

Slow and steady progress with eyes on the big prize

With the recent expansion in Europe and offering AI and Quantum computing services to non-Chinese customers it is concentrating on the next generation of Cloud services rather than competing directly with common cloud services. It surely is to come across much more receptive and open potential customers in Asia, Africa, South America and Australia because of its influence and political clout in these continents. I believe that with this in mind, AliYun is going to keep minimal presence in US and will concentrate on other countries outside of US to expand its Cloud business. This is a very much a political strategy along with being a global business expansion strategy. In executing this strategy they possibly will become one for the top three cloud providers in the world.

Showing up with the big dogs

It seems like the $1B investment is paying off and AliYun showed up in the top 5 list of Cloud infrastructure providers (for IaaS, PaaS, and Hosted Private Cloud) according to the Synergy Research’s most recent Cloud Infrastructure Market Share report for the first time. It landed in the fifth spot after Google with 3-4% market share and full 1% increase from the last four quarters.

In its Q3 earnings cloud revenue was $553 million, an impressive 104% year-over-year increase. That comes out to a run rate in the range of $2.2 billion, well behind Google which announced it is pulling in a billion dollars a quarter and still buried behind the market leaders all of whom reported around $4 billion+ a quarter. AliYun’s growth however, is really impressive but this is to be expected when you have a small market share. It is much easier to have large growth rates than when you have a smaller market share. So basically, as your grow larger it becomes harder to keep such exponential growth rates.

Looking at another report from RightScale, Alibaba Cloud now has also become significant in the Enterprise cloud market with 2% of the market share. However, Enterprise market will be a tough domain for Alibaba Cloud to penetrate due to its newness in this space and since its parent company has traditionally only dealt with consumers and small businesses with their e-commerce needs. It is for sure going to face tough competition from the likes of Microsoft and Amazon who are entrenched in the enterprise customer segment in both Americas and Europe.

Conclusion

I believe Alibaba Cloud will not concentrate or directly compete in the US with local cloud providers including Amazon, Microsoft, Google and IBM. It also has a long ways to go before it becomes a direct threat to the top cloud providers. It is however, coming fast and furious with its recent $1B investment, concentrating one niche cloud services and global business strategy to expand in other continents and countries where it has extensive political and economic influence.