TMTPost --Alibaba Group Holding Ltd. expanded its price war in the cloud sector into overseas by offering up to 59% of price production.

AI Generated Image

Alibaba Cloud Intelligence Group (Alibaba Cloud) announced on Monday that it lowered prices for all of cloud offerings by as much as 59% in global markets. The price promotion, with an average reduction of 23%, will affect products sold in a total of 13 countries and regions, ranging from Malaysia, Indonesia, Singapore, Philippines, Japan, South Korea, Thailand, United Arab Emirates, and Hong Kong in Asia, to European markets like Germany and the U.K. and the United States, the home market of cloud giants Amazon and Microsoft.

Alibaba Cloud said the price adjustment was effective immediately that day and are applicable to new and old customers who place orders at the business' official website. This is the third time Alibaba Cloud axed prices over the last 12 months. The cloud unit just offered its biggest ever price cuts in China late February with an up to 55% reduction, highlighting the competition that the artificial intelligence (AI) development boom intensified.

Just like the price cut unveiled in China more than a month ago, Alibaba played down price war as officials underlined cost advantage. The new campaign Alibaba Cloud initiated is not a short-term response to market competition, but a long-term strategic option, which is determined by the business model of public cloud, Liu Weiguang, president of public cloud business at Alibaba Cloud, said in February. With its strength on scale and technology, Alibaba Cloud continues to reduce cloud computing costs, actively promotes full-stack technological innovation from underlying computing power to AI platforms to AI model services, and increases investment in localized services and establishment of ecosystem, so as to support global developers and enterprises in seizing the growth opportunities brought by Artificial Intelligence-Generated Content (AIGC), said Selina Yuan, or Yuan Qian, the President of Alibaba Cloud International, earlier this week.

Alibaba ’s move intensified cloud rivalry as peers at home and abroad are rushing to leverage AI frenzy to grab the market share. Alibaba Cloud remained its leadership in mainland China in the third quarter of 2023 with a 39% market share, and the company, along with two other top three vendors including Huawei Cloud and Tencent Cloud,  that quarter collectively grew 22% to account for a combined 73% share of customer spending, according to a market research note from Canalys in January. Canalys found that the Chinese cloud market may be reaching a phase of stable growth, but the top cloud vendors continue to invest heavily in AI technology, underscoring their collective commitment to embracing this growing trend.

In the fourth quarter of 2023, Amazon remained top in the global market of cloud infrastructure services with a share of 31%, and Microsoft increased  its market share by almost two percentage points from a year ago to 25%, boosted by generative AI technology codeveloped with OpenAI, followed by Google’s share of around 11%, according to another international research firm Synergy. In aggregate the three leaders accounted for 67% of the worldwide market, and Alibaba Cloud, among the tier two cloud providers, had just a 4% share.

Financial results released earlier February showed Alibaba cloud posted revenue of RMB28.07 billion with a 3% year-over-year (YoY) increase for the fourth quarter of 2023. While revenue from Alibaba’s public cloud products and services experienced healthy growth, businesses excluding Alibaba-consolidated ones decreased YoY, primarily due to the decrease in revenue from low-margin project-based contracts as a result of continued effort to improve revenue quality. “The top priority for the group is to reignite the growth engines of our two core businesses: e-commerce and cloud computing,”  Alibaba Group CEO Eddie Wu commented in a financial report, adding that Alibaba will focus its resources on developing public cloud products. At the earnings call, Wu was asked what should people expect in terms of the synergies of Taobao and Tmall Group and Cloud Intelligence Group since Wu now leads both of the major segments. Wu replied he sees very strong potential for greater synergy between these segments, especially driven by AI.

Alibaba Group Chairman Joe Tsai last week admitted U.S. export restrictions on AI chips “did affect our cloud business and our ability to offer high-end computing services to our customers”, and expected limited access to Nvidia’s best-in-class AI hardware will impact Chinese cloud providers in the short to medium term before there are strong domestic alternatives.

“Alibaba’s price cuts for ex-China cloud services affirms a greater focus on revenue growth vs. profitability this fiscal year ending March 2025. Consensus estimates for a two-percentage-point rise in the business’ 2025 adjusted Ebita margin from a year earlier appear overly optimistic,” commented Catherine Lim and Trini Tan, Bloomberg Intelligence  BI analysts.