Alibaba, IBM, others betting heavily on cloud computing
By Shahid Hussain
The 109-year-old International Business Machines Corp (IBM) is willingly breaking itself into two public companies with the aim to focus on the high-margin cloud computing domain.
The e-commerce giant Alibaba is expecting its cloud business to turn profitable for the first time which is the next frontier for it like Amazon Web Services (AWS) is for Amazon.
CEO Daniel Zhang in an interview with CNBC said the cloud business will be the main focus of Alibaba in the future and that explains the shifting gears in Alibaba's strategy as the company is already dominating the Chinese market and made 7.79 billion yuan in the June quarter.
Being the pioneer in this sector, AWS has the edge over its top competitors which are namely Microsoft Azure, Google Cloud Platform, Alibaba and IBM.
Last year IBM acquired Red Hat, a cloud company with a lofty sum of $34 billion which shot the shares value seven percent, now with the rare decision to split the company in two business units. IBM is shying away from low-profit legacy business.
The decision of IBM to willingly break up is good news for American policymakers who are advocating to break up giants like Facebook and Google as they believe these companies have too much power and monopoly.
There are two strong arguments which justify their allegation. Firstly, these companies are heavily influencing decision-making processes of individuals. Secondly they are not allowing small players to bloom, as in pursuit of market dominance they play every tricks which force the latter to either shut down or be acquired by these giants.
Alibaba's major revenues come from Taobao and Tmall shopping platforms, with almost 750 million active users already hitting saturation point. Moreover it has presence mainly in China and Southeast Asia through its e-commerce affiliate Lazada in which it holds a majority stake.
Now to sustain growth, Alibaba must enter other markets but it is an uphill task for it to change the perception and mindset of Western countries, especially America, toward “data storage” and hence make significant inroads as since the beginning they have just two data centers in those regions.
Alibaba just announced it is in process to have a joint venture with Swiss travel retailer Dufry and would have a 9.99 percent stake in the company which due to COVID-19 is facing financial crunch. If this deal comes into existence, Alibaba would hold a 51 percent stake in China travel retail operations with Dufry which has more than 2,500 shops in 65 countries.
Ant Group, another affiliate of Alibaba, is about to make history as it is preparing to offer the world's largest IPO, a record owned previously by Saudi Aramco. Ant Group is the financial arm of Alibaba which operates its digital wallet Alipay and has more than 700 million monthly active users, and handles over 1 billion transactions annually.
We are witnessing a bipolar world for technology as Chinese companies are giving stiff competition to American counterparts. Huawei, despite facing the heat, is scaling in Italy and is ready for inspections to show the internal operations so that any doubts regarding so-called security concerns are buzzed off.
Kudos to Chinese companies who are making inroads into Latin America, Africa and recently slowly in Europe despite unilateral blocking.
No doubt, cloud computing, artificial intelligence (AI) and blockchain are the future of technology and because of high margins cloud computing is hotcakes.
But only time will tell if Alibaba or any another non-American companies will dominate this profitable sector as it seems to be baffling due to unilateral behavior of the U.S.
Shahid Hussain (hussain.shahid@greenproposition.com) is CEO and founder of a consultancy company based in the UAE and writes about matters which shapes trade and business in Asian markets. The views expressed in the above article are the author's own and do not reflect the editorial direction of The Korea Times.