Amidst growing political tensions and an economic slowdown in China, Alibaba continues to report revenue growth, in large part due to the continued expansion of its cloud computing arm — Alibaba Cloud (AliCloud).
Alibaba Group’s core e-commerce business remains at the forefront of its business; however, the Group CEO Daniel Zhang noted in the company’s third-quarter 2019 earnings call that its growth “is also driven by the power of Alibaba’s cloud and data technology that helps expedite the digital transformation of millions of enterprises,” according to a Seeking Alpha transcript.
“We started our cloud business nine years ago and over the last few years, our cloud business delivered solid top-line growth and established a leading position in China’s nascent cloud market,” said Zhang.
Alibaba Cloud revenue reached $98 million in the third quarter, an 84 percent increase year over year. The company attributes this growth to increased spending from its enterprise customers. Alibaba also said that in December alone, Alibaba Cloud launched 674 new products and features — most of them related to its core cloud offerings as well as data intelligence, artificial intelligence (AI) applications, and security.
John Dinsdale, chief analyst and research director at Synergy Research Group, doesn’t expect this growth to slow anytime soon as Alibaba Cloud grows its share of the market. “While not all cloud providers have released their Q4 numbers yet, it is quite evident that Alibaba growth has once again outpaced overall market growth,”
Alibaba Group’s total reported revenue for the quarter was $17.4 billion, a 41 percent increase from the previous quarter. Group CFO Maggie Wu said this was the first time its quarterly revenue has reached over $14 billion.
Last November, Zhang told CNBC that Alibaba Cloud would be the Group’s “main business” in the future as the importance of cloud computing grows in the world. Weeks later, the company announced that it would restructure its cloud business to support this push.
Alibaba renamed its cloud group the Alibaba Cloud Intelligence business group and appointed Alibaba Chief Technology Officer Jeff Zhang Jianfeng as the group’s president, replacing Simon Hu Xiaoming. In this third quarter 2019 earnings call, Zhang said that this new framework and direction would enable Alibaba to “make available much of our data technology used in our own business to our enterprise customers to accelerate their digital transformation.”
All of this is part of a “clear cloud strategy” that Zhang mentioned in the call.
Alibaba Cloud Growth Strategy
As Alibaba Cloud continues to grow, it is facing off against big competition in the cloud market — namely Amazon Web Service (AWS), Microsoft Azure, and Google Cloud. However, it has started to close the gap. GlobalData previously told SDxCentral that as Alibaba Cloud expands outside of China, it is becoming “a force to be reckoned with” in the Asia Pacific region.
On the earnings call Zhang maintained that globalization remains at the forefront of the group’s strategy, particularly within the cloud computing arm. He noted that the key region it will focus on in the near-term is Southeast Asia.
Alibaba Cloud started this expansion into Southeast Asia last year. This included the launch of a number of services in the region, the global launched of its blockchain service and of a serverless, interactive query service, and a number of partnerships. These included partnerships with Elasticsearch, Intel, security startup Fortanix, Hewlett Packard Enterprise, and VMware. Just this week, it opened a second data center in Japan.
Worldwide, AliCloud now has 56 availability zones across 19 regions.
Beyond that, Zhang said that while the cloud market in China is in a “very early stage,” Alibaba was “obviously the market leader” in China. He said that while the company has built a strong infrastructure-as-a-service (IaaS) offering, it has internal expertise and technology surrounding platform-as-a-service (PaaS) and software-as-a-service (SaaS) that it will expand going forward.
“We are trying to share this SaaS-based technology through our Alibaba cloud into the market,” said Zhang. “We believe cloud is not only about infrastructure, cloud is all about data technology and data intelligence capability. So we want to share this data technology and data intelligence capability into the whole market.”
It’s important to note that China is a valuable region in the cloud computing market. Synergy Research reported last year that the country had the highest growth in the Asia Pacific, which was growing 10 percentage points higher than other regions.
Another factor is that China has three times the number of internet users that the U.S. does. GlobalData Technology Analyst Siow Meng Soh previously told SDxCentral that Alibaba’s dominance in the country, paired with the amount of internet users, speaks to the provider’s ability to scale as cloud adoption takes off in China.
Global and Economic Tension
Zhang addressed some of the mounting concerns surrounding its business in its earnings call. He noted that the trade war would have little impact on its business, as the large majority of its growth is attributed to both domestic consumption and corporate transformation.
“The political climate is now challenging for Chinese tech vendors and service providers hoping to grow their international business, but this is unlikely to dampen Alibaba Cloud’s short-term growth prospects,” said Dinsdale. “The vast majority of its revenues still come from its home market, and given the booming domestic demand for cloud services Alibaba is almost guaranteed to see continued strong growth.”
However, if Alibaba truly wants to take on the other cloud providers it will have to expand internationally, which it plans to. “Beyond China, the principle international opportunities for Alibaba are for Chinese companies expanding globally and international companies hoping to expand into China,” Dinsdale said. “The current climate may crimp at least some of that international growth potential, but that will probably be a reasonably short-term phenomenon – and it may well be compensated for incremental growth opportunities for Alibaba in its home market.”