Here’s why Alibaba Cloud’s recent price cut is significant

  • Alibaba Cloud looks to counter growing competition in the cloud market by slashing prices in price-sensitive market
  • Growing adoption of AI and intense competition from U.S.-based cloud providers might have pushed Alibaba to reduce prices

In a significant move, Chinese major Alibaba Cloud earlier this year announced a major price cut for several cloud services, including storage, cloud data transfer and cloud compute, among others. The price cut was applicable in several countries outside of China, such as Hong Kong, Japan, South Korea, UAE, Malaysia, Singapore, Thailand and the U.S. 

Prior to these price cuts, Alibaba had slashed prices for domestic customers as well. Notably, though, the recent price cuts are targeted at price-sensitive markets in Southeast Asia.

“Alibaba's price cut is a strategy to increase its adoption in cost-sensitive Southeast Asian markets. As AI becomes more widespread, companies are increasingly opting for cloud services to host their data for faster deployment and integration with AI toolkits,” Akshara Bassi, Senior Analyst at Counterpoint Research, said. “The price cuts certainly offer benefits from a monetary perspective and emerge as a strong contender for opting for its solution." 

The last few months have witnessed intense competition among cloud service providers in the Asia Pacific region. Several cloud providers, including Google, Amazon Web Services (AWS) and Microsoft, have ramped up investments in the region. Alibaba Cloud also announced recently that it would be adding more data centers in markets like Malaysia and Thailand, where it has reduced the prices of several cloud services. 

With intensifying competition, these players are looking to capture the biggest slice of the growing cloud services market. 

“Most U.S.-based hyperscalers are in the process of expanding their local data centers in Asia, including AI services," Bassi said. "Ultimately, companies will be looking for a provider that can give them enough flexibility and ease of scalability of cloud solutions. From an AI infrastructure perspective, U.S. cloud providers are more competitive than Chinese players."

Growing demand, growing competition 

Growing alongside competition is demand for cloud services in the region. The growing adoption of artificial intelligence (AI)-based solutions will only fuel the demand for cloud services over the next few years. In this context, it is crucial for cloud providers to maintain a competitive edge, and Alibaba Cloud's price cut is an effort in this direction. 

“The multi-billion investments ongoing by US-based cloud providers are an indication that this part of Asia is on the radar as enterprises here have huge data infrastructure requirements and are in the process of scaling their digital solutions,” Bassi said. 

Further, Alibaba Cloud has been losing market share in the global market, which is dominated by Google Cloud, AWS and Microsoft Azure.

According to Synergy Research Group, Alibaba is the fourth largest cloud provider with a 4% market share, but its share has been falling over the last few years. A price cut seems to be a strategy to regain the lost ground. 

Alibaba is likely to find it challenging to grow in the global market because of ongoing geopolitical issues between the U.S. and China. In addition, security concerns related to Chinese companies may hinder its growth in the global market. Still, the company might be hoping that reduced rates will help it capture the market in spite of these challenges.