With all the executive orders, CFIUS edicts, and additional sanctions placed on Chinese tech companies by the US, it’s hard to see where these companies - and by extension the Chinese Internet - can expand to. Certainly, China’s own economy will continue to grow, providing a meaningful amount of business and opportunities. But that won’t be enough to satisfy either the investors’ need for growth or the companies’ own raw ambitions.

So where can the Chinese Internet go to expand?

We can find some clues from the major Chinese cloud providers’ expansion plans, particularly Alibaba and Tencent. I’m focusing on cloud expansion as an indicator, because it is capital intensive (e.g. building data centers) and longer-lasting (you can’t just pack up and abandon a data center when things don’t work out -- it’s commercial real estate!). Cloud infrastructure is also a good proxy for the Internet as a whole, because all online services will eventually be run on the cloud, one way or another.

Alibaba and Tencent Cloud

Alibaba and Tencent Cloud are not only the two leading public cloud providers in China, they also have meaningful market shares around the world.

In Gartner’s newly released worldwide Infrastructure-as-a-Service (IaaS) market share report earlier this month, the top five are:

  • AWS
  • Azure
  • Alibaba
  • Google
  • Tencent

Alibaba is the clear number 3, while Tencent made the cut at number 5. Notably, Tencent’s IaaS revenue grew by over 100% from 2018 to 2019, albeit from a small base. Other providers who may have bigger brand names, like IBM Cloud and Oracle Cloud, do not have big enough market shares to deserve their own rows in the spreadsheet.

Source: https://www.gartner.com/en/newsroom/press-releases/2020-08-10-gartner-says-worldwide-iaas-public-cloud-services-market-grew-37-point-3-percent-in-2019

According to Gartner, if we combine IaaS with Platform-as-a-Service (PaaS), Alibaba would still be at number 3 globally, while Tencent and Oracle would be in a virtual tie at number 5.

(These cloud acronyms can get confusing, so here’s a plain term definition of IaaS and PaaS. IaaS is data center hardware for rent; think raw server, storage, and networking capacity, maybe with a layer of virtualization on the bare metal machines. PaaS is the layer above IaaS, where the cloud vendors provide common building blocks for applications for rent: think containers, databases, logging, etc. I’m glad Gartner will combine these two categories in future analysis, because the line is basically indistinguishable and somewhat meaningless.)

With this current state of play in mind, let’s look at the massive amounts of investment both Alibaba and Tencent plan to make in their cloud unit. Back in April, Alibaba announced it plans to spend $28.2 billion USD to expand its cloud infrastructure in the next three years, which I explored in-depth in “Alibaba vs IBM: Fighting for Third Place in Cloud”. Not to be outdone, Tencent announced in May that it’ll invest $70 billion USD in the next five years to do the same.

Let’s put these eye-popping numbers in context. IBM’s acquisition of Red Hat two years ago, a pure cloud play to expand IBM’s hybrid cloud capabilities, was $34 billion USD, which was a 63% premium of Red Hat’s pre-acquisition valuation of roughly $21 billion USD. This was one of the largest acquisitions in tech history. Alibaba basically plans to build another Red Hat. Tencent plans to build two. And if you take Gartner’s analysis at face value, both are already materially ahead of IBM Cloud.

I understand that this comparison with Red Hat’s acquisition is a bit crude, but I hope it illustrates the pure magnitude of Alibaba and Tencent’s cloud investments. A big portion of these investments will go into China’s own rapidly growing cloud market. According to Canalys, China’s cloud infrastructure spending grew by 66.9% in Q4 of 2019 and by 63.7% for the entire year to exceed $10.7 billion USD, making it the second-largest cloud market in the world.

Source: https://www.canalys.com/newsroom/canalys-china-cloud-infrastructure-Q4-2019

Given how closed China’s Internet economy is to outside players (AWS is the only non-Chinese cloud provider with a foothold), this growth will only benefit domestic companies.

Both Alibaba and Tencent Cloud already have many data centers outside of China. The new investments will likely be global. The only other Chinese cloud vendor that has a decent global presence is Huawei Cloud. However, considering the late-breaking new round of sanctions earlier this week that targeted all of its overseas cloud and R&D units, including the ones in Southeast Asia, Latin American, Europe, and Africa, Huawei will be in survival mode, not expansion mode, for the foreseeable future.

