Why service providers are partnering with Alibaba Cloud

The Asian tech giant is increasingly encroaching on the big three's cloud territory.
5 August 2019

Alibaba’s Cloud division is giving current cloud giants something to think about. Source: Shutterstock

Here in the US and Europe, the cloud market is locked down by the ‘big three’— Google Cloud, Amazon Web Services, and Microsoft Azure. 

These three tech giants monopolize a booming public cloud services market tipped by Gartner to be worth US$214 billion by the end of the year. 

They are constantly innovating and investing in their technology and operations to ensure they are leading in what is a crucial time for cloud technology adoption and development— they want to secure customers of all scales, across all industries.

But in doing so, they’re not just competing among themselves. With businesses operating internationally, they face direct competition with Asia’s own emerging cloud giants, Alibaba and Tencent.

Last year, Alibaba Cloud amassed a massive US$ 24.7 billion from the sales of its services according to Nasdaq. At the same time, Tencent is rapidly growing, reporting a US$3.1 billion in revenue in Q1 2019— a 44 percent hike on its previous quarter. 

According to a report by HFS Research, service providers with considerable exposure to Chinese and APAC markets are already locking in partnerships with Alibaba Cloud. 

Rising demand for Alibaba Cloud

B2B IT services firm DXC, for example, was allegedly informed by VMWare development teams in China that it could lose traction in the region if it didn’t adopt Alibaba Cloud for its APAC operations, said HFS.   

Other firms are reporting “tentative” relationships with the Asian cloud giant, and say clients in the region are pressuring them to offer services with their region’s dominant player. 

Software firms also say there are financial incentives to partner with Alibaba; a result of its partner’s smooth navigation of local rules and regulations.

This trend could see Alibaba Cloud gaining a strong foothold in the global cloud computing market. 

While the big three comprise almost 77 percent of the total cloud services market globally, including in APAC— Amazon claims a footprint in 22 regions— China is (unsurprisingly) proving a tough market to break.

When China tightened its data policy for foreign service providers back in 2017, for example, AWS was forced to sell its infrastructure in China to Beijing Sinnet Technology Co. Ltd in order to comply with the local laws. 

China doesn’t prevent these companies from doing business there, but they’re required to find a local partner to run the business for them. That’s why Salesforce partnered with Alibaba to be their service provider in the region. 

The partnership allowed Salesforce to tap into the SME market of that country which Alibaba currently doesn’t provide for, which could allow it to amass more revenue from the 10 percent it currently has in that region.

As more companies find opportunities in that country, these partnerships would “localize” the experience of their home-grown cloud services to suit their Chinese branch— ensuring they get positive results from their overseas investments. 

“While overall growth in the infrastructure space may seem slow and at times negative, the reality is that cloud is more than capable of building in fresh revenue streams and thresholds of business value,” wrote HFS’ Chief Data Officer, Jamie Snowdon, and VP of Research, Ollie O’Donoghue. 

“But to be successful in this space, providers must have partnerships with the hyperscale public cloud firms. 

“In the past, a decent partnership with AWS and Azure would see firms through. Then, with the growth of analytics and AI, Google quickly became a necessary tool in the toolbox. Now another player is encroaching on the market —and it’s putting incumbents under pressure.”

Alibaba is no longer on the periphery of the cloud industry. 

“The firm fired its first warning shot in APAC earlier this year by opening multiple data centers in Indonesia, raising its flag over a rapidly growing nation. It shows no sign of slowing down.” 

“With forward-thinking IT services giants already shaking hands with Alibaba, it’s high time for your firm to do the same or risk losing traction in a critical global market.”