Alibaba Cloud Unveils Technology Upgrades To Fuel Expansion

Alibaba Cloud on Thursday outlined strategic technology upgrades to help fuel its expansion in China and overseas, but it continues to face geopolitical headwinds when it comes to establishing a North American presence.

The cloud computing arm of Chinese technology billionaire Jack Ma’s Alibaba Group Holding Ltd. announced a suite of products to make its public cloud platform more “technologically inclusive,” including a super-computing bare-metal server instance, a cloud-native relational database service designed for enterprise-grade database applications and an accelerator to help customers more quickly test and deploy software-as-a-service (SaaS) applications.

China-based Alibaba Cloud made the announcements at its Cloud Summit in Beijing. Company officials could not be reached for comment.

Cloud computing is becoming the top focus for publicly traded Alibaba Group, which uses the Alibaba Cloud platform to support up to 70 percent of its business, which includes e-commerce sites that attract 80 percent of online spending in China.

“In the future, our highly compatible and standards-based platform will allow SaaS partners to onboard easily and thrive,” Jeff Zhang, president of Alibaba Cloud and chief technology officer of Alibaba Group, said in a statement. “To empower all participants in our ecosystem, we will boost the integrated development of technology, products and services on our open platform.”

The 10-year-old Alibaba Cloud says it has more than one million paying customers in 56 countries and regions, and is the largest cloud provider in China with a share that exceeds the total of its second- through eighth-place competitors. In 2017, it was named the official Cloud Services Partner of the International Olympic Committee.

The Alibaba Group cloud computing unit ranked as the world’s fourth-largest public cloud provider -- behind No. 1 Amazon Web Services, Microsoft Azure and Google Cloud – based on public infrastructure-as-a-service and platform-as-a-service revenue in a November 2018 report by Synergy Research Group. It was ranked second in the Asia-Pacific region.

Alibaba Cloud’s North American and European expansion challenges are both political and business-related, according to Hyoun Park, CEO and principal analyst at Amalgam Insights.

“From a business perspective, China has a lot of joint ventures with Asian, Middle Eastern and African countries, which make those areas a continued focus for Alibaba’s growth,” Park said. “(Alibaba Cloud’s) recent data center builds in Dubai, Kuala Lumpur, Mumbai and Jakarta speak to where their real opportunity is. And, frankly, it is difficult to imagine Alibaba making significant headway in the United States with the current administration’s stance on Chinese trade and goods and the crackdown on phone/telecom equipment providers Huawei and ZTE.”

Although Alibaba has data centers in Virginia and California, until Sino-U.S. relations normalize, there’s significant geopolitical risk in working with Alibaba for companies that don’t already have significant Chinese or Asia-Pacific business, Park said.

In January, Alibaba Holding reported a fourth-quarter net loss of $184 million for its cloud division, on revenue that increased 84 percent year-over-year to $962 million. Alibaba Cloud said it launched 678 new products and features in the quarter related to core cloud offerings, data intelligence, artificial intelligence applications, security and enterprise solutions.

Its cloud growth is slowing but remains impressive, according to SunTrust Robinson Humphrey analyst Youssef Squali.

“Margins improved…year-over-year, though we believe the company remains in investment mode to acquire more customers and offer more robust services,” Squali said in a research note. “Long-term margins for this business should still be very attractive, with Amazon's cloud business posting 31 percent operating margins in the most recent quarter.”

Alibaba Cloud’s opportunities outside of China are furthering the global cloud objectives of Chinese-based multinational corporations or those based outside of China that want a presence in China, according to Gartner analyst Craig Lowery.

“The biggest issue facing Alibaba is gaining the trust of non-China-based corporations,” he said. “We already see some distrust of the American-based providers like (Amazon Web Services), Microsoft and Google by non-U.S.-based companies. This effect is even more profound with Alibaba among non-China-based companies.”

Alibaba is like an “AWS fast follower,” so its technology is likely suitable for similar use cases that AWS serves, according to Lowery.

“If it were not for the prospect of potential Chinese state influence of Alibaba, it might have a chance at competing with AWS as a ‘cheaper’ version of that technology,” Lowery said. “But, as things stand now, that potential value proposition is overshadowed by the trust issue.”