Southeast Asia, Latin America, Middle East

I chose Southeast Asia, Latin America, and the Middle East, because of their long-term economic potential and Alibaba and Tencent Cloud’s existing presence there, making them probable expansion destinations, even with all the geopolitical tensions swirling around us. I’m leaving out India -- an otherwise great expansion target -- because of its recent banning of many Chinese apps and intense animosity towards Chinese tech.

There are the data center maps of Alibaba and Tencent Cloud, respectively, as they stand today:

Alibaba Cloud. Source: https://www.alibabacloud.com/global-locations
Tencent Cloud. Source: https://intl.cloud.tencent.com/global-infrastructure

It’s important to look at cloud services longitudinally (or vertically) on a map, because time zone differences combined with geographical distance matter a lot for performance, user experience, and delivering timely customer support.

To illustrate this more concretely, data centers in North America plus customer successes teams can reasonably serve users in Latin America. Indeed, many American cloud providers do exactly that, until market traction is big enough in Latin America to justify building local data centers. The same can be said for data centers in Europe serving Africa, or data centers in India serving the Middle East.

Southeast Asia: as I described in detail inSoutheast Asia and the Pacific Light Cable Network”, the ASEAN region has a vibrant and burgeoning digital economy. There is a data center construction boom in Singapore. Some regional Internet giants started using Chinese cloud providers from the get-go -- Shopee on Tencent, Tokopedia on Alibaba (and later added GCP). Other major players use the leading American counterparts -- Gojek on GCP, Grab on AWS and Azure. Because the digital economy there is young, most of these startups are cloud-native to begin with. Given the existing inroads that Alibaba and Tencent have already made in the region, with strategic investments, acquisitions, and product expansion, Southeast Asia is a natural and relatively mature target to expand their cloud units further. Both existing cloud capacities in China and data centers in Southeast Asia can serve customers. Alibaba has also announced its plan to add a 3rd data center in Indonesia in 2021.

Latin America: Chinese tech firms, like ridesharing platform Didi Chuxing, have gained traction in Latin America, where local political and cultural resistance is not as strong as in the US. The continent’s overall cloud market is also projected to grow 38.3% CAGR between 2018-2023, according to IDC. Tencent already has a colocation presence in Sao Paulo, where most of the continent’s cloud data centers are situated. Both Alibaba and Tencent have an assortment of data centers in the US that probably have idle capacity to serve Latin American customers, because they are effectively shut out of the US market. Latin America also has an emerging digital economy with marquee players like Brazil’s Nubank, one of the largest neobanks (or pure digital banks) in the world. (Worth noting that Tencent has also been building its own neobank, WeBank.) I would not be surprised to see announcements by either Alibaba, Tencent, or both, building their first dedicated cloud data center in Latin America in the next two to three years.

Middle East: in terms of GDP per capita, the Middle East is roughly at the same level as Latin America. Israel has a very active tech scene with seven unicorns to date. Careem, the super app that combines ridesharing, payment, and delivery, spans most markets in the Arab world and was acquired last year by Uber for $3.1 billion USD. Zomato, the India-based food delivery service backed by Ant Financials, also has significant market presence in the Middle East. Alibaba has been eyeing the region for quite some time with a Dubai data center that came online in 2016. It entered the Turkish market with a partnership in 2018. Even though the Indian market’s sentiments have turned sour in the last few months, the two giants’ cloud capacities in India can serve its Middle Eastern customers just fine. As far as geopolitics is concerned, there is perhaps no single region (generalizing of course) that has more misgivings towards the US than the Middle East. The enemy of my enemy is my friend (and customer).

Land Grab Now, Profit (Much) Later

So far I’ve painted a fairly rosy picture of expansion opportunities. But the harsh reality is all these destinations are still quite poor, where meaningful revenue will not be generated for a long time. As shown in this chart of GDP per capita by regions, all areas of Asia, Latin America, and the Middle East trail the US and EU by a wide margin.

Although GDP per capita is typically a proxy for consumer spending, it can also serve as a signal for enterprise spending, since much of it is dictated by meeting consumer demands anyways.

