On February 29, three months after clarifying the strategy of "AI (artificial intelligence) driven, public cloud first", Alibaba Cloud announced the largest price reduction in history, with an average reduction of 20% and a maximum reduction of 55% on the official website of more than 100 products and more than 500 product specifications. Alibaba Cloud said that although the price reduction activities in the first half of last year were very effective and feedback, they have not yet reached the expected goals.
In April last year, at the 2023 Alibaba Cloud Partner Conference, Alibaba Cloud also announced the "largest price reduction in history", and the price reduction at that time was a 15% to 50% reduction for core products** across the board, and a maximum reduction of 50% for storage products. Compared with last year, Alibaba Cloud's price reduction involves more products, including core products that are the largest part of its revenue, benefiting a wider range of people, and the scope of price reduction covers the unfulfilled part of customers' existing orders for the first time.
Liu Weiguang, senior vice president of Alibaba Cloud Intelligence Group and president of public cloud business, said that Alibaba Cloud's price reduction is not a short-term market competition behavior, but a long-term strategic choice, "which is determined by the business model of public cloud." ”
Economies of scale
According to Liu Weiguang, China's cloud computing has been developing for more than a decade, but the penetration rate of public cloud is still significantly lower than that of mature markets in Europe and the United States. There are 20 million servers in the Chinese market and about 21 million servers in the United States, but the computing power provided in the form of public clouds in the United States accounts for 60%, while in China it is only 28%.
Liu Weiguang said that the value of public cloud lies in the fact that enterprises can achieve better business operation results with less resource consumption, "The business scenarios of most customers have business volume fluctuations. The elasticity provided by cloud computing allows customers to adopt a combination of normalization and elasticity to respond to resource requirements in different periods of time and achieve a significant reduction in average resource holdings. ”
He further mentioned that the increase in the penetration rate of the public cloud market is conducive to the improvement of computing power efficiency and the reduction of energy consumption in China as a whole. According to the data, the average resource utilization rate of a large number of self-built IDCs (Internet data centers) in China is less than 5%, while the resource utilization efficiency of data centers can reach 25%-40% for public cloud vendors such as AWS (Amazon Cloud), Google, and Alibaba Cloud.
As for the reason for the price reduction, Liu Weiguang explained that cloud computing is a business model with network effect and scale effect. As the largest cloud service provider in Asia, Alibaba Cloud provides millions of customers with a reusable global cloud computing network and resource pool, and the more customers use, the more the cost of chain procurement, the average cost of R&D and the cost of resource idleness can be continuously reduced.
Therefore, the more customers who use Alibaba Cloud, the larger the scale, the cheaper the cloud will be; With the continuous expansion of scale, the dividends of technology will continue to be released to give back to customers. Liu Weiguang said that Alibaba Cloud hopes that through this large-scale price reduction, more enterprises can use advanced public cloud services and accelerate the popularization and development of cloud computing in all walks of life in China.
Competitive pressures
Although it has denied the statement that it is fighting a war with Tencent Cloud, Huawei Cloud and other friends, Alibaba Cloud does have pressure on its market share to be further eroded. According to the latest data released by technology market research institute IDC in January, the market size of China's public cloud (IaaS + PaaS) (infrastructure as a service + platform as a service) in the third quarter of 2023 was 5356.6 billion yuan, Alibaba Cloud with 26The 7% share ranks first in the market, but the share is **5 year-on-year8 percentage points, ranking first in market share.
The second, third and fourth Huawei Cloud, e Cloud and Mobile Cloud have increased their share.
On the other hand, the previous research institute IDC released the "China Public Cloud Service Market (First Half of 2023) Tracking" report, saying that from the perspective of the domestic IaaS + PaaS market, the first half of 2023 will increase by 15% year-on-year9%, a new low year-on-year growth rate in the past three years, the growth rate of the public cloud market in Chinese mainland continues to slow down, the specific performance includes the growth of enterprise IT (Internet technology) budget is less than expected, the "profit protection" strategy of Internet cloud service providers has led to a slowdown in revenue growth, and the development of the public cloud market in the Internet industry is significantly differentiated.
Alibaba Cloud has undergone a number of major changes in 2023: at the organizational level, Wu Yongming replaced Daniel Zhang, who had only served for more than 200 days, as chairman and CEO of Alibaba Cloud**; In November, Alibaba Cloud carried out a new round of organizational restructuring and established three business divisions: the Public Cloud Business Division, the Hybrid Cloud Business Division, and the Infrastructure Business Division. Strategically, due to the expansion of chip export control rules by the United States, Alibaba Cloud's spin-off and listing plan was announced to be suspended half a year later; In addition, in Alibaba (09988HK) At the second quarter of fiscal year 2024 results as of September 30, 2023, Wu Yongming proposed for the first time that Alibaba Cloud will adhere to a new development strategy of "AI-driven, public cloud first".
In an interview, Liu Weiguang said that he is still optimistic about the market, because there is still a large scale of servers in China, and this price reduction is also an important measure for Alibaba Cloud to return to growth.
According to Alibaba's latest financial results for the third quarter of fiscal year 2024 ended December 31, 2023, Alibaba Cloud's revenue increased by 3% to 280Adjusted EBITA (earnings before interest and taxes) surged 86% to 23.6 billion yuan6.4 billion yuan. Talking about the impact of this price cut on revenue and profit, Alibaba Cloud's management said that the company appropriately cedes profits in order to achieve large-scale and reduce costs through scale effect; In addition, Alibaba Cloud hopes to lower the threshold for more small and medium-sized enterprise developers to go to the cloud by reducing prices, so as to expand the payment downward and make up for the loss.