Alibaba Cloud made headlines last week when CFO Maggie Wu told investors the unit would break into the black for the first time this financial year.
The division, which accounts for 8% of Alibaba group revenue, may not be quite on the same scale as its $30 billion stablemate Ant Financial, but it's growing at a healthy clip.
In the June quarter, it reported revenue up 59% to 12.35 billion yuan ($1.82 billion) for an EBITA loss of 342 million yuan. It said the higher sales were a result of increased spending per customer and stronger demand for both public and hybrid cloud services.
But it's not just Alibaba. China's cloud market has built a head of steam. CEO Daniel Zhang told the Alibaba-owned South China Morning Post the China cloud business was facing a "once in a generation" opportunity.
According to Canalys, demand for China cloud services (excluding SaaS) grew 70% year-on-year in Q2 to $4.3 billion, with Ali the dominant player, accounting for 40% of the market, followed by Huawei and Tencent.
Even in COVID-stricken Q1, demand was up 67%.
Demand arising out of the pandemic "has only fueled enterprise commitment," said Matthew Ball, Canalys chief analyst. "Business operations are increasingly going digital, while remote work is continuing, and students are relying more on the support of collaboration platforms."
These trends would spur demand for cloud native apps, and "drive workload migration and service opportunities as well as data center capacity buildout."
Canalys also points out cloud computing and data centers are a key part of China's new infrastructure initiative, a plan to stimulate economic activity and speed the post-pandemic recovery.
Terry Graham, a researcher at Hong Kong University, observes that China is "an app-driven economy in that everyone uses their phone to do business or to do life, and apps are cloud native."
Additionally, unlike most western markets, China's state-owned telcos are also big cloud players, "due to government policy and because bandwidth provisioning through the telcos is the most reliable," Graham says.
While Ali is the largest cloud player in China, it is a minnow by global standards. AWS clocked $10 billion in revenue in the last quarter, more than five times Alibaba's cloud sales.
According to Synergy Research, AWS has 33% of the global market, Microsoft 18% and Google 9%. Ali Cloud is fourth with 6%. Gartner places Ali third on the global IaaS market rankings, with a 9.1% market share.
Yet if there's a constraint on the China market, it's the inability of enterprises to use the cloud.
In a blog post, venture capitalist Lilian Li wonders about the absence from China of SaaS giants, like Microsoft or Adobe – the kind of companies whose apps spur cloud deployment.
She cites a number of factors, such as the low spending on IT – proportionally less than a quarter of the US spend – years of software piracy that have discouraged people from paying for software, and convoluted company structures that "not only [make] customization highly time-consuming but also [don't] allow for much re-use of the work for other clients."
She notes: "For Chinese SMBs, who account for ~60% of China's production GDP, adopting SaaS is difficult as it's not a learnt reward loop to invest in software of any kind."
— Robert Clark, contributing editor, special to Light Reading