Chinese tech giant Alibaba will cut the prices of its cloud services by up to 50% starting today as it hopes to grow the sector.
Alibaba Group (NYSE: BABA) recently announced cutting its cloud prices by 50% to spur business growth. The Chinese tech giant seeks to carve out a bigger share of its local cloud market amid increasing competition. By drastically reducing the prices of cloud-based products and services, Alibaba hopes to better compete with the likes of Tencent.
Reports state the price cuts will kick into effect today as Alibaba leverages a demand surge driven by artificial intelligence applications. The company’s cloud price development also comes as it is mulling spinning off its Aliyun business ahead of a possible IPO.
Alibaba Cloud’s website says prices for elastic computing services that use Arm and Intel-based semiconductors will drop 15% to 20%. The platform further stated that elastic computing services that use Nvidia’s V100 and T4 graphics processing units would see a price reduction of between 41% and 47%.
Although the price cuts could help Alibaba attract more customers, a Chinese cloud computing research analyst offered another take. According to Canalys’ Zhang Yi, the actual impact of Alibaba’s price reductions will depend on the specific services bought by clients.
Prime Mover Alibaba Cloud Facing Intense Competition
Founded in 2009, Alibaba Cloud is one of China’s earliest local venturers in the cloud computing space. Although the service currently caters to over a third of the sector in China, it has faced escalating domestic competition in recent years. These include Chinese carriers such as China Telecom and China Unicom, as well as tech conglomerate Tencent.
Alibaba and Tencent compete to provide the requisite raw computing power for popular AI platforms like ChatGPT. The desire to gain the upper hand sees Alibaba slash its Aliyun subsidiary’s core products up to 50% from May 7th. Although Alibaba Cloud provides data processing and storage services to countless businesses, developers, and governments in over 200 countries, the company pushes for more. Alibaba stressed that it remains committed to growing its cloud business because it is a potentially exponential growth driver.
Bloomberg Intelligence Analysts Predict How Cloud Price Cuts Can Impact Company’s Short-Term Bottomline
Despite the perceived optimism from Alibaba’s cloud services price cuts, Bloomberg Intelligence analysts believe the company might incur short-term fiscal shortfalls. According to Catherine Lim and Trini Tan:
“Alibaba’s price cuts of up to 50% for its cloud services raise a risk that the unit’s adjusted Ebita in fiscal 2024 ending March will trail consensus expectations, even after a more than 5% decline in estimates over the past two weeks.”
Furthermore, Lim and Tan also added:
“The cuts raise the likelihood that Alibaba will cede 2024 cloud profit gains to spur revenue growth and fend off increased cloud and generative-AI rivalry from peers such as Tencent and Baidu this year.”
In other news, Alibaba announced Wednesday that over 200,000 companies have requested to join its Tongyi Qianwen beta testing program. The tech giant announced its AI-powered large language model earlier this month.