Although President-elect Donald Trump may have reservations about China, the country's ecommerce giant Alibaba (BABA) is aggressively pursuing inroads within the U.S. market, exploring its massive cloud potential.
This trend is one of the most compelling growth stories for investors.
Alibaba's cloud offering, Aliyun, has garnered significant traction across China's economic landscape. The U.S., however, is a more complex proposition, as Amazon's Amazon Web Services and Microsoft's Azure have a powerful market presence.
Keep in mind, however, that Alibaba isn't looking for immediate profitability but is instead playing a long game.
Data security will clearly be an issue of tremendous concern for mainstream U.S. enterprises and users, and Alibaba must play its cards shrewdly, targeting companies that are looking to find a foothold in China.
On the face of it, Aliyun's pricing model is easier and simpler to understand.
Amazon and Microsoft have complicated and detailed pricing structures that are better suited to seasoned cloud users. A simpler pricing model could help Alibaba's chances, but its capital-strong peers are highly competitive and will resist losing any ground.
The stakes are high.
Research firm Gartner forecasts that the global public cloud services market will be worth $204 billion this year, up more than 16% from $175 billion last year.
Although Alibaba and Amazon's principal business area is still ecommerce, the cloud is an immensely powerful profit driver.
Aliyun, which is in an investment phase, will attempt to generating higher revenue by drawing in more customers. About 25% of its more than 2.3 million cloud customers are on a pay-per-use model, but an increase would be directly proportional to sales growth.
Industry observers expect that Aliyun's sales will hit $1 billion this year and $3 billion in 2019.
Comparatively, Amazon drew $3.2 billion from its AWS segment in the latest completed quarter, which when annualized totals nearly $13 billion.
Microsoft's sales for its cloud division rose to $6.7 billion in its fiscal fourth quarter. Sales from Azure, the Microsoft platform that markets data center computing power and services, doubled over two consecutive quarters.
Alibaba plans to launch four data centers located in Australia, Germany, Japan and the United Arab Emirates. The company's global expansion is an obvious attempt to challenge Alphabet's Google, Amazon, IBM and Microsoft, which together control over half the global cloud market.
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Aliyun has had steady growth in its home country, aided by supportive government regulations in China. Meanwhile, in Europe and the U.S., the cloud market is still a toss-up between Amazon and Microsoft, with the old guard such as Oracle and SAP trying to make the cloud work.
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