On February 29th, Alibaba Cloud announced that the prices of its core products have been comprehensively reduced, covering over 100 products and more than 500 product specifications. The average price reduction reached 20%, with some even as high as 55%. This includes areas such as computing, storage, databases, etc., and the new pricing system took effect immediately. For example, the eighth-generation ECS cloud server that used to cost 1896 yuan per year can now be gaoding for just 1450 yuan (approximatly ＄202).
This price reduction is not only a bold strategy for Alibaba Cloud to continue leading the cloud business battlefield, but it may also trigger an unprecedented price war in the field of cloud computing.
Earlier, Alibaba Group Holding Limited canceled its plan to spin off and list Alibaba Cloud. This decision surprised investors who were hoping to invest in this key business area, causing Alibaba‘s stock price in Hong Kong to temporarily drop by 2.5%.
“In a macro environment that is not favorable and with increasingly fierce competition, it is not surprising that Alibaba Cloud has taken the initiative to reduce prices. Especially after the new management took office, they appear more proactive in seeking business opportunities,” said Lin Weisen of Union Private Bank. “Whether this can reignite growth remains to be seen, but at least Alibaba Cloud’s attitude towards pursuing business opportunities is clearer.”
In the past year, Alibaba Group Holding Limited has been facing intense market competition and geopolitical risks, continuously reforming its vast e-commerce, logistics, and cloud businesses. The company is attempting to divest non-core assets to raise funds while also segmenting its large business into more distinct units.
But cloud computing business – a business that was born more than ten years ago to support the massive e-commerce operations – remains the focus of the company. Some media outlets have pointed out that in recent years, Alibaba Cloud’s customers have not only flowed to long-term competitors, but also included new market participants such as Huawei.
Alibaba Cloud’s President Liu Weiguang stated in a declaration: “The reason we decided to launch this price reduction activity is very simple – we hope to lower the threshold for using cloud services, so that more enterprises and developers can enjoy the dividends brought by technology, and promote wider adoption of advanced public cloud services across various industries.”
This is already the second time Alibaba Cloud has implemented a large-scale price reduction within a year. At the Alibaba Cloud Partner Summit in April last year, Alibaba Cloud announced an across-the-board price reduction of 15% to 50%, with storage products seeing a decrease of up to 50%. It was hailed as the largest price reduction in history at that time.
This price reduction will undoubtedly trigger competitors to follow suit. In fact, following closely in May last year, Tencent Cloud announced price reductions for multiple core cloud products, with some product lines even seeing a decrease of up to 40%. Shortly after that, China Mobile’s mobile cloud also announced across-the-board price reductions of up to 60%.
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The report from the market research firm IDC shows that Alibaba Cloud, Huawei Cloud, China Telecom, Tencent Cloud, and AWS are among the top five in the IaaS sector of China’s public cloud service market. The total market share is 72.4%, with a decrease in market concentration compared to the same period last year by 3.0%.
Alibaba Cloud stated that the latest price reduction measures will also benefit customers who renew at least one year of discounted product orders within the next three months. This means that Alibaba Cloud aims to attract long-term customers, provide special discounts for five-year plans, and increase the free storage space from 10GB to 20GB.
However, whether the price reduction strategy can truly attract customers, boost growth, the market still needs time to verify. In the fourth quarter of 2023, Alibaba Cloud’s revenue was 28.066 billion yuan, a year-on-year increase of 3%, and adjusted EBITA profit was 2.364 billion yuan, a year-on-year increase of 86%. In the fierce competition in cloud computing field, whether these series of measures by Alibaba Cloud can win more market share remains to be seen.
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