Alibaba Group Dominated Partner Announcements at this Year's IBC
The incredible shrinking Earth was on display at September’s IBC show in Amsterdam, where a number of well-known companies in the streaming space made announcements highlighting partnerships with one of the industry’s newest entrants: Alibaba Group and its rapidly growing Alibaba Cloud division.
From Haivision to Wowza, a number of press announcements centered on the integration of hardware and software services within arguably the first successful Alibaba Group service to reach America.
In 2014, Alibaba Group, now listed on the New York Stock Exchange as BABA, made history as the world’s largest IPO, with more than $25 billion in shares sold on opening day. Yahoo, which had a 15 percent stake in Alibaba as part of its China strategy, now holds the bulk of its $36.4 billion valuation primarily in Alibaba stock. This is after selling off its core advertising assets to Verizon, but retaining stakes in Yahoo Japan and Alibaba.
For most, the Alibaba hype could be summed up in two words: market potential. While others were unable to penetrate the Chinese consumer goods market, Alibaba—10 companies that collectively take on Amazon’s core ecommerce product delivery business as well as eBay’s auction approach—grew into a trillion-dollar business.
The rise of Alibaba Group is astounding. Its revenue growth from 2014 to 2015 more than doubled Amazon’s (44.1 percent growth for Alibaba, 19.5 percent for Amazon) while maintaining an operating margin of 26.6 percent, which is closer to eBay’s operating margin (26.4 percent in that same time frame) than it is to Amazon’s (less than 1 percent for the 2014 calendar year).
The cloud computing division of Alibaba Group, known interchangeably as AliCloud or Aliyun, has been around in various forms since 2009. But it wasn’t until AliCloud opened international data centers in Hong Kong (2014) and Silicon Valley (2015) and moved its international headquarters from China to Singapore (2015) that the business world began paying attention.
Amazon, for its part, had AliCloud on its radar long before that, in no small part because Alibaba handed Amazon its e-commerce hat in China and across parts of Asia-Pacific (APAC). Amazon understands the T in SWOT (strengths, weaknesses, opportunities, and threats), a classic MBA tool used to calculate the risk involved in a company’s overall marketplace.
Expanding into the Chinese marketplace, with its 1 billion-plus consumers, is an opportunity; facing a Chinese competitor not just in China but also on a global stage is a threat to a company’s very existence. Alibaba represents a very big threat to Amazon, so Amazon must meet the AliCloud challenge to protect its cloud business.
It wasn’t a surprise when Amazon announced in late 2013 that it would expand its Amazon Cloud service to China, a strategic move to preempt AliCloud from moving too far afield from its Chinese roots. Alibaba seemed intent on balancing the playing field, though, and has made at least two large investments—one topping $1 billion in 2014, which allowed AliCloud to expand to Dubai and move forward in the United States—to compete with Amazon.
Even so, it’ll be an uphill climb. While Alibaba Group trails Amazon slightly in its ecommerce offerings, it is much further behind in the web services space: Amazon has almost 10 percent of the global cloud computing market, bringing in $7.9 billion in cloud computing revenues in 2015. AliCloud brought in only $0.4 billion.
The potential market balancer, though, may be the Chinese cloud computing market. It experienced a 45 percent compound annual growth rate between 2013 and 2015 and now accounts for about $3.1 billion in annual revenues. In other words, if Amazon isn’t successful with its push into the Chinese cloud computing market, the potential is there for AliCloud to dominate the Chinese market and thereby need less of the overall global cloud computing market to catch up with Amazon’s cloud computing services the same way it is doing in the ecommerce realm.
One advantage that Alibaba has in APAC is that it understands the market. This market is fraught with peril, from incompatible video formats to highly fragmented market sectors. We’ll explore those issues in a future Streams of Thought column.
[This article appears in the October 2016 issue of Streaming Media magazine as "Looking East."]
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