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Alibaba’s award-winning cloud formula is under pressure

Alibaba’s cloud computing sector has grown rapidly over the years as competition in the industry intensifies and political issues undermine Chinese companies’ ability to acquire business abroad and government contracts domestically. After that, the pressure is increasing.

Alibaba investors are using cloud computing to drive significant growth amid intensifying competition in the company’s major e-commerce business. However, in recent months, the cloud unit has broke up with its major customers and has been given a cold shoulder by some Chinese government clients and has reviewed its organizational structure, people familiar with the matter said.

Alibaba Group Holding Co., Ltd.

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Last week, we reported that cloud computing revenue was up 37% year-on-year. This is the slowest quarterly growth since it was published on the New York Stock Exchange in 2014. Loss of international business of major Chinese internet clients due to “non-product related requirements”.

The client is ByteDance Ltd., the owner of the social video app TikTok, and some have said it has terminated its contract to store international data on Alibaba Cloud. When ending the relationship, they said ByteDance bought the server from Alibaba.

People said the move reflects Beijing-based ByteDance’s desire to meet its rapidly expanding unique cloud computing needs. One said the growing US pressure on the use of Chinese-owned computer services to store American data accelerated the process. In August, the Trump administration warned against the use of China’s cloud computing services, including Alibaba.

Alibaba Cloud declined to comment on its relationship with Bytedance.

Bytedance counting the Carlyle Group Co., Ltd.

General Atlantic is one of its backers, one of the world’s most valuable tech startups, building in-house cloud computing capabilities to host services globally. The company is using Alibaba Cloud to gradually unleash its business on the mainland, people familiar with the matter said. Bytedance’s operations include the popular news aggregator app Jinri Toutiao, a customer of Alibaba Cloud.

It will hit Alibaba Cloud further. Alibaba Cloud has invested billions of dollars in its business and has just made a profit in the last two quarters based on adjusted profits before interest, taxes, amortization and depreciation.

“We understand that Alibaba Cloud is still having a significant impact on Bytedance’s domestic cloud workloads, and’Bytedance risk’will be in the future quarter,” Bernstein analyst Robin Chu said in a note on Tuesday. I’m worried that I’ll raise my head again. “

Bytedance was caught up in rising tensions in US-China relations last year as the Trump administration tried to ban and force the sale of the TikTok app because of security concerns about data collected from millions of American users. I did. TikTok collected more than 81 million downloads in the United States last year, data from mobile analytics firm Sensor Tower show. The sale was shelved indefinitely as US courts blocked the ban and President Biden considered his predecessor’s policy towards the company.

At a US federal court hearing last year, senior ByteDance executives said the company hosts data from US users of TikTok in the US on cloud services provided by third parties, including Alphabet. Of a corporation

Google and Microsoft Co., Ltd.

The Chinese company keeps a backup copy of TikTok’s US data in a data center in Singapore, and one of the cloud providers used was Alibaba.

Alibaba was the first Chinese technology giant to enter cloud computing by leveraging the already huge computing needs of the e-commerce market, providing processing power and data storage services to external clients. Cloud generated $ 2.6 billion in revenue in the March quarter, compared to $ 24.6 billion in Alibaba’s core e-commerce business. Currently, it is the largest cloud infrastructure service provider in China and the fourth largest provider in the world after Amazon.com. Of a corporation

According to research firm Canalys, Amazon Web Services, Microsoft’s Azure, and Google Cloud.

Still, Huawei Technologies Co. is cutting Alibaba Cloud’s domestic market share. According to Canalys, Chinese telecommunications giants have nearly doubled their market share in China from 2019 to 16% last year. Alibaba’s share fell from 44% to 41% over the same period, according to Canalys data.

Another industry data provider, IDC, has shown a slight decline in Alibaba Cloud’s market share in China over the same period.

Last month, Alibaba Cloud revamped its organizational structure and added a geographic manager to give local teams across China stronger accountability for sales growth and customer retention. People said the move was seen by some of the companies as a direct reaction to Huawei’s rise in market share.

China’s cloud computing industry is a restricted industry. Regulators are demanding that foreign cloud providers establish joint ventures to do business domestically. It helped Alibaba grow, but the company faces new hurdles as Beijing cracks down on e-commerce giant Ant Group and its founder Jack Ma.

Regulators fined Alibaba a record $ 2.8 billion in April for abusing its dominant position over rivals and merchants on its e-commerce platform. At the end of last year, they stopped when Ant’s $ 34 billion IPO approached the finish line. This year, they forced fintech giants to reorganize as a financial holding company subject to tighter regulation.

In less than six months, Chinese tech giant Ant has moved from a blockbuster IPO plan to restructuring in response to pressure from central banks. The United States is also aiming for Big Tech, so here’s how China is moving fast.Photo Illustration: Sharon Sea

Regulators are scrutinizing the e-commerce business and Ant Group, making Alibaba Cloud difficult to win new contracts and even secure meetings with government and state-owned clients in recent months. ..

According to the state-owned Xinhua News Agency, the company was the top cloud contractor in the central government sector in the first quarter of 2019.

“As seen in recent quarters, Alibaba Cloud’s revenue has been driven primarily by continued growth from customers in the Internet, financial, retail and public sectors,” said a spokeswoman for the unit. Says.

According to government procurement records and company announcements, Alibaba Cloud is not completely closed and has signed several government contracts in the last few months.

Still, Alibaba’s recent regulatory issues could overshadow local government decision-making and undermine the company’s ability to win future contracts in the government’s cloud market, according to a cloud industry analyst at research firm Forrester Research. One Charlie Dai said...

“Fierce competition in the government market and the complexity of the private cloud market are some of the key challenges for Alibaba Cloud’s business growth in the domestic market,” said Dai.

Jack Ma’s Ant Group and Alibaba in China

Write to Jing Yang at Jing.Yang@wsj.com, LizaLin at Liza.Lin @ wsj.com, Keith Zhai at keith.zhai @ wsj.com

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Alibaba’s award-winning cloud formula is under pressure

Source link Alibaba’s award-winning cloud formula is under pressure

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