China’s cloud computing war: misjudgment, catching up and fighting

In the history of the cloud computing industry, a conversation between several Internet giants is inevitable.

In 2010, at the “IT Leaders Summit” site, during the discussion on cloud computing, Robin Li “unceremoniously” called cloud computing “old wine in a new bottle”, and Ma Huateng believed that cloud computing would have to wait hundreds of thousands to become “water, electricity and coal”. Years or even a thousand years.

Only Jack Ma is different. He said that if Ali does not do it, he will die in the future.

At this time, Alibaba Cloud has been working silently for two years. Wang Jian, who Ma Yun specially recruited, proposed to Alibaba the general direction of “Going to IOE” and started the self-study of the cloud operating system “Feitian”. Some Alibaba people did not believe it. They ridiculed Wang Jian, “A PhD who studies psychology can actually become the CTO of Alibaba. You have a good psychology!”

Just like any new thing must go through the stage of being verified, cloud computing has gone through such a path since its inception in China in 2007: at the beginning, only a few people were optimistic, and they walked through the first few lonely. Kilometers, and was widely questioned. Later, the road became wider and wider, and more and more players in the same group chased each other in the crowded track.

This “go to IOE” road was completed in 2013. It represents the staged success of Alibaba Cloud and also ignited the domestic cloud computing market. Since then, players from all parties have accelerated their entry into this track to make up for the past strategy. Misjudgment, while chasing Ali.

So far, the cloud computing war has been fought for nearly ten years, and the outcome is still undecided. However, in the midst of a stumble, the domestic cloud computing industry is making great strides to continue to catch up with Europe and the United States.

01 Catching up: Five years behind

In February 2002, Bezos asked Colin Brier and Frederick, the heads of the joint company, to develop an API that allows developers to access the Amazon website. This API was the original form of AWS.

Counting from this year, Alibaba Cloud started five years later than Amazon. In fact, the domestic cloud computing industry as a whole also lags behind Europe and the United States by about five years.

In China, Alibaba was the first to invest heavily in cloud computing. It started in 2007. For Alibaba at the time, this was a helpless move.

Taobao’s annual transaction volume in 2008 was 99.96 billion yuan, more than double the 43.3 billion yuan in the previous year. But at this key point of business growth, Ali’s hidden dangers in the underlying IT architecture began to be exposed:

The database is too large and there is almost no room for further expansion, and the acquisition and operation and maintenance costs of the IOE architecture are too high.

Wang Jian once calculated an account for Ali. He said that according to the purchase speed at the time, buying machines and software alone was enough to make Ali bankrupt.

Ali chose to “de-IOE”, which means replacing minicomputers with cheap PC servers, replacing Oracle with open source self-developed databases, and no longer using high-end storage devices.

This year, cloud computing has not been widely recognized in China. Gartner data shows that the domestic cloud computing market is only 353 million U.S. dollars, accounting for only about 1% of the global cloud computing market. In contrast, during the same period, foreign cloud computing giants such as Amazon and Salesforce began to release their own PaaS platforms.

This lag in the domestic cloud computing industry is determined by the following three factors:

First, in the previous IT technology revolutions, the dominant force has been overseas IT giants, and their status is hard to shake.

IT products have the two characteristics of high universality and high coupling. The former means that the IT industry, especially software products, are not restricted by physical factors and can be universal in all aspects. The latter means that the upstream and downstream of IT products have high With Windows as an example, the application software and hardware coupled with it are difficult to be compatible with the emerging operating systems, so the status is difficult to shake.

This has also led to the fact that, for a long period of time, most of the IT architectures of domestic Internet companies used IBM minicomputers, Oracle databases and EMC centralized storage. This IOE architecture led by IBM, Oracle, and EMC was also the standard configuration of most enterprises at that time.

Second, the growth models of early Internet companies mostly referred to overseas, and the start of new models and new industries often came first in developed countries.

For example, in the second year after Amazon started making APIs, Alibaba only launched Taobao.