For what it’s worth, the vast majority of the cloud industry is still in “land grabbing” mode, not “profit taking” mode. Everyone is focused on building out physical infrastructures and grabbing market share for now. That’s why most of the major cloud vendors, including Microsoft, Google, Oracle, IBM, and certainly Alibaba and Tencent, do not disclose any operating income (i.e. profit) that directly attributes to their cloud businesses. Instead, they report rough topline revenue numbers or just growth rates within dubious, non-standardized categories: “Commercial Cloud” (Microsoft), “Google Cloud” (Google), “Cloud & Cognitive Software” (IBM), and “Cloud Services and License Support” (Oracle). They are all likely losing a lot of money and will continue losing money in the foreseeable future.

The only exception is AWS, who reported a whopping $9.2 billion USD of operating income for its fiscal year 2019, where North America accounts for more than 75% of that income.

To “land grab”, offering bulk discounts of up to 80% in exchange for signing long-term (3+ years) deals is common in the cloud industry. An even more extreme example: according to Reuters, in 2017, Tencent apparently offered to complete a cloud project for the Fujian provincial government for a grand total of 0.01 yuan. Getting workload is the name of the game; revenue and profit must wait.

Thus, the Chinese Internet led by Alibaba and Tencent still have room to expand around the world. Smaller Chinese startups, who are in either Alibaba or Tencent’s orbit, can also expand on the backs of their cloud infrastructures to gain users and market share. But none of them will be making serious money from those expansions any time soon. Being shut out of the most lucrative markets of North America and parts of Europe hurts. A lot.

The big question is now (repackage a John Maynard Keynes saying): can geopolitics remain irrational longer than you can remain profitless?

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  • AWS
  • Azure
  • 阿里云
  • 谷歌云
  • 腾讯云

阿里云的市场份额舒舒服服的让它排在第三,腾讯云第一次打进前五。值得注意的是,从2018到2019年,腾讯的IaaS收入增长率超过100%,尽管基数较小。其他更有名的大牌云厂商,如IBM Cloud和Oracle Cloud,没有足够大的份额,不足以单独列出来。

Source: https://www.gartner.com/en/newsroom/press-releases/2020-08-10-gartner-says-worldwide-iaas-public-cloud-services-market-grew-37-point-3-percent-in-2019



考虑到这一现状,让我们看看阿里和腾讯计划在其云部门未来的巨额投资。早在今年4月,阿里就宣布在未来三年内投入282亿美元扩展云基础设施,我在《阿里巴巴vs IBM:争夺云市场第三》那篇文章中做了些深度分析。腾讯也不甘示弱,5月份宣布将在未来5年内在云上投资700亿美元。

让我们把这两个惊人的数字换个方式理解一下。IBM两年前收购Red Hat,目的纯碎是为了云,扩展IBM的混合云产品服务,交易价为340亿美元,比Red Hat被收购时的约210亿美元市值溢价63%。这是科技史上最大的收购之一。阿里基本上准备再建一个Red Hat。腾讯准备建两个。如果我们相信Gartner的分析,两者已经遥遥领先IBM Cloud。

我承认,与Red Hat的收购做比较有点粗旷,但我希望它能更好的刻画出阿里和腾讯对云的投资的规模。这两笔投资很大一部分将是针对中国本身正在快速增长的云市场。Canalys的数据显示,2019年第四季度,中国云基础设施支出增长66.9%,全年增长63.7%,总体超过107亿美元,成为全球第二大云市场。

Source: https://www.canalys.com/newsroom/canalys-china-cloud-infrastructure-Q4-2019






Alibaba Cloud. Source: https://www.alibabacloud.com/global-locations
Tencent Cloud. Source: https://intl.cloud.tencent.com/global-infrastructure





中东:按人均国内生产总值来比较,中东与拉美大体相当。到目前为止,以色列已经有七家独角兽,在整个科技领域里非常活跃。Careem是一款集共享乘车、支付和外卖于一体的super app,横跨阿拉伯世界的大部分国家,去年被优步以31亿美元的价格收购了。总部位于印度的外卖配送公司Zomato(蚂蚁金服投了它),在中东也有可观的市场份额。阿里已经盯着中东有段时间了,在迪拜的第一个数据中心早在2016年就上线了。阿里在2018年也以合作伙伴的方式进入土耳其市场。尽管印度市场最近的状况很不好,但这两家巨头位于印度的云计算容量可以很好地服务其中东客户。就地缘政治而言,也许没有哪个地区(概括地说)比中东对美国的意见更大了。敌人的敌人就是朋友(和客户)。








当前最大的问题是(重新包装 John Maynard Keynes 的一句话):在地缘政治不合理的时间内,你能坚持多长时间不赚钱