Alibaba Cloud will invest $28B - Major Cloud infrastructure

Saturday, April 25, 2020
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In the last few days it has been announced that the technology giant Alibaba will be making a huge investment in their cloud infrastructure. 200 billion yuan ($28 billion) will be invested by Alibaba Group Holding Ltd. into the development of their cloud infrastructure. This will take place over a three year period in an attempt to push its services further into more countries and markets.

This sum of money is equal to almost half of the company’s generated revenue in 2019. This indicates the huge importance they are placing on this section of their business, hoping to use it as the catalyst for international growth.

With this investment, Alibaba aims to develop more data centers that will assist their current network which covers 21 regions with 63 availability zones around the world currently. Some of these regions include Malaysia, Australia, Indonesia, and Singapore, amongst others.

As well as developing the data center network, they will be improving the technology within them with products they have developed. Some of these include X-dragon Architecture, the VSwitch, Apsara Distributed Operating System, and the Hanguang 800 artificial intelligence-inference chip.

Over recent years, the cloud computing sector has been an extremely high growth area for Alibaba and has helped push it out further from its traditional business model of e-commerce. Impressively, this area of the business made gains in the December quarter against Amazon and Microsoft, with a 62% uplift in revenue. As recently as February the cloud computing sector of the business hit a new milestone, which was a 10 billion yuan revenue for a quarter. Within Asia, this has helped to cement the business as a leading cloud computing provider - in fierce competition with companies such as Tencent Holdings and Baidu.

It looks like over a medium time scale, Alibaba is honing in on activities which will improve customer base, infrastructure and the products they provide. Within this strategy, it appears that the focus is on laying a solid foundation for future growth, with less concentration on drawing immediate profit.

In a similar fashion to Amazon, Alibaba’s cloud platform came to life out of necessity. The huge number of shoppers coming to the business’s store every day required computational power that could handle millions of people. With the investment into their cloud services, it appears that they are hoping to emulate the huge success Amazon has had expanding their business model through Amazon Web Services (AWS).

This seems particularly pertinent considering that the coronavirus outbreak has caused China to move into the first economic contraction it has experienced in decades. This means that the huge Chinese market that underpins its main revenue source, is not as solid as it once was.

With regards to this, Jeff Zhang, president of the Alibaba Cloud Intelligence division, made this statement, ‘The COVID-19 pandemic has posed additional stress on the overall economy across sectors, but it also steers us to put more focus on the digital economy. By increasing our investment on cloud infrastructure and fundamental technologies, we hope to continue providing world-class, trusted computing resources to help businesses speed up the recovery process, and offer cloud-based intelligent solutions to support their digital transformation in the post-pandemic world’.

Currently, the cloud part of the business makes up around 7% of Alibaba’s total revenue, with the remainder coming from the commerce and logistics aspects of their model. With a large proportion of the world’s population currently on lockdown as a result of Covid-19, there has been a surge in demand for business software, which should serve as a further indicator of the value and growth cloud could bring to the company.

This situation also highlighted that the company didn’t have the infrastructure in place to support the huge increase in demand, with users in China complaining of lags on applications such as DingTalk and Weibo, which have been used for communication during the pandemic. As Alibaba holds 46.4% of the cloud market in China, according to research firm Canalys, this situation was partly down to the cloud computing infrastructure Alibaba had in place.

Over the next few years there will be significant changes and developments within the cloud computing world. With this investment, it is evident that Alibaba is looking at long term growth and to challenge markets on a global scale. Ensuring their data centers are filled with the best technology and are available in the correct regions will be vital to this task.