AWS made cloud computing services mainstream, but it still hasn’t cracked China

Celia Chen
·4-min read

Andy Jassy, who will take over as chief executive of online retail giant Amazon.com, is best known for heading the development and operation of subsidiary Amazon Web Services (AWS), which pioneered the broad availability of cloud computing for companies around the world.

Led by Jassy, who joined Amazon in 1997, AWS was launched in 2006 as a simple computing and storage service delivered remotely over the internet. It has since become a global cloud platform used by millions of start-ups, enterprises and government customers around the world.

While the 53-year-old Jassy succeeded in establishing the dominant provider in the global cloud services market, AWS has failed to make major inroads into China like its parent company.

Get the latest insights and analysis from our Global Impact newsletter on the big stories originating in China.

In the world’s second-largest economy, AWS has lagged domestic players led by the cloud units of Alibaba Group Holding, Huawei Technologies Co, Tencent Holdings and Baidu. Alibaba is the parent company of the South China Morning Post.

AWS’ presence in China has remained so small that it is barely mentioned in market reports from the major tech research firms.

Andy Jassy, the long-time chief executive at Amazon Web Services, speaks at the WSJD Live conference in Laguna Beach, California, in 2016. Photo: Reuters
Andy Jassy, the long-time chief executive at Amazon Web Services, speaks at the WSJD Live conference in Laguna Beach, California, in 2016. Photo: Reuters

AWS did not immediately respond to an inquiry for comment on Wednesday.

The stakes are high for AWS, as demand for cloud computing services in China has continued to accelerate on the back of domestic providers’ expansion initiatives.

China, the world’s second-largest cloud services market, saw total spending reach more than US$5 billion for the first time in the September quarter last year, according to a report by research firm Canalys.

That was fuelled by local enterprises’ renewed focus on digital transformation amid the Covid-19 pandemic, the restart of delayed projects and the country’s quick economic recovery.

That also enabled domestic market leader Alibaba Cloud to strengthen its position with a 40.9 per cent share, followed by Huawei Cloud, Tencent Cloud and Baidu Cloud, according to Canalys. It had the “others” category for smaller players with a combined 19.9 per cent share.

An aerial view of Tencent Holding’s biggest data centre complex in the mountainous Gui'an New District, located in the city Anshun in southwest Guizhou province. Unlike local cloud services providers, foreign operators are constrained from building and operating their own data centres in China. Photo: Visual China Group via Getty Images
An aerial view of Tencent Holding’s biggest data centre complex in the mountainous Gui'an New District, located in the city Anshun in southwest Guizhou province. Unlike local cloud services providers, foreign operators are constrained from building and operating their own data centres in China. Photo: Visual China Group via Getty Images

The situation for AWS, however, offers potential for growth. “AWS is not performing badly in China,” said Liu Lihui, senior research manager at IDC China. “Enterprises with cross-border business always choose AWS, including Chinese companies that are expanding overseas