Hello everyone and welcome to ZD Tech, ZDNet’s daily editorial podcast. My name is Guillaume Serries and today I explain to you how china killed alibaba cloud.
For years, Alibaba wanted to be the Amazon of China. And then everything stopped, and its cloud computing subsidiary, Alibaba Cloud, suffered the blow. And I’ll tell you why.
The cloud “strategic pillar” of the company
The leaders of Alibaba have never hidden it, when it comes to cloud computing, their strategy was to follow that of Amazon. In detail, this consisted of using the IT resources of their e-commerce sites to offer them to customers. Exactly what Amazon is doing with Amazon Web Services, AWS for short. With huge success.
Amazon Web Services now generates so much cash that the subsidiary can even limit the losses of the e-commerce activity, and finance new initiatives. You do not believe me ? In the fourth quarter of 2021, AWS accounted for more than 100% of the company’s operating profit.
And Alibaba Cloud was also off to a great start. Driven by a group whose market valuation reached more than 850 billion dollars in 2020, its salespeople even attacked the French market.
Alibaba Cloud was then referred to as the company’s “strategic pillar”. Alibaba’s CEO even declared that this activity could become the company’s “main activity”.
Lightning has a name: the Chinese government
But in recent months, lightning has fallen on Alibaba and Alibaba Cloud. And lightning has a name: the Chinese government.
However, the company had an excellent lightning rod in the person of the highly publicized Jack Ma, the co-founder of Alibaba. It was he who, taken with an excess of hubris in 2020, had the insolence to criticize local regulators.
The government quickly canceled the proposed IPO of the financial subsidiary of Alibaba, then imposed a huge fine, amounting to 2.3 billion euros, to the company.
And Aliyun, the name of Alibaba Cloud in China, was also swept away by the storm. The company finds itself with a major competitor: the Chinese government. The latter is now funding $1.4 trillion in cloud infrastructure for banks, factories and public institutions. And excludes Alibaba Cloud from its partners.
Frightened, TikTok, one of the company’s major customers, also left.
Plan B
Since then, of course, Alibaba Cloud’s growth has stuttered in China. Especially since its national competitors, Huawei and China Telecom, which have very good relations with the government, are benefiting from the windfall of the Chinese state.
As a result, in the IaaS (Infrastructure-as-a-Service) segment, Aliyun’s market share has fallen by 9% in three years, while remaining the leader. And Huawei doubled its market share over the same period.
To drive the final nail into the coffin, last December China’s powerful Ministry of Industry and Information Technology reprimanded Alibaba Cloud for failing to report a software flaw in a timely manner. And suspended cooperation with the company for six months.
Alibaba executives already have a plan B: Last year they tried to spin off the cloud business with a potential valuation of over $100 billion. Without success so far.