Snapchat may be this year's biggest IPO, but Alibaba is the biggest IPO ever. When people make predictions and give rankings, it’s funny how certain things like a country’s economy and sheer power in numbers is overlooked. For public cloud services, Alibaba Cloud may be ranked sixth in the world. But in China they are at the No. 1 position with about a 40 percent market share, a long way ahead of China Telecom in second place. Here’s probably where the similarities begin as Amazon has close to a 30 percent worldwide market share in the cloud, ahead of Microsoft, which is in a distant second place with 10 percent. The advantage that Alibaba has is its overwhelming presence in the Asia Pacific region as well as belonging to the country that is essentially the factory to the world.
A country behind a cloud
Considering every piece of hardware from phones to laptops to servers is made in China, that’s a considerable advantage for a cloud vendor to have. Apart from an endless supply of hardware, they also have the world’s most skilled labor force that makes microchips for breakfast. Out of the 1,200 Alibaba Cloud employees, more than 80 percent are engineers who have been working on hardware and software way before the cloud came into existence. It would be an advantage if they weren’t in a communist country and everything didn’t indirectly belong to the government, but they are and it does.
In 2015, China had about 98 companies in the Fortune Global 500 list, second only to the United States at about 128. That’s not even the story here; the story is that out of China’s 98 Fortune Global 500 Companies, only 22 are privately owned. Though Alibaba isn’t a government-owned enterprise, that’s just a technicality. In reality, they receive massive amounts of support from their government. At the moment, Alibaba has strategic ties with 12 Chinese provinces, regions, and municipalities including the China Central Government Procurement Agency that ensures all their equipment is stress tested by the government!
Silicon Grand Central
The folks at AWS would probably have a heart attack if they ever figured out how cheap Alibaba Cloud gets its hardware, but the last billion dollars they pumped in two years ago seems to have gone a long way. We know AWS and Microsoft gets custom silicon from Intel, and Google got the latest Skylake chips, but a lesser known fact is that Intel does custom chips for Alibaba, too, and have recently teamed up for a joint project. Another lesser known fact is that Alibaba has been experimenting with low-power server processors based on ARM designs, which will effectively cut their electricity consumption drastically.
Though Alibaba launched its cloud in 2009, they were always more focused on their e-commerce business, and justifiably so. It was only about two years ago that they invested an additional billion dollars into the Alibaba Cloud in order to target the Middle East, Singapore, Japan, and Europe. The timing couldn’t have been better, and especially with the recent issue of the AWS S3 outage, a lot of companies are looking for backup cloud options. With 16 International datacenters and an additional 10 others spread across Mainland China, at a total of 26 datacenters Alibaba is a good option for a backup server.
Amazon in China
One thing we know the Chinese aren’t is naive, and rather than take on AWS head-on in a slugfest, they’re doing the smarter thing and spreading their presence across the globe. When you have the No. 6 cloud provider in the world from an incredibly united country with almost limitless financial and technical clout, add the government backing and this could be a very serious contender to AWS. Though AWS has taken the initiative and launched its own services in Alibaba’s own backyard, the game in China is pretty much rigged, and what the Chinese aren’t stupid enough to do is to play fair. While they don’t go so far as to ban U.S. companies from operating in China, they don’t particularly make their lives easier, either. Regulators are also rumored to be a lot harsher on foreign companies with regards to rules and regulations. The fact that AWS has only acquired a 6 percent market share with its online shopping portal Amazon.cn in over a decade in China says a lot.
The home turf advantage
If you were putting together a sort of dream list of things that you would need to beat Amazon in the cloud, Alibaba has it all. Apart from all the advantages of being backed by the world’s No. 2 economy, another thing to be added to that “dream list” would be a private market where they can test and develop their products in a safe “regulated” environment. In the case of Alibaba, that private market happens to be the world’s largest Internet market, and just to emphasize again -- it’s private. Apart from banning rivals Facebook and Twitter in the social media segment, they have also banned YouTube, while Alibaba has been quite expressive about their intentions to launch their own video service.
It’s almost like playing a video game with cheat codes and all you have to do is copy someone's idea and then ban them so that you’re the only player. Sounds too good to be true, but in the case of Alibaba it is. There are no restrictions on enterprises entering the e-commerce market in China, and with this in mind, eBay (which had global revenues of over $2 billion at the time) launched its services in China. The Chinese obviously appreciated the idea behind eBay and launched their own similar service a year later. While eBay was charging customers for listings, Alibaba’s “eBay” Taobao.com offered free listings. To add to the free listing they went to great lengths to “Chinese” their site like only they would know how. Apart from moderators with cool kung-fu names, they even one-upped eBay by providing an instant messenger tool, obviously in Chinese. The result was eBay in China shut down in 2006, and the only competition left is Amazon and Walmart. As for Walmart, it had its encounter with Chinese authorities in 2014 in the form of a “Donkey Meat” scandal and were heavily penalized.
Communist clouds ahead
A lot of people probably doubt the promise Alibaba made to overtake AWS in four years, especially since it’s already been two years and they aren’t even profitable yet. What people fail to realize is that Alibaba Cloud was just a pet project for global giant Alibaba until the recent $1 billion investment. Alibaba is worth over $250 billion dollars and can spend a lot more. With technology on their side, finances on their side, and the world’s largest retail and Internet markets in their back pockets, I wouldn’t count them out just yet.
Though Alibaba’s $250 billion stock market value pales in comparison to Amazon’s $450 billion, don’t be deceived by the Chinese exchange rates. What you don’t see in those figures is the backing of an entire country that is arguably the most powerful in the world. With 721 million users in its home ground where the away team has to play by “Chinese rules,” it’s only a matter of time before Alibaba Cloud rubs shoulders with AWS for the top spot.