Yahoo Finance Alibaba Unveils Big Cloud Price Cuts as AI Rivalry Deepens
(Bloomberg) -- Alibaba Group Holding Ltd. is rolling out its second major price cut for cloud services in years, aiming to win back users from rivals like Tencent Holdings Ltd. competing to provide the tools critical to training artificial intelligence.
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The Chinese internet pioneer will slash prices starting Thursday on scores of internet-based services by as much as 55%, and by 20% on average. The discounts span more than 100 products, including data storage and elastic computing options for online processing power, Alibaba executives told reporters in Beijing.
The cuts mark one of the more aggressive moves by Alibaba to stay ahead of Tencent and Baidu Inc. in the cloud business, and risk triggering a price war in an already hotly contested sector. They emerged after Alibaba called off a spinoff and initial public offering for the formerly fast-growing Aliyun or cloud unit, a move that surprised investors hoping to buy into a key business essential to AI. Alibaba’s shares slid as much as 2.5% in Hong Kong, the most since Feb. 9.
The company is now focusing on growing the public cloud — the domestic services arm aimed at enterprise customers — given US sanctions curtailing the supply of advanced chips to Chinese firms. Chief Executive Officer Eddie Wu, who took the helm last year, has taken direct control of the unit and revamped major lines.
“Alibaba’s cloud business has been contending with weak macro conditions and rising competition for some time, so it’s not surprising that they cut prices, especially with the new management in place,” said Vey-Sern Ling, managing director at Union Bancaire Privee. “Whether this can reignite growth is uncertain, but at least they’re becoming more aggressive at trying to get business.”
Alibaba has struggled over the past year to revamp its vast e-commerce, logistics and cloud empire in the face of fierce competition and geopolitical risks. The company is looking to revive growth after two years of regulatory scrutiny and Covid-era economic turbulence. It seeks to hive off non-core assets to raise capital, while dividing its sprawling operations into more clearly defined areas.
But the cloud — the business spawned over a decade ago from the need to support a mammoth e-commerce operation — remains a focal point. In recent years, the division has shed clients to not just its usual rivals but also state-backed entrants and relative newcomers like Huawei Technologies Co.
“That’s why we decided to launch the price reduction campaign — to lower the threshold of cloud services for more enterprises and developers to reap the technological dividends and accelerate the adoption of advanced public cloud services across various industries,” Liu Weiguang, president of the unit’s public cloud segment, said in a statement.
What Bloomberg Intelligence Says
Alibaba’s price cuts in its cloud services from Feb. 29 affirm the firm’s plans to use incremental profits from the business, which surged 51% year-over-year in the nine months ended December, to secure more customers and improve technology in fiscal year ending March 2025. Any resulting boost to Alibaba’s cloud revenue may emerge only in fiscal 2H starting October, according to our scenario.
Catherine Lim and Trini Tan, analysts
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The company announced cuts from 15% to 50% for core products of the Alibaba Cloud in April last year, in a move aimed at capitalizing on the demand for raw computing power needed for AI models such as Alibaba’s own Tongyi Qianwen. The previous round of discounts triggered fears that rivals like Tencent and Baidu will follow suit, eroding margins for a wide swath of the Chinese internet industry.
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Thursday’s cuts will also apply retroactively to clients that renew their orders on discounted products for at least a year within the next three months, for the remaining undelivered cloud resources they had previously purchased.
The price cuts from China’s largest cloud provider are aimed at attracting longer-term customers, with special discounts for five-year plans. The free-usage amount for consumer storage will also double to 20GB from 10GB.
Alibaba executives stressed that the discounts will open up more possibilities particularly for smaller firms. The company has backed startups such as Zhipu and Moonshot AI that are developing generative AI platforms to compete with sector leaders such as Baidu. The Chinese internet search leader reported disappointing results Wednesday, hit partly by the surging costs of AI development.
“Alibaba tried the same strategy in 2023 with limited success, as its Cloud Intelligence revenue rose by just 3% year on year in calendar 4Q,” said Bloomberg Intelligence analyst Robert Lea. “We expect Tencent and Alibaba to continue to lose cloud market share to Huawei though 2024.”
--With assistance from Vlad Savov.
(Updates with analysts’ comments from the fifth paragraph)
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