Third, before cloud computing is proven, it itself faces value disputes.

Cloud computing itself is not a brand-new network technology. Its core is to realize the large-scale configuration of resources. Users can configure on-demand and flexible configuration of underlying physical resources such as computing, storage, and network, and pay for usage.

For example, in the traditional model, an enterprise needs to purchase low-level resources such as servers, databases, and storage on its own. These resources are more hardware configurations in the early stages, which are expensive to deploy and require expensive operation and maintenance costs.

Furthermore, when an enterprise deploys IT resources, it is difficult to predict demand. In order to meet demand, it is prone to “buy more but not buy less”, leading to resource redundancy.

On this basis, a superficial understanding of cloud computing is actually one or several companies that gather resources and then lease these infrastructures to customers in different ways.

Therefore, the technical barrier of cloud computing lies in how to achieve more effective resource allocation and more complete service experience in the cloud.

But one of the biggest miracles of China’s Internet is that most of the players in it are not industry pioneers, but they tend to grow the fastest.

Soon, some large companies in China have accelerated their cloud computing deployment:

Huawei-Huawei Cloud was established in 2011, released the “Cloud Sail Plan 2012”, released the “Huawei Enterprise Cloud” public cloud platform in 2015, and upgraded its cloud strategy in 2016;

Baidu-Baidu opened its cloud capabilities to the outside world for the first time in 2012, and began to accelerate in 2016. Robin Li hired former SAP (enterprise application software provider) executive Yin Shiming as the general manager of Baidu Cloud and expanded the team from 200 people in a year To 1,100 people;

Tencent-Tencent Cloud was an independent brand in 2013, Tencent Cloud Computing Company was established in 2014, and Tencent Cloud became a strategic business in 2016;

Their official end means the real arrival of the cloud computing era, and the official start of the cloud war.

02 Path: Multiple-choice questions for manufacturers

The outside world once regarded Robin Li and Ma Huateng’s early ignorance of cloud computing as a strategic misjudgment.

The fact is that a series of players, including Tencent, Baidu, and Huawei, inevitably embarked on the road of catching up with Alibaba Cloud.

We have also seen that around 2016, cloud computing has been placed at a strategic high position by more and more Internet giants:

In 2016, Zhang Yaqin, at the helm of Baidu Cloud, once said that the overall cloud computing market is a marathon. Ali ran one kilometer and Baidu might have ran 0.5 kilometers. In the same year, Tang Daosheng of Tencent claimed that cloud business was a position that Tencent had to win. ; Also in this year, Huawei proposed that enterprise cloud in 2020 will reach the order of 10 billion US dollars.

During the same period, Alibaba Cloud’s first-mover advantage has become more obvious: According to data released by the market research organization IDC, in the first half of 2017, Alibaba Cloud’s share of China’s public cloud market reached 47.6%.

Before discussing the path of giants deploying cloud computing, let’s first have a general understanding of the different modes of cloud computing and industry development trends:

According to different demand levels, cloud services are divided into IaaS, PaaS, and SaaS, which correspond to the lease of the underlying infrastructure, the lease of software development platforms, and the lease of application software respectively;

The difference between the three is that the IaaS layer and the PaaS layer have high entry barriers, high market concentration, and relatively weak SaaS. Internet giants often have massive IT infrastructures and form high capital barriers. Therefore, the IaaS layer is mainly a giant game. Such as Ali, Amazon and so on.

At the same time, the IaaS layer has more scale effects and is easier to converge.

According to different service methods, cloud computing is divided into public cloud and private cloud, as well as the “hybrid cloud” and “exclusive cloud” that were later extended.

The core difference between the two lies in the dominance of the data center. The public cloud data center is generally provided by the cloud service provider, while in the private cloud service mode, the data center is generally built and operated by the enterprise itself or the private cloud vendor. The hybrid cloud is the use of private cloud and public cloud for different IT systems of the enterprise. Cloud architecture.

