Alibaba's cloud ambitions, aiming to rival AWS, have been derailed by Beijing's crackdown, as sources say many institutions have moved to state-backed rivals
For years, Alibaba Group Holding Ltd. had a legitimate shot at becoming the Amazon.com Inc. of China, an e-commerce juggernaut … Tweets: @pelstrom Tweets: Peter Elstrom / @pelstrom : Deep dive into Alibaba and how Beijing's crackdown is jeopardizing profits in its cloud computing business from @cocojournalist and team. Alibaba even looked at spinning off the cloud business. Key points here: https://www.bloomberg.com/...
Context & Ripple Effects
Alibaba Cloud's arc runs from ambition to retreat: it announced US expansion in 2015 to take on Amazon directly, then quietly suspended that plan in 2018, refocusing on serving US multinationals inside China. As recently as 2017 it was China's leading cloud vendor, booking $254M in quarterly revenue from 765,000 customers.
The new reporting closes the loop: Beijing's crackdown is not just slowing growth — sources say institutions are actively migrating to state-backed rivals, and Alibaba has even weighed a spinoff of the unit. It compounds the pressure documented in the shared cloud struggles of Alibaba and Tencent and the broader decline since Ant's IPO was halted in 2020, which by late 2023 had cut Alibaba's value to roughly $196B from $850B in 2020.
First-order effects
- Institutions abandoning Alibaba Cloud for state-backed rivals directly shift Chinese market share away from the country's largest cloud vendor toward politically favored players like Huawei.
- Alibaba's option of monetizing or separating the business via a spinoff is now on the table, a sign the unit's strategic value inside the group is under review.
Second-order effects
- Tencent, facing the same crackdown dynamics per the FT reporting, is pushed toward the same defensive posture — both private hyperscalers ceding ground rather than competing on product.
- State-backed rivals gain not just customers but the institutional and government workloads that anchor long-term infrastructure spend, entrenching their cost and scale advantage.
Third-order effects
- If the migration pattern holds, China's cloud market structurally reorganizes around political alignment rather than technical scale, with compute treated as strategic infrastructure reserved for state-favored operators.
- For Alibaba, cloud was the pillar of its bid to become the Amazon of China; its loss pushes the company back toward e-commerce, where it is already losing share to PDD — narrowing what the company can credibly be.
The trend: China's cloud computing market is consolidating around state-backed providers as Beijing's crackdown converts political alignment, not scale or technology, into the decisive competitive advantage.