China's Alibaba Group Holding last week said it would invest $1 billion into its Aliyun cloud computing arm to challenge Amazon Web Services. This move kicks off what could become a global battle between the two e-commerce giants. Also, it could change the dynamics in the cloud market now dominated by AWS, Google, IBM, and Microsoft.
A billon dollars is not chump change, but it's not a game-changing amount, either. For example, last year IBM invested $1.2 billion to significantly expand its global cloud footprint. IBM already had a good head start in the cloud when it tossed in that $1.2 billion, yet that investment is unlikely to catch IBM up to AWS.
What's the deal with Alibaba's day-late-and-a-dollar-short strategy -- or is it actually five years late and about $4 billion short?
I don't believe that Alibaba will have much of a chance to duke it out against AWS in the United States -- or against Microsoft, Google, or IBM, for that matter. This will be another provider that most U.S. enterprises will consider too late to the party, without the features and functions they need.
That said, I doubt that Alibaba's focus will be the United States. The Asian market is exploding right now. If Alibaba decides to invest in points of presence in Asia, companies in that market may find Alibaba more appealing. Of course, the major cloud providers (interestingly, all American companies) already have data centers in Asia. Even there Alibaba will be up against established providers.
Although I don't believe the major cloud providers will need to worry about Alibaba's cloud investment for the next several years, I see a day when non-American cloud providers will offer cheap versions of premium clouds, much like Asian companies do with durable goods.
If I were on the management team at Alibaba, I would keep away from AWS, Google, IBM, and Microsoft, and not declare war on them. Alibaba's strategy should be to add value where those cloud providers don't, such as dominance in Asia. Otherwise, Alibaba could find its cloud investment quickly ignored.