Market Insights | Alibaba Cloud's Notable Price Reduction, while Continuing to Accelerate Expansion in SEA

Written by Jun

Alibaba Cloud , the leading cloud infrastructure service provider in China, previously announced a comprehensive price reduction ranging from 15% to 50% for its core products and services, with storage products experiencing the highest reduction of up to 50%. Despite facing competition from industry giants such as Huawei, Tencent, China Telecom, and Baidu, Alibaba Cloud aims to gain a larger market share in the domestic cloud market through this historically significant price reduction.

Furthermore, Alibaba Cloud is accelerating its expansion in overseas markets, particularly in Southeast Asia. The demand for cloud services in Southeast Asia has been continuously growing in recent years, with the COVID-19 pandemic further driving businesses to shift their critical operations online. Surveys indicate that many countries in Southeast Asia have shown a clear trend of increased investments in cloud strategies, and small and medium-sized enterprises in the region are expected to accelerate their investments in digital transformation.

In both domestic and overseas cloud markets, where competition among industry giants intensifies and business pressures persist, Alibaba Cloud strives to seek greater advantages.

Exploring the Origins of Cloud Demand in Southeast Asia

Compared to the more mature domestic and Western markets, the cloud services market in Southeast Asia is still in its early stages of development. The cloud computing market in several Southeast Asian countries is growing at a faster pace than the European and American markets. According to international data firm Statista, the public cloud market in the ten Southeast Asian countries is projected to reach $9.85 billion in 2023 and $19.72 billion in 2027.

The growth of the cloud market in Southeast Asia is driven by various factors, with the digitization and technology adoption by Southeast Asian businesses being the most significant. The region's technology startup wave has led to increased demand for cloud services. Additionally, governments in Southeast Asian countries are actively responding to the development of cloud services by implementing policies and strategic plans to accelerate digital transformation. Furthermore, the growth of the internet economy in Southeast Asia has further propelled the digitalization process and expanded the market for cloud services. In particular, countries such as Singapore, Indonesia, Thailand, and Malaysia have experienced average annual growth rates in the public cloud market of up to 30% in recent years.

Moreover, the COVID-19 pandemic has accelerated the transformation of local businesses in Southeast Asia, with a clear trend towards increased investment in online operations and digitization. According to a survey by Alibaba Cloud in September last year, the pandemic has driven enterprises to transition from local deployment to cloud-based services, with more and more companies shifting their critical operations online to effectively manage their workloads. This year, Asian enterprises that are already using cloud services plan to increase their investments in various cloud strategies. Southeast Asia stands out as a region with remarkable growth in cloud demand, with the highest growth potential in countries such as Thailand (95%), Indonesia (94%), the Philippines (91%), and Singapore (83%). Research also shows that due to the impact of the pandemic, 84% of surveyed enterprises expect to fully migrate to the cloud within the next two years. Many companies have expressed their intention to increase software usage and expedite their cloud migration.

The digital transformation of Southeast Asian businesses is expected to continue over the next few years. A recent survey by Singaporean technology services provider TDCX reveals that small and medium-sized businesses (SMBs) in Southeast Asia plan to invest an additional $130 billion over the next three years to drive digital transformation, including online operations. The survey involved 750 SMBs from Singapore, Indonesia, Malaysia, Vietnam, and Thailand, with over four-fifths of the companies expressing their desire for technology providers to assist them in accelerating digitization to enhance data analysis and innovation capabilities.

The untapped cloud computing market in Southeast Asia has attracted the participation of Chinese enterprises. Chinese cloud providers began their overseas expansion as early as 2013, with more significant expansion occurring around 2017. Analysts point out that Chinese cloud providers targeted the United States, Europe, and Southeast Asia as the three major markets. Their approach involved establishing data centers at key global locations and expanding into global markets based on a unified technology architecture for public cloud services. After the easing of the pandemic in 2022, mainstream Chinese cloud providers accelerated their expansion into overseas cloud markets, with Southeast Asia becoming the initial focus for many cloud enterprises.

