SINGAPORE (Nov 4): In a dark cavernous hall located in the eastern Chinese city of Hangzhou, rows of sharply suited businessmen and casually dressed attendees sat expectantly. As loud rock music boomed from the speakers, an emcee emerged to hype up the crowd.

It was a rather boisterous affair, considering that it was part of Alibaba Cloud’s (AliCloud) Apsara Conference 2019. The three-day event held in September attracted more than 100,000 people.

The conference, now in its 10th year, is AliCloud’s signature event showcasing its latest R&D. This year’s affair was the company’s biggest yet and featured everything from the usual round of speeches and drone demonstrations to an amusing musical number about — what else — cloud computing.

There was also a slew of major announcements: Photography giant Canon and risk and financial data provider Refinitiv became the latest to tie up with AliCloud, joining a growing list of companies — Japanese cosmetics giant Shiseido and US office space provider WeWork included — that are signing up for a programme that gives them access to e-commerce and logistics applications to better serve their Chinese customers.

“We would like to support more customers to innovate in China and transfer their successes to other parts of the world,” says Alibaba Cloud Intelligence International president Selina Yuan. “We are happy to see an increasing number of customers that innovate with us, and accelerate their global digitalisation process with that success.”

But perhaps the biggest innovation unveiled was the Hanguang 800, an artificial intelligence (AI) inference chip.

Launched as part of China’s plan to incorporate new technologies to drive its economy, the new chip is currently powering Alibaba’s product search, automatic translation and personalised recommendations on the company’s websites.

In a statement, Alibaba chief technology officer and president of Alibaba Cloud Intelligence Jeff Zhang says that, with the Hanguang 800, only a fraction of the hardware is needed to do the same task compared with using traditional processor units. At the same time, average latency and power consumption is reduced by half.

It is clear this latest innovation — the first semiconductor product geared for AI — is part of AliCloud’s plan to move into the hardware space. The new chip was unveiled alongside a new service called on-premise cloud, essentially a server-in-a-box that a company can hire from AliCloud without taking on hardware costs.

It may be no different from what Amazon Web Services (AWS) offers but, to Charlie Dai, principal analyst at market researcher Forrester, it is necessary because it keeps AliCloud in step with its competitors.

“Cloud is a scale business, and computing power towards diverse scenarios matters for AI competency. Hardware customisation down to the chips is becoming a must for [enterprise cloud] players to differentiate and thrive,” he explains.

On the other hand, Evan Zeng, senior research director at global research and advisory company Gartner, argues that the move into chip production is also a way to rein in hardware costs while improving performance.

“[AI as a service] is an application with huge growth potential on cloud platform, and this application requires lots of expensive, specialised hardware and chipsets. Alibaba Cloud is the one looking at this hardware cost and trying to optimise it by self-developing hardware and chipsets,” he says.

Rachel Liu, senior research manager at market research firm IDC, agrees. She believes that, for AliCloud to advance its infrastructure while improving services and reducing costs, it needs to overcome the high technical barrier by moving upstream to build its own hardware.

“Alibaba has enough technical and financial strength, so it is expected that they would enter this field. It is a win-win situation for both supporting cloud service business and expanding new hardware business,” she says.

Meanwhile, Tim Sheedy, principal adviser for market researcher Ecosystm, sees this move as Alibaba gearing up for “round two” of the cloud wars, having ceded to AWS and Microsoft early in the game.

AliCloud might have an advantage this time around, however, as the game now calls for next-generation applications designed to work smarter.

“These new environments need new chipsets and Alibaba, like Google, recognises this need. While they could buy these chipsets from providers such as Nvidia, they are likely to require them on such a scale that they can make them at a lower price and, more importantly, they can design them to run better in different applications,” Sheedy notes.

“We are at the beginning of an era in which chips will be designed for specific workloads… [for example,] one may be refined to do voice analysis more effectively and efficiently and another for video or image analysis.”

Formed in 2009, Alibaba’s cloud computing arm is China’s largest public cloud services provider. It now operates in more than 200 countries and territories and is the fourth-largest cloud services provider behind AWS, Microsoft’s Azure and Google Cloud.

AliCloud’s global expansion began in 2015 when it opened its first international data centre in Singapore in August. That expansion was described as a response to natural demand from its Chinese customers, who wanted the same cloud provider as they expanded outwards.

But the company’s bid to gain international clients was initially met with suspicion. Many wondered: Would China have access to the sensitive data stored in AliCloud’s data centres? Forrester’s Dai reckons, however, that the company went out of its way to show that those fears were unfounded.

“Alibaba Cloud is taking effective initiatives to improve, such as [having] more engagement with analysts and the media, more initiatives in open source as well as more security certifications worldwide,” he explains.

Currently, AliCloud commands 6% of the global public cloud services market. According to market research firm IDC, its share in Asia-Pacific stands at 25.3%. Back home, AliCloud remains a market leader and, last year, its annual revenue nearly equalled the combined revenue of all the largest public cloud providers operating in the Chinese market.

Global expansion was perhaps inevitable but the company opted to do things differently. Rather than clash head on with companies like AWS, AliCloud found its global niche by turning itself into a cloud provider aimed at helping companies that want to gain a foothold in China, says AliCloud president of global ecosystem Ken Shen.

“From a market perspective, I think AWS is strong in the US and Europe, Alibaba is quite strong in China and Asia-Pacific… Our differentiator and advantage is that we started here and cover the whole of Asia-Pacific. The value we deliver to our customers that is different from AWS is that we can be a one-stop shop and adviser for our customers and partners who want to build in China and Asia-Pacific and outside of China and Asia-Pacific.”

IDC’s Liu is not sure that this new strategy will take off in the near future, though. “Its global cloud business is still small and poses no significant impact on market share for now; the effect remains to be seen,” she observes.

Ecosystm’s Sheedy says, however, that many companies will probably choose to leverage AliCloud’s platform as they enter the Chinese market, the world’s second-largest economy.

“China is an important market for the rest of the world — but with the limitations on the use of Google and other US firms in China, it has the potential to break websites and mobile applications if they are not designed from the bottom up to run in China,” says Sheedy.

“For example, a company that may think it is an ‘AWS shop’ may run an app in China that is hosted in the AWS cloud platform. But a simple Google analytics or ad services [application program interface] call might not work — which might break the whole app or website. So, having a full ‘China native’ cloud strategy is important when operating in or selling to the Chinese market.”

Furthermore, Forrester’s Dai believes AliCloud is going beyond just providing cloud services for international businesses, but also “accelerating the innovation on platform and development services around emerging technologies”.

This was a point echoed by Alibaba’s Shen, especially since the cloud provider is now the digital backbone of the entire e-commerce group.

“More than 60% of the business units are on Alibaba Cloud. We have a target for the rest of the business units to be on Alibaba Cloud in the next one or two years,” he says.

“Alibaba Cloud is the technical and cloud foundation to sustain all our business units, and our mission is to make our business easier everywhere.”

Alibaba Cloud signals global ambition with strategy shift, unveils new chip and signs on new partners

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