Southeast Asia Turns into a Key Battleground for Cloud Computing Providers

14/05/2019

Southeast Asia is experiencing a “cloud war” in its region, which is fostering the local digital scene. Here, Alibaba is leading the Cloud Computing market while US giants such as Microsoft and Google struggle to keep the competition alive

 

Southeast Asia has become a key battleground for international tech giants for some time now. Here, Chinese tech giants such as Alibaba and Tencent are helping to foster Chinese new Digital Silk Road allocating funds in local startups and thus helping the development of the domestic technology scene.

Foreign companies, especially American hi-tech titans, struggle to keep the competition with Chinese groups alive losing market share year after year. This is the case of Amazon and Microsoft, whose market shares for 2018 in Southeast Asia – 11% and 8% respectively – have been overcome by Alibaba Cloud, which dominated the Asia Pacific market with a 19.6% market share last year.

According to a recent Gartner – the authoritative research institution in the United States – report, Alibaba’s cloud computing and data intelligence arm has earned the top position in the Asia Pacific IaaS (Infrastructure as a Service) and IUS (Infrastructure Utility Services) – two of the most popular forms of cloud business – market in 2018 with a 4.7% annual market share growth.

 

PRC cloud computing in Southeast Asia - cifnews

© Pixabay. As the consumer base increases, cloud computing has become a matter of competition in Southeast Asia, where Alibaba Cloud dominates the market.

 

The People’s Republic internet scene almost reached its maximum leaving a smaller percentage of growth potential and a higher competition among hi-tech companies. Southeast Asia, instead, looks like a younger modern China. The technological environment is still immature and, therefore, receptive to foreign technology.

The Association of Southeast Asian Nations (ASEAN) is actually the world’s third most populous region and the sixth-largest economy. Moreover, in addition to a large portion of the population already familiar with the services the Chinese companies offer, the Southeastern region is also home to an emerging tech-savvy middle-class, just like China.

According to a report by Google and Temasek, the number of active internet users in Southeast Asia is expected to reach the figure of 480 million people by 2020 making it the third-largest market globally in terms of internet users.

The ASEAN countries thus represent a significant market for the global supremacy and a key battleground for cloud computing services. Therefore, Beijing is not the only one to look at the Asian neighbors with interest. Here, leading Chinese companies, BAT – Baidu, Alibaba, Tencent – and major US companies join the battle for tech and cloud dominance in the Pacific area.

 

“The expansion of US- and China-based cloud infrastructure service providers is part of a wider technology arms race between the two countries, as part of efforts to increase their economic and political influence,” says Canalys Research analyst Daniel Liu.

 

The ongoing trade tensions between China and the US are having a significant impact on the global cloud infrastructure services market with competition between the respective providers intensifying.

Six of the top ten cloud service providers are based in the US, with Amazon Web Services, Microsoft Azure and Google Cloud dominating the local scene. On the other side of the ocean, Alibaba Cloud is China’s leading provider and ranks fourth in global scale after skyrocketing 80% to reach 4% of the market.

However, although American and China-based cloud infrastructure service providers currently dominate their respective domestic markets, the competition between the two groups of providers is growing in other regions, including the ASEAN region.

 

PRC cloud computing in Southeast Asia - jakarta - cifnews

© Unsplash. Jakarta, Indonesia. Indonesia represents the new Asian hub for cloud services, replacing Singapore, which had the title until now.

 

In particular, in Southeast Asia, Indonesia is challenging Singapore‘s dominance in data center investment by attracting international industry giants. Singapore has always been the focus of cloud service investment because of its good fiber connectivity but now Indonesia is experiencing a growing interest as an alternative to Singapore.

Last October, the American internet giant Google already announced that Indonesia would become its newest Asian hub for cloud services. It follows a similar initiative by Amazon, which is going to invest about $924 million in Indonesia over the next 10 years.

However, Amazon follows Chinese e-commerce leader Alibaba Group Holding, whose Alibaba Cloud arm was the first global cloud platform in Indonesia when it opened a data center in the capital, Jakarta, in March 2018.

Alibaba Cloud currently operates in 19 local data centers outside mainland China, covering Hong Kong, Singapore, Australia, Malaysia, India, Japan, and Indonesia. In January, it also launched its second data center in Indonesia, thus doubling the capacity of its first data center and creating a stronger and faster data recovery system for its customers.

 

By launching a second data center in Indonesia, Alibaba Cloud is not only supporting the government’s “Go Digital 2020” vision but it is also growing the number of its areas of availability from 52 to 55 areas across 19 regions worldwide.

 

This jump of Alibaba in the Southeast Asia arena is just a step toward the strengthening of the New Retail concept idealized by the company’s founder, Jack Ma. The combination of online sales and offline experiences through logistics and big data analysis is only possible if a wider market is involved. Retailing in China has already been transformed by the New Retail in the last two years. Now Alibaba wants to expand its cashless society concept outside Chinese boundaries.

Therefore, Southeast Asia with a combined population of 550 million people is part of the Hangzhou-based company’s plan to serve 2 billion consumers by 2036, handling $144.6 billion in gross merchandise volume. It will also help Alibaba’s vision of earning half its revenue beyond China.

The “cloud war” in the ASEAN region is thus helping international companies to offset domestic saturation. The overall cloud market could grow by 55% to $331.2 billion in three years, according to Gartner, and Alibaba’s cloud business has been generating triple-digit revenue growth over the past three years, outpacing the industry.

Gartner’s estimates reveal that last year, the Chinese company accounted for 19.6% of the Asian region’s markets for IaaS and IUS, meaning that its regional market share rose by nearly a third from 2017, while Amazon fell slightly to 11%. However, the global figure is much different with Amazon leading the market with 30.4% compared to Alibaba with 4.9%.

 

PRC Tech Giants in Southeast Asia - bangkok - thailand - cifnews

© Unsplash. Bangkok, Thailand. Southeast Asia, as one of the fastest growing regions in the world, may continue to be the battleground for Chinese tech titans as they continue to make their mark on the world stage.

 

However, the goal of expansion is not the only reason for global tech companies to target their investments in the Southeast Asia region.

As mentioned above, Alibaba’s investment in Southeast Asia aims to penetrate the local market, serving the countries’ customers and startups. And they are increasingly demanding local data centers.

Low latency or delay in data transmission becomes more vital as the markets mature, and customers demand more content such as high-resolution video streaming or mobile apps that enable online gaming, deliveries or transport. “Companies will need, by definition, to house the data center closer to end users,” instead of using a hub in Singapore, said Jabez Tan, research director of data center-focused think tank Structure Research.

But data sovereignty is also one of the driving factors that attract foreign cloud providers in the region.

Cloud computing represents the future of computing services. Every year, every day, more and more enterprises abandon old computer rooms to turn to cloud computing. The advantage of being a highly secure system that requires low maintenance makes it an attracting service among businesses. Therefore, it is not just a promising market but it can also be easily installed and expanded.

 

Today, China is the world’s fastest-growing public cloud market, with a 76.5% annual growth in 2018. Microsoft and Apple both entered China’s cloud computing market years ago, but they could not compete with local providers.

 

As well as in other hi-tech sectors, ASEAN’s cloud business is leveraging Chinese investments, fully embracing the Digital Silk Road project to share a common technological development.

As the Dragon’s historical friend and a natural extension of the Chinese region, Southeast Asia is showing similarities with a younger PRC in its digital development. Therefore, it is not far from showing the world a renewed Southeast Asian technological boom.

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