China’s Alibaba is often compared to Amazon (based in Seattle) – but the two don’t compete with each other.
However, there are many similarities in their businesses: Both run e-commerce websites and have streaming services.
But what could pave the way for Alibaba’s future is what now makes Amazon a big business – cloud computing. This is a business segment that is considered very important for the future of Chinese companies.
“I think the cloud will be Alibaba’s main business in the future,” said Daniel Zhang, CEO and now chairman of Alibaba.
Zhang took over as chairman of the board on Tuesday when Alibaba’s founder Jack Ma left his post to retire.
Alibaba started as an e-commerce company in 1999. It has broken down into smaller businesses such as payments, traditional stores, streaming services, and food delivery.
Cloud computing is still the most promising field.
Alibaba launched its cloud computing division in September 2009 and is currently the largest company in China in this area. For the quarter ended in June, the division generated 7.79 billion yuan (the US $ 1.13 billion) in revenue, equivalent to a growth of 66%.
“In my opinion, cloud computing will be Alibaba’s next frontier,” said Daniel Ives, head of market research firm Wedbush Securities.
The company has owned the e-commerce and consumer markets in China. Now, they are in the middle of an opportunity to strike into the $ 100 billion cloud market in China. This is a real gold mine that Alibaba was aiming for during the last time it was driven by Jack Ma. ”
Cloud computing accounted for 7% of Alibaba’s revenue last quarter. In fact, this business is still losing money but that loss has been narrowed and profit margin improved (compared to previous quarters).
By comparison, Amazon Web Services, the US cloud giant, brought in $ 8.38 billion in revenue last quarter and had a very high operating profit. AWS accounts for over 60% of Amazon’s total operating profit but only accounts for about 13% of net revenue.
“I believe that Alibaba will continue to benefit and grow for many years from the services they copied at Amazon,” said John Freeman, an analyst at CFRA Research.
Freeman said the cloud will be one of Alibaba’s main growth engines soon.
According to Freeman: “Currently, AWS accounts for only about 1/9 of Amazon’s revenue but generates more than 60% of operating profit (compared to the total revenue of this segment). Alibaba deviates and becomes different from what Amazon has done. ”
He added that Alibaba has two advantages in China. One is that there is less competition and secondly, Chinese companies can easily migrate to the cloud because they are not constrained by the old IT infrastructure.
Alibaba currently dominates the cloud computing market in China. However, companies like Baidu and Tencent are focusing more on their cloud businesses. Therefore, besides the economic downturn in China, this is also a big challenge for Alibaba. Cloud computing is bringing many challenges and opportunities for suppliers to pursue this market.