Alibaba Cloud: Delivering Speed and Reliability, Consolidating its Presence in Southeast Asia

To expand beyond the competitive domestic market, Chinese cloud computing companies have long ventured overseas, with a particular focus on accelerating their expansion in the Southeast Asian market. Among the numerous participants, Alibaba Cloud holds a significant position.

In 2015, Alibaba Cloud established its international headquarters in Singapore and subsequently intensified the establishment of data centers in Southeast Asian countries. Over the past few years, Alibaba Cloud has set up data centers in Singapore, Indonesia, the Philippines, Malaysia, and Thailand, with a total of 10 availability zones in the Southeast Asian region.

Compared to other cloud providers, Alibaba Cloud benefits from leveraging Alibaba's extensive network of relationships. For example, Alibaba Cloud's clients include Lazada, a Southeast Asian e-commerce platform under the Alibaba Group, as well as REDMART in Singapore, Yippi in Malaysia, Silot in Indonesia, and other enterprises. Furthermore, in line with the trend of Chinese companies expanding overseas, Alibaba Cloud collaborates with e-commerce, gaming, SaaS, retail, automotive, and intelligent manufacturing enterprises to provide cloud technologies for their international operations.

What sets Alibaba Cloud apart is its close alignment with Alibaba's internal e-commerce technology. Many of Alibaba Cloud's products, services, and architecture are closely related to the underlying e-commerce technology developed in-house. For instance, Alibaba Cloud can "reuse" its cloud solutions from the domestic market to provide a set of proprietary security solutions for Alipay or the Tmall and Taobao platforms, encompassing data security, infrastructure security, authentication security, and service security.

As its expansion progresses, Alibaba Cloud is committed to promoting localization by strengthening local team development and resource allocation to support regional business operations. In 2021, Alibaba Cloud launched Project AsiaForward, with an initial investment of $1 billion in funds and resources. The project aims to cultivate a million-strong digital talent pool over the next three years, empower 100,000 developers, and accelerate the growth of 100,000 technology startups in Southeast Asia and Hong Kong.

In addition to gaining an early advantage through its early establishment, Alibaba Cloud has established its position through a series of strategic measures. In terms of the international market, Alibaba Cloud's international market share has steadily increased in recent years. According to Gartner's 2020 global public cloud IaaS market data, the top four market share leaders are Amazon AWS (40.8%), Microsoft Azure (19.7%), Alibaba Cloud (9.5%), and Google Cloud (6.1%). Looking specifically at the Southeast Asian market, data from research firm Twimbit in 2021 reveals that Alibaba Cloud holds a 7% market share in the Southeast Asian public cloud IaaS market, ranking fourth after Amazon AWS (43%), Microsoft Azure (22%), and Google Cloud (18%).

In December of last year, Alibaba underwent a restructuring of its organizational structure, with Alibaba Group Chairman and CEO Daniel Zhang assuming the position of President of Alibaba Cloud Intelligence. In March this year, Alibaba announced another significant organizational adjustment, implementing a holding company structure for Alibaba Group and establishing six major business groups, including Alibaba Cloud Intelligence Group, Taobao and Tmall Business Group, Local Services Group, Cainiao Group, International Digital Commerce Group, and Entertainment Group, as well as multiple business units. These business groups and units will establish their respective boards of directors and operate independently under the leadership of their core teams, facing the market with a CEO-led structure. Notably, Alibaba Cloud Intelligence Group is still led by Daniel Zhang as CEO.

In a recent interview, Daniel Zhang stated that personally overseeing the cloud division is because it is "sufficiently important." He said, "Cloud business may be one of Alibaba's most certain hopes for the future, as it represents a significant opportunity of the times. Alibaba Cloud has accumulated 14 years of development and is in an excellent position in terms of cloud infrastructure and digital experiences."

For Alibaba Cloud, which aims to seize opportunities, it is destined to make simultaneous efforts in both the domestic and international markets.