As shown in the figure above, the advantage of public cloud lies in its price, which is more suitable for small and medium-sized enterprises and innovative enterprises. The advantages of private cloud are mainly reflected in high security, autonomous control, and more suitable for large and medium-sized enterprises that are more sensitive to data security.

Regardless of the classification method, the cloud service market reflects two core trends:

First, the IaaS layer focuses on infrastructure, the PaaS layer focuses on platform ecology, and the SaaS layer points to applications, and is more inclined to the C-end user scenario. Essence Securities pointed out in a research report that among these three, the PaaS platform will become the focus of the cloud computing ecological game. This is mainly due to the fact that SaaS applications are more dependent on the PaaS platform.

Second, the hybrid cloud model of public cloud + private cloud will be the mainstream service method in the future.

On this basis, it is not difficult for us to find that there are actually path differences in the layout of cloud computing among giants:

Represented by Amazon AWS and Alibaba Cloud is a bottom-up path from the IaaS layer to the SaaS layer. They both choose to develop a completely self-developed cloud computing operating system, typically Ali’s “Flying”. The core difference between the two is , Whether the cloud computing ecosystem is completely autonomous and controllable.

In the domestic market, other cloud service providers outside of Alibaba chose to conduct self-research on the basis of the open source operating system OpenStack, which was developed and initiated by NASA and Rackspace in cooperation. The operating system is completely self-developed, which is also an important reason for Alibaba Cloud’s early difficulties.

Represented by Microsoft, Tencent Cloud, Baidu Cloud, Huawei Cloud, Inspur Cloud, etc., it is more of a top-down path from the SaaS layer.

Microsoft is the most typical representative. It cuts in from specific terminal services such as office, uses the ecology and integration of the product to turn to storage, computing and network infrastructure, and then realizes the mutual diversion of SaaS services, IaaS, and PaaS.

From the perspective of service methods, the choice of “public-private” or “private-public” depends on the positioning and role of cloud service vendors.

In the early stage of market development, the cloud computing market relied more on customer resources. On this basis, Huawei Cloud, Telecom Tianyi Cloud, and Alibaba Cloud actually represent three forces:

1. The advantage of traditional ICT companies lies in their huge corporate resources;

2. Third-party IDC companies have an advantage in government resources;

3. The advantage of Internet giants lies in the corporate resources in the ecosystem;

We can see that Huawei Cloud started as a private cloud, and started to become a public cloud in 2015. Whether it is Alibaba Cloud or Tencent Cloud, most of their initial businesses are to provide public ownership for companies in their ecosystem. cloud service.

03 Competition: Competing for the fourth cloud

Judging from the current market structure, Alibaba Cloud belongs to the first echelon, and Tencent Cloud and Huawei Cloud are in the second echelon.

IDC released China’s public cloud market data for the first quarter of 2021, showing that the domestic IaaS+PaaS market reached US$4.632 billion in the quarter, of which Alibaba accounted for 40% of the market share, and Tencent Cloud and Huawei Cloud ranked second each, accounting for both Is 11%. In the remaining markets, Tianyi Cloud, Baidu Smart Cloud, Kingsoft Cloud, Inspur Cloud and other vendors are divided up.

Looking at the current industry competition from this, two uncertainties are:

1. Can Tencent Cloud and Huawei Cloud shake the position of Alibaba Cloud?

2. Among the remaining players, who will take the lead to become a stable fourth?

From the perspective of the industry, after several years of deliberation and exploration, the major players in the cloud computing market have basically completed the underlying ecological construction, and the next focus of competition will focus more on the market size.

The development of public cloud has a self-reinforcing effect: forming first-mover advantages with capital investment, opening customer acquisition channels with cost-effectiveness, and improving profitability with value-added services. The past growth paths of Amazon AWS, Microsoft Azure, and Alibaba Cloud all reflect the above commonality. Therefore, The public cloud platform market is likely to reflect the trend of stronger ones getting stronger.

