Alibaba to Exit Cloud Business After Beijing Undercuts Potential
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Alibaba to Exit Cloud Business After Beijing Undercuts Potential
Alibaba to Exit Cloud Business After Beijing Undercuts Potential
(Bloomberg) -- Alibaba Group Holding Ltd.’s surprise move to fully spin out a potentially transformative $12 billion cloud business is stirring speculation about whether the Chinese e-commerce leader bowed to market or political realities.
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Chief Executive Officer Daniel Zhang dropped a bombshell Thursday when he unveiled the contours of Alibaba’s historic six-way shakeup for the first time. Included among the listing and financing of a plethora of businesses was a plan to fully relinquish control of the business known as Alibaba Cloud, a once-thriving operation that harbored the potential to supercharge the company the way Amazon Web Services grew to signify Amazon.com Inc.
At the heart of the issue is why Alibaba chose to sever a business some analysts value at upwards of $30 billion, a prime beneficiary of a post-ChatGPT upswell that depends on cloud resources to train next-generation AI models. In doing so, it’s hiving off a unit that comes with historical baggage and its own share of business uncertainty. Alibaba dived as much as 5.9% in Hong Kong Friday, after also reporting disappointing Chinese commerce figures.
China’s most valuable online commerce firm invested tens of billions over more than a decade in the business of hosting computing for corporations over the internet. For years, it was among Alibaba’s proudest and most often-touted accomplishments, a business that outstripped rival offerings from Tencent Holdings Ltd. and Baidu Inc., grew more global in flavor than any other division, and spearheaded important inhouse initiatives.
But government scrutiny of cloud services operated by private firms intensified around 2020, when Beijing grew suspicious of privately owned repositories of sensitive and valuable data, triggering a now-infamous sweeping crackdown on the internet sphere. AliCloud itself drew regulatory ire in 2021 for discovering then sharing a major software flaw before informing authorities, and was then investigated in 2022 for its role in China’s largest known cybersecurity data leak. The cloud division in recent years began to bleed market share to rivals including Huawei Technologies Co. and state-run China Mobile Ltd.
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