Alibaba Cloud recently announced a significant price reduction of 15% to 50% for its core products and services in the domestic market starting from May 7th. According to the latest pricing plan, the highest price reduction is 20% for Elastic Compute Service 7th generation instances and Elastic GPU Service instances, 50% for Object Storage Service (OSS) Deep Archive compared to the lowest tier pricing, 15% for Server Load Balancer (SLB) and NAT Gateway, up to 40% for ApsaraDB for RDS PolarDB, 20% for Video Cloud and Content Delivery Network (CDN), and up to 30% for Web Application Firewall (WAF).

This move reflects the reality that Alibaba Cloud is facing: although it maintains a leading position domestically, its market share has been declining, and further growth has become increasingly challenging. Analysts also point out that Alibaba Cloud's business growth primarily comes from overseas markets. Over the past three years, Alibaba Cloud's revenue in overseas markets has grown more than tenfold, with its growth rate in the Southeast Asian market exceeding 60% in 2021. Therefore, after more than eight years of going global, Alibaba Cloud's ambitious internationalization efforts continue to manifest in its ongoing intensified actions in Southeast Asia.

Exploring the Origins of Cloud Demand in Southeast Asia

Despite having an early advantage in overseas expansion, Alibaba Cloud still faces significant competition in Southeast Asia.

On one hand, Chinese cloud companies such as Huawei Cloud, Tencent Cloud, and QingCloud are intensifying their efforts to capture the Southeast Asian market. Tencent Cloud established its data center in Singapore in 2016, one of its earliest deployments overseas, and subsequently expanded to Thailand, Indonesia, and other countries. Huawei officially launched its services in Singapore in 2019. In 2021, Huawei Cloud announced a $100 million investment over the next three years to support the startup ecosystem in Indonesia, the Philippines, Sri Lanka, and Vietnam. Huawei has already established data centers in Singapore, Thailand, Indonesia, and other locations. Last year, Huawei also stated its plan to invest $300 million in upgrading cloud infrastructure in Indonesia, empowering local partners, and cultivating 100,000 digital economy talents.

On the other hand, both in Southeast Asia and internationally, major international cloud providers dominate the majority of the market share. In the Singapore market, in particular, Amazon and Microsoft's cloud computing divisions still maintain a dominant position in terms of market share. Moreover, international cloud giants are also intensifying their expansion into emerging markets such as Thailand, Indonesia, and Malaysia. In 2021, Microsoft announced a minimum $1 billion investment to build data centers in Malaysia. Amazon AWS, in particular, is actively involved in the "race" to develop cloud data centers in Southeast Asia. After investing in Singapore, Indonesia, and Thailand, Amazon AWS announced a $6 billion investment in Malaysia in March this year, bringing its total investment in ASEAN countries to $22.5 billion.

Not only Alibaba Cloud but also other Chinese cloud service providers need to continue advancing in terms of pricing, product technology, and other aspects to gain more market share in Southeast Asia. To compete with international cloud giants, it is essential to constantly expand market channels and deepen cloud computing infrastructure technology. By maintaining price advantages and technological innovation, they can enhance their core competitiveness in the market.

Localization services are also a key focus for Chinese cloud providers. Thanks to a more relaxed political environment and government emphasis on digitalization, expanding into the Southeast Asian market is relatively easier compared to Western markets. However, each Southeast Asian country has its unique market conditions, cultural customs, and legal regulations, which means that cloud players need to invest more effort in local operations and services. They should have a deep understanding of regional characteristics to ensure that the entire service chain better aligns with the local market.

Compared to peers such as Amazon and Microsoft, Chinese cloud companies like Alibaba Cloud are winning customers sensitive to pricing by offering low-cost advantages. Southeast Asia has over 70 million small and medium-sized enterprises, accounting for 97% of all enterprises in the region. These SMEs have high demand for cloud services and prioritize cost-effective solutions. According to reports, Chinese cloud computing companies generally offer prices that are 20% to 40% lower than their American counterparts across different products. While this has indeed facilitated rapid expansion for Chinese enterprises in Southeast Asia, the upcoming challenge lies in how to achieve cost reduction and efficiency improvement to enhance profitability.