Public cloud attention has been so focused on Amazon Web Services and Microsoft Azure for so long that it has been hard for would-be contenders to break into the “two-horse cloud race” narrative. Google Cloud Platform has been a distant third in terms of revenue, so some people refer to the “Big 3” cloud providers. Yet there’s another public cloud provider with even more momentum and more revenue—despite the fact that most cloud watchers barely know it exists.
I’m talking about Alibaba.
Alibaba, which earned almost as much in cloud revenue in the last quarter as Google Cloud Platform earned in all of 2016, may be anonymous in the United States, but is taking China by storm. Are Western cloud workloads far behind?
Alibaba’s cloud revenue hit US$675 million for 2016, ahead of Google Cloud Platform’s $500 million, but it’s really what Alibaba has done in 2017 that should be ringing the alarm bells at Amazon and Microsoft. In Alibaba’s first quarter, the company’s cloud revenue leaped to $359 million. In its second quarter, that number jumped again to $447 million, putting the company’s run rate at nearly $2 billion. That’s an impressive number, but its growth rate—nearly 100 percent every quarter—is the real story.
Indeed, Alibaba is growing so fast that Simon Hu, president of Alibaba Cloud, has insisted that Alibaba Cloud is “on track” to push AWS aside as the global cloud market share leader by 2019. If you’re wondering how this could happen when you’ve barely heard mention of Alibaba in the US and Europe, the short answer is “China.” As the Chinese economy continues to heat up, Alibaba could never leave its shores and still dominate cloud revenues.
In part this comes down to the size of the Chinese economy. Even with a market late to modernize through the internet, the sheer scale of China’s economy affords lots of room for Alibaba’s cloud growth. This private sector boom is complemented by the Chinese government’s own aggressive digitization efforts to bring its agencies online and into the cloud, which mainly means “Alibaba’s cloud.” Although Alibaba has some internal competition from Dalian (paired with IBM) and Huawei, Alibaba is the vendor that predominantly benefits from government initiatives to go digital and private sector growth built on the web.
And yet it hardly feels like winning if Alibaba’s only impact is in China, regardless of the revenue that drives.
After all, Alibaba has 15 datacenters globally, nine of which are outside China. Yet, despite a concerted effort to break into Western markets, there is little to show for these efforts. I asked Alibaba for examples of U.S. or European customers using Alibaba Cloud and received no response. Digging through the company’s website, I found a few scattered examples, but nearly all of them involves a Western company choosing Alibaba to use its cloud … in China.
But one exception, and a clue as to how Alibaba can successfully attract Western companies, is revealed in a case study for Schneider Electric. “Schneider Electric wanted a truly global cloud network to power its application, including access to the China market with its very high barriers to entry,” the case study reads. To ensure a truly global footprint it has built on Alibaba’s Cloud for the Chinese market, plus some services running outside China. In this same way, Alibaba could entice Western companies hoping to do business in China to start using its cloud there, and then add more workloads outside China.
Alibaba has shown that it can win on its own turf, but there it is largely protected from real competition by the Chinese government. To be a true global competitor, and not just a tiger confined to China, Alibaba needs to significantly upgrade its cloud services and attack AWS in Western markets. Outside of China, Alibaba won’t have any government protectors as it competes against AWS, Azure, Google Cloud, IBM, Oracle, and others.
Getting Western companies to use Alibaba’s cloud in China could be the way to introduce itself as an option outside China, too. After all, Alibaba offers the same large-scale operational experience as AWS. The trick will be for Alibaba to put this expertise to use for Western companies that feel threatened by AWS’s dominance but aren’t scared off by Alibaba’s connections to the Chinese government.
It’s very much worth keeping an eye on Alibaba and perhaps testing its cloud services both in China and outside China. Still, based on current market trends, Alibaba doesn’t look like it will reach its goal of supplanting AWS goal anytime soon, if ever.
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