As the first to achieve scale, Alibaba Cloud has cut prices more than ten times a year since 2014, with an annual decline of up to 30%.

Even so, Alibaba Cloud is still the only profitable cloud vendor in China. In the past three quarters, its adjusted EBITDA was 24 million yuan, 308 million yuan, and 340 million yuan, respectively.

For this reason, it is even more difficult for Huawei Cloud and Tencent Cloud to catch up with Alibaba Cloud. But we also see that the competition between them is evolving in the direction of fierce heat.

For example, as early as March 2017, the bid-winning announcement of the cloud service of Xiamen Government Affairs Network showed that Tencent Cloud won the bid at a price of 0.01 yuan. A picture exposed online shows that among the other four companies that participated in the bidding, the lowest bidding price was 1.7 million and the highest was 3.09 million.

For another example, Alibaba Cloud and Tencent Cloud began to introduce a hierarchical agency system in 2019. As of August this year, Tencent Cloud has more than 8,000 channel partners, Alibaba Cloud has 10,000, and Huawei Cloud has exceeded 10,000 in May last year.

This is a microcosm of the current battles in the cloud computing market:

First, government and enterprise customers are the new focus of competition.

IDC data shows that in 2020, my country’s government cloud public cloud market will reach 8.14 billion yuan, a year-on-year increase of 61.59%. In this submarket, the order of the top four vendors is: China Telecom Tianyi Cloud, Alibaba Cloud, Huawei Cloud and Inspur Cloud, occupying 81.7% of the market in total.

Prior to this, the management of Huawei’s enterprise business and Alibaba Cloud told the media that the government and enterprise market is a key breakthrough in 2021.

Second, the industry is likely to start price wars and resource wars;

A cloud computing agent once told the media, “Tianyi Cloud’s products are basically sold to closely-connected government enterprises or telecom’s own businesses, and they are usually packaged and sold at cost prices.”

Good Future previously migrated from Alibaba Cloud to Tencent Cloud, Tencent provided advertising resources for a period of time; Pinduoduo added Baidu Cloud, an important consideration is Baidu to give its mobile traffic.

It is foreseeable that the sales method that relies on price cuts and resource packaging is very likely to become the normal state of the game among manufacturers.

Third, hand-to-hand combat in the market has begun;

The competition among agents among different cloud vendors is a cut in our observation of this war.

Photon Planet pointed out in an article that in order to compete for customers, agents even return the commission points given by the manufacturer to their customers according to their own highest bottom line. Some agents said, “Some agents can Give all the rebate points given by the manufacturer to the customer, preferring not to make money, just for renewal later.”

The top three are fiercely fighting, and other players are also fighting on the remaining market plates.

Some of them have already surrendered. For example, Meituan shut down public cloud services in March last year; some have just entered the market. For example, at the beginning of the month, the Volcano Engine was upgraded to the byte enterprise technical service business sector and officially entered the public cloud market.

They all want to be the “fourth cloud”, but even if they become the fourth, their lives may not be easy.

04 Conclusion

Counting from 2007, my country’s cloud computing industry has gone through 14 years of staggering.

Looking back in the past, this industry showed a clear “winner takes all” characteristics, and it eventually evolved into a giant game.

This is determined by their infrastructure scale and business volume: the former is their ticket, they use capital investment to form a first-mover advantage and gain a firm foothold; the latter is their accelerator, such as games in Tencent’s ecosystem, Audio and video platforms, such as WeChat, which has the largest development platform in China, and Alibaba, has huge e-commerce resources.

We have also seen that in this process, the domestic cloud computing industry is also accelerating and struggling to catch up.

According to a research report released by Gartner in April, in the cloud computing IaaS market, two of the global “five clouds” are Chinese: the third is Alibaba Cloud, which accounts for 9.5%, and the fifth is Huawei Cloud, which accounts for 4.2%.

So the story about speed is being staged again: it was not the first to start, but the fastest, and this journey is far from over.

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