Will Alibaba, Tencent’s investments in Indian startups lift their cloud prospects?

Ever since its inception seven years ago, BigBasket, the country’s largest online grocery startup, has been dialling Amazon Web Services (AWS) for its cloud requirements. But it will soon switch over to Alibaba Cloud, the cloud computing arm of Chinese conglomerate Alibaba. And on Tuesday, digital wallet firm Paytm said it would use Alibaba's cloud infrastructure to build an artificial intelligence cloud platform.

Jack Ma-led Alibaba had invested $225 million in BigBasket earlier this year and owns a significant stake in Paytm, so it’s not exactly surprising that the two portfolio companies opted for the Chinese firm’s cloud services.

But the development serves as an indication that Alibaba’s diverse portfolio of local tech startups, which also includes Zomato and Snapdeal, is giving it a leg-up as it looks to get top-tier Indian companies to choose Alibaba Cloud over American giants such as market leader AWS, Microsoft Azure and Google Cloud.

“We are working very closely with our portfolio companies in their journey to accelerate cloud adoption,” Alex Li, the Asia-Pacific head for Alibaba’s cloud business, told TechCircle.

Like Alibaba, fellow Chinese conglomerate Tencent is also looking to capitalise on its local investments such as unicorns Flipkart (which is also backed by Microsoft) and Byju’s and its expertise in gaming and video streaming. India is reportedly the next stop on its cloud expansion drive across Southeast Asia. 

Big opportunity

It’s the size of the opportunity in India that has attracted these two players, with Li pegging it at $154 billion. The Indian cloud market is just opening up and ‘digital transformation’ is now in vogue among local firms, including small and medium enterprises (SMEs).

“Adoption rate of cloud technologies in India is at a nascent stage and that gives a huge opportunity for other players to step in and pick up a piece of the pie,” said Santanu Patro, research director at market research firm Gartner.

Charlie Kun Dai, principal analyst at research and analysis firm Forrester’s China division, said an “eat-your-own-dog-food” approach - where a company uses its own products and services for internal operations - is important.

“As long as cloud solutions provide strategic benefits for customer experience and business operations, ensuring consistent architecture within their ecosystems can help accelerate business growth,” he said.

However, Greyhound Research chief analyst Sanchit Vir Gogia says there is more than meets the eye.

“Companies such as Alibaba want to create a cloud ecosystem or environment with their portfolio companies,” says Gogia. “While at one end these companies start switching to their cloud services, at the other end it will try and sell their cloud services to prospective customers of portfolio companies. This way they will create a sales opportunity for portfolio companies, giving them another reason to adopt their cloud solutions.”

David Barbalas, investment analyst at market insights firm Seeking Alpha, believes that while Chinese players like Alibaba and Tencent may not offer the best set of cloud services, they will be able to leverage their expertise in e-commerce, fintech, logistics and retail businesses. After all, the Chinese market bears more similarities to India than the US.

In the meantime, Alibaba is working on launching some uniform programs throughout the country while also looking to cater to specific customer requirements.

Standing out

Alibaba’s Li believes that a competitive pricing strategy will make a difference in India as long as the company’s products provide value for its target customers.  

“Indian businesses are exploring various kinds of cloud adoption models in order to best suit the needs of their workloads. While pricing does play an important role in this market and we want to keep the pricing competitive, we also believe that customers in India also look for value,” he said.

Analysts, too, believe that aggressive pricing combined with the right mix of products and services will play out better for Chinese cloud players.

“Alibaba will focus on the gap area in the market where AWS cannot provide its services,” said Gartner’s Patro. “While hundreds of startups are born in the cloud, they suffer from migration costs while moving from on-premises servers. AWS’ solution in combination with VMware doesn’t come cheap.”

He added that Alibaba is more likely to come up with readymade packages or bundled solutions that is seeing the most adoption in the country currently.

“Another thing that works for them is that Microsoft is not intensely targeting the same spaces or areas,” he said.

Email queries sent to Tencent, AWS and Microsoft did not elicit a response till the time of publishing this report.

Forrester’s Dai said that instead of pricing, he expects Chinese cloud players to offer differentiated services.

“Pricing would definitely be a key factor, but I would expect they would differentiate themselves with better data centre design for lower power usage effectiveness (PUE), as well as more vertical solutions to leverage their ecosystem advantages in areas like e-commerce and retail for Alibaba Cloud, and gaming and social for Tencent Cloud,” he said.

While data privacy may be concern amid a global furore and crackdown by the Indian government on storing data locally, experts said that Alibaba and Tencent should be fine if they follow the law.

Alibaba has already opened one data centre in Mumbai and Li said that they might open another one in a preferred location if the need arises.

“For now, having one data centre in India will not be a problem for Alibaba,” Forrester’s Dai said.

In fact, Alibaba has already made plans for future investment in the country. Li said that the company was looking to invest heavily on infrastructure including data centres and networking, apart from hiring and training local talent.