The sky’s the limit: Cloud services market for enterprises in China tipped to double to US$3.8b by 2020

Study finds Alibaba Group’s growing reach a driving factor behind the booming industry

PUBLISHED : Tuesday, 20 October, 2015, 11:37am
UPDATED : Tuesday, 20 October, 2015, 5:48pm

The public cloud services market for enterprises on the Chinese mainland is poised for rapid growth in the next five years, driven by strong demand from small businesses and the extensive reach of domestic e-commerce giant Alibaba Group.

A new study by Forrester Research predicted this domestic industry will expand to US$3.8 billion by 2020, more than double the US$1.8 billion estimated for last year.

Alibaba Cloud Computing (AliCloud), the subsidiary of Alibaba that was formerly known as Aliyun, has the broadest range of public cloud services and alliances among mainland service providers, according to Forrester analyst Charlie Dai, the lead author of the study.

“Alibaba’s extensive partner ecosystem ... aims at both the Chinese and global [cloud] markets,” Dai said.

READ MORE: China’s Alibaba targets data centres in bid to replace Amazon as cloud computing king by 2018

As of June 30, AliCloud had 1.8 million subscribers which include state-owned enterprises, large domestic companies, and small- and medium-sized enterprises (SMEs) involved mostly in retail, financial services and manufacturing.

Founded in 2009, AliCloud operates the network that powers parent Alibaba’s online and mobile e-commerce businesses.

Cloud computing enables companies to buy, sell, lease or distribute online a range of software and other digital resources as an on-demand service, just like electricity from a power grid.

These resources are kept and managed inside data centres. “Cloud” refers to the internet as depicted in computer network diagrams.

Earlier this month, AliCloud launched its second data centre at California’s Silicon Valley.

That followed last month’s opening of AliCloud’s new data centre near Qiandao Lake in Zhejiang province, the company’s Asia-Pacific data centre in Singapore in August and its first US data centre in March.

“Our data centres are typically located in key innovation and commerce hubs around the world, where we expect growing demand for cost-efficient cloud computing and big-data analytics services,” AliCloud vice-president Ethan Yu Sicheng said earlier this month.

AliCloud also operates data centres in Beijing, Shanghai, Hangzhou in eastern Zhejiang province, Shenzhen in southern Guangdong and Hong Kong.

In May, Alibaba announced a joint venture with diversified holding company Meraas that will develop a data centre in Dubai.

Dai said more Chinese firms “are developing digital customer experiences that require scalable, on-demand resources”.

He cited as an example Hong Kong-listed China Merchants Bank, which is based in Shenzhen.

“China Merchants Bank uses public cloud to support ... its mobile business applications when its internal data centre cannot support explosive traffic growth,” he said.

SMEs, which make up 98 per cent of all businesses on the Chinese mainland, are also looking to lower their initial technology investments, according to the Forrester study.

Dai said the study found that 80 per cent of SMEs in Zhejiang rely on bank credit to sustain their operations.

“Given that many SMEs survive on profit margins of less than 5 per cent, minimising capital investment by subscribing to cloud platforms is a very compelling option,” he said.

While global cloud platform providers Microsoft and Amazon Web Services have growing operations in China, Forrester found that competition from domestic providers other than AliCloud have helped heat up the market.

Those include Tencent Holding’s SME-focused QCloud, Anchora MoPaas (mobile platform-as-a-service), ChinaC, e-commerce player JD.com’s JCloud, and start-ups QingCloud, DaoCloud, UCloud and UnitedStack.