Bottom line: New global initiatives by Alibaba’s cloud and electronic payments affiliates look smart by targeting Chinese customers abroad, but may only stand a 50-50 chance of longer-term success due to fierce global competition.
Following lackluster results for initiatives involving its core e-commerce business outside China, Alibaba (NYSE: BABA) is pushing ahead on the global stage with new moves for 2 of its other areas with big growth potential. One of those has the company unveiling a global strategy for its cloud services unit, AliCloud, which includes a tie-up with former Taiwan smartphone superstar HTC (Taipei: 2498). The other involves Alibaba’s Ant Financial affiliate, which is rolling out its core Alipay electronic payments service in Europe.
Each of these moves involves a different product area, but their common theme is that neither is part of Alibaba’s core e-commerce business. In both cases, Alibaba appears to be targeting an increasingly globally-minded group of Chinese customers who are traveling and doing business abroad. That looks like a smart strategy, since such customers are already quite familiar with Alibaba’s brand and many probably already have relationships with the company through its wide array of product offerings.
Let’s begin with the AliCloud news, which is coming from an event where the company unveiled a new logo and announced the HTC tie-up. (Chinese article) The company has previously discussed plans to open cloud storage centers outside of China, and at this latest event said it will launch cloud data centers in Europe, Japan, the Middle East and Australia by year end. It added those centers will initially be targeted at customers from China doing business in those overseas markets.
At the same time, AliCloud also unveiled a new partnership with HTC, a former smartphone superstar that has fallen onto hard times recently in the ultra-competitive space. (Chinese article) The alliance’s first major tie-up will see AliCloud supply cloud services for an HTC models running apps using virtual reality (VR) technology.
The global cloud center expansion is clearly the larger of the 2 stories, though the HTC tie-up is also significant because it marks a major cloud alliance with an offshore customer. Alibaba is under big pressure from investors to show it can expand abroad as growth in its home China market shows signs of slowing. A year ago it hired a former Goldman Sachs executive to lead its global drive, and these latest AliCloud announcements could be part of his efforts.
Alipay in Europe
Next there’s the news involving Alipay, which is rolling out service for its Chinese customers in France, Germany, Britain and Italy. (Chinese article) At this stage the service will only be available for Chinese travelers, meaning we won’t see any local users of the service in those markets just yet.
I’m not completely familiar with the global expansion plans for Alipay, whose Ant Financial parent has previously said it is expanding into Asia (previous post). But this does appear to be one of the company’s first major moves into major western markets. We should also note here that the New York-listed Alibaba doesn’t own any stake in Ant, but that the 2 companies are both controlled by Alibaba founder Jack Ma.
Both AliCloud and Alipay will find a far more competitive landscape outside their protected China home market, which is probably why each is initially targeting Chinese customers with these latest 2 moves. AliCloud will have to compete with global giants like Amazon (Nasdaq: AMZN) and Microsoft (Nasdaq: MSFT), just to name a few. Meantime, Alipay will face not only competition from global titans MasterCard (NYSE: MA) and Visa (NYSE: V), but also from hometown rival UnionPay, which is embarking on its own major global expansion.
At the end of the day, these 2 initiatives look like Jack Ma’s acknowledgement that any global expansion for his companies will require major investment of both money and time, and positive results will only come slowly. This particular approach does seem more prudent than trying to expand quickly through major M&A. Still, I would only give both AliCloud and Alipay a 50-50 chance of building a meaningful business outside their home market due to the big competition.
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