Alibaba cloud services business poised for record growth as global market expands

PUBLISHED : Monday, 06 June, 2016, 9:02pm
UPDATED : Tuesday, 07 June, 2016, 5:58am

Alibaba Cloud, a subsidiary of e-commerce titan Alibaba Group, has become the largest cloud infrastructure services provider in Asia-Pacific on the back of its massive market in China and strategic international expansion, analysts said.

The Hangzhou-based business is forecast to record more than US$1 billion in revenue next year, while strengthening its position as the world’s No 4 “massive-scale” cloud infrastructure services provider behind industry leader Amazon Web Services, Microsoft Azure and Google Compute Engine.

“We are projecting substantial growth for Alibaba Cloud that would already be right at historical record highs for the cloud industry,” Philbert Shih, the managing director at Canadian firm Structure Research, told the South China Morning Post.

Alibaba is making huge investments [in its cloud business] and could beat our projections
Philbert Shih, managing director, Structure Research

Founded in 2009, Alibaba Cloud operates the network that powers parent Alibaba’s online and mobile e-commerce businesses, and supports the merchants on those platforms.

It has since become mainland China’s largest cloud infrastructure services provider, with more than 2.3 million domestic clients as of March 31.

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.

According to Structure Research, Alibaba Cloud is predicted to generate US$1.45 billion in sales by 2017, up from an estimated US$761 million this year.

That would enable the Chinese firm to corner 4.7 per cent of the forecast US$31 billion, global massive-scale cloud infrastructure services market in 2017.

“Alibaba is making huge investments [in its cloud business] and could beat our projections,” Shih said.

Last year, Alibaba Cloud had a 3.4 per cent global market share. That was enough, however, for the company to become the top cloud infrastructure services provider in the Asia-Pacific, according to Structure Research.

It said Amazon Web Services, by comparison, posted revenue of US$7.88 billion last year for a 70.7 per cent global market share.

New York-listed Alibaba, which owns the South China Morning Post, reported last month that Alibaba Cloud posted a 138 per cent increase in revenue in its fiscal year ended March 31 to 3.02 billion yuan (HK$3.57 billion), up from 1.27 billion yuan in the previous fiscal year.

“The growth was primarily due to an increase in the number of paying customers, which has more than doubled to more than 500,000” from 240,000 a year ago, Alibaba chief financial officer Maggie Wu Wei said last month.

Wu added that subscribers were also using more complex offerings, such as content delivery network and database services.

Alibaba Cloud last year rolled out new data centres in various strategic locations, including two facilities in California’s Silicon Valley, a regional site in Singapore and another one near Qiandao Lake in Zhejiang province. It already has data centres in Beijing, Shanghai, Hangzhou, Shenzhen and Hong Kong.

Data centres under development include one in Dubai under a joint venture with diversified holding company Meraas. Alibaba Cloud last month formed a new joint venture with the telecommunications subsidiary of SoftBank Group Corp to set up data centre operations in Japan.