Expert says Alibaba Cloud’s continued price cuts will be its undoing

Alibaba Cloud recently announced a significant reduction in prices for its cloud services outside of China, averaging a 23% decrease across various products. Some services will see a whopping 59% price cut, marking a substantial move in its ongoing battle for market share.

These reduced prices are now applicable to users in several regions including Singapore, Indonesia, the United Arab Emirates, Japan, the US, and Germany, among others. This initiative follows earlier price reductions in early 2023, where costs were slashed by up to 50%, as Alibaba pushes to stay competitive in the face of increasing competition across Asia.

This practice of trying to undercut competition through pricing is a common trend among Chinese cloud providers. Analysis by the Wall Street Journal found that Chinese cloud companies typically offer prices significantly lower, ranging between 20% to 40%, than their American counterparts.

However, while price cuts might temporarily attract customers, experts caution that it might not be a sustainable strategy in the long term. Eldar Tuvey, CEO of Vertice, believes that focusing solely on reducing costs may not propel Alibaba to the forefront of the industry or challenge the dominance of established players.

This is especially true because Western hyperscalers like AWS, Microsoft, and Google Cloud are also aggressively expanding their footprint, especially in key markets like Southeast Asia and Japan. The trio have all unveiled huge investments in Singapore, Malaysia, Thailand, and Japan in recent years, with Microsoft and Google both confirming plans to expand in Japan within the last month.

“A race to the bottom in a fight over unit costs for compute or other resources is unlikely to make Alibaba a major player or wrestle dominance from established players,” Tuvey said.

“Some customers may jump ship to the likes of Alibaba in the short term, but ultimately users will go for the vendor that is best aligned to what they need,” he added.

Kate Leaman, chief market analyst at AvaTrade, acknowledges Alibaba's strong position in Asia but emphasizes the importance of leveraging its strengths in data analytics, AI, and e-commerce integration as opposed to price cuts to resonate with a global audience.

“The most important element for Alibaba is leveraging its strengths in data analytics, artificial intelligence (AI), and e-commerce integrations, which allows it to offer differentiated services that resonate with an international audience,” Leaman said.

While she agrees that it’s a strategy that can work, she notes that it will still depend on Alibaba’s ability to continue providing high service quality and innovation at lower price points.