Alibaba Cloud Lies At The Heart Of BABA'S Business Strategy

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Alibaba Cloud lies at the heart of Alibaba’s (BABA) robust ecosystem. Its cloud computing arm, known as Alibaba Cloud, was established in 2009, and is now counted among the top echelon of cloud players globally and is emerging as the powerhouse for the company. Alibaba has transformed from an e-commerce player to a leader in the technology and digital economy spaces, making cloud computing an integral part of Alibaba’s long-term strategy.

Here’s a closer look at Alibaba Cloud.

Alibaba’s cloud computing revenue grew 84% year-over-year to $962 million during the December 2018 quarter. Alibaba Cloud has increased its paying customers at a rapid pace; it has more than one million paying consumers globally. Since it's IPO in 2014, there have been constant comparisons between Alibaba and Amazon.com. The rising importance of Alibaba Cloud (or Aliyun) adds to another point on that list. AWS, the cloud computing arm of Amazon is presently the undisputed leader in this segment and while Amazon has a strong core business, AWS has been a significant 10% to Amazon’s overall business revenue.

Likewise, Aliyun is gradually increasing its share in Alibaba’s revenue pie; in Q2 2015, its share was 1.5% which has now moved up to 6%. Alibaba Cloud is still in an absorbing phase where investments made are yet to reap profits. In the past quarter, Adjusted EBITA was a loss of $40 million. Alibaba Cloud is expanding at a fast pace and once its services build scale, its potential would start to reflect in Alibaba’s bottom line.

In November 2018, Alibaba Cloud became the first-ever Chinese company to be included in Gartner's Magic Quadrant for Operational Database Management Systems. It is already a part of the Magic Quadrant for Cloud Infrastructure as a Service (IaaS) and Data Management Solutions for Analytics.

Alibaba Cloud ranked fourth on the list of worldwide cloud infrastructure market with a 4% share in 2018 growing at 91.8% vis-à-vis 2017. AWS, Microsoft Azure and Google Cloud are ahead of Alibaba Cloud. In the APAC region, Alibaba ranked second in terms of public IaaS and PaaS service revenues.

The robustness of Alibaba Cloud was proved yet again during its busiest business day of the year—the Global Shopping Festival 2018, which recorded $30.8 billion sales in 24 hours. Alibaba strongly believes that computing power is the key to applying advanced technologies such as artificial intelligence to businesses. During the Cloud Computing Conference 2018 in Hangzhou, Alibaba said it was establishing a chip company, a subsidiary under the Alibaba Group that will “focus on customized AI chips and embedded processors to further support Alibaba’s growing cloud and Internet of Things businesses, as well as to provide intelligent solutions for different industries.”

Alibaba Cloud is enhancing its presence footprint in newer markets. Alibaba Cloud has a growing network of data centers across countries and regions, including India, Indonesia, Dubai, Malaysia, Australia, Japan, Singapore, Germany, the U.S. and UK.

While Alibaba Cloud is gradually expanding its global footprint, it is already the undisputed leader in China with a 43% share in public cloud market in 2018. It is estimated that, “roughly 40% of the top 500 enterprises and 50% of listed companies in China are using Alibaba Cloud.”

During 2018, Alibaba Cloud entered into collaborations with a number of universities for various projects including the Hong Kong Polytechnic University, the University of Macau, Khalifa University of Science and Technology, the engineering school Télécom ParisTech and National University of Singapore.

Alibaba Cloud expanded its Blockchain-as-a-Service (BaaS) offering to major global markets including South East Asia, the U.S and Europe. Alibaba Cloud's BaaS supports enterprise-level blockchain applications on the two platforms of Hyperledger Fabric and Ant Blockchain. It launched the superconducting quantum computing cloud in collaboration with Chinese Academy of Sciences (CAS), featuring a quantum processor with 11 quantum bits (qubits) of power.

New partnerships were entered with Bosch, Commvault, InterContinental Hotels Group, VMware, Siemens, Ministry of Tourism and Wildlife of the Republic of Kenya, SAP and KPMG, among others.

At the Mobile World Congress in February 2019, Alibaba released seven new solutions, and two new features for the international markets. The launch comes after its proven in-house usage across various businesses within the Alibaba Group, including retail, fintech, logistics, media and entertainment, digital branding and marketing.

In future, almost every business would rely on cloud in some form, creating a huge demand. The worldwide public cloud services market is projected to reach $278.3 billion by 2021 from $175.8 billion in 2018. Alibaba Cloud has immense potential to offer proven, scalable, and secure technologies to customers world over and is thus emerging as a strong player among the global hyperscale cloud providers. Its importance for Alibaba is reflected in the statement by Daniel Zhang, CEO, Alibaba Group, “Our growth is driven by the power of Alibaba’s cloud and data technology that helps expedite the digital transformation of millions of enterprises.”

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Referenced Symbols: BABA

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