One of the biggest successes in the ecommerce support market has been Amazon Web Services. The cloud service provider is the fastest growing business under the Amazon umbrella. It rose 42.7% to $3.66 billion in the last 12 months and is the market leader in the cloud sector and expected to go from strength to strength even with more and more rivals entering the market.
Eyeing the success of its rival’s web and cloud services arm, Alibaba now also intends to increase their presence in this competitive market as part of their overall plan to overtake Amazon by 2019. Whilst they are someway behind their American competitor, this may not be such the disadvantage as people think says Simon Hu of Aliyun, Alibaba’s cloud computing arm.
“Amazon, Microsoft and others have already laid the groundwork for us by educating the markets about cloud in the U.S. and Europe, so we have an even better opportunity to join in the competition.”
Unproven Outside Of China
Alibaba’s cloud services has boasted triple digit year-over-year growth for eight consecutive quarters but it does have some limitations, namely that it is as yet unproven outside of the Chinese market.
“There is a lot of attention around Alibaba now because their global expansion plan is so aggressive,” said Agatha Poon, research director for APAC Services at 451 Research. “But at least for now, there is no immediate threat to the major U.S. hyperscale cloud providers.
“That’s because Alibaba’s expansion plan is tied to helping Chinese businesses expand outside of China. Alibaba wants to bring their customers to different countries and different parts of the world, so their expansion is viewed [as] an opportunity for Chinese companies, not just for Alibaba.”
Paul Miller, senior analyst at Forrester says: “Their go-to-market in Europe recognizes that brand recognition is still fairly low, so they’re initially targeting Chinese companies looking to expand to Europe. This strategy does make some sense, as they can build scale, credibility and visibility by initially working with customers that already know and understand them from China.”
However, this may not be a strategy that the company can maintain forever. Whilst starting with the rapidly expanding Chinese market may make sense at the moment, for the Alibaba to truly scale its cloud service it will need to start to appeal to customers outside of mainland China.
“To truly scale, they do need to start appealing to non-Chinese customers,” said Miller. “And there, they will find themselves in direct competition for mindshare with the existing hyperscale cloud providers. Alibaba’s cloud is certainly credible and technologically capable. Superficially, it demonstrates a lot of similarities to AWS. Alibaba also appears competitive on price, and is beginning to demonstrate some differentiation in areas like AI and machine learning. If it can keep that up, there may be features there that are sufficiently compelling to attract new customers.”
However, with the grip that Amazon Web Services has over the cloud market, could this be one battle that Alibaba simply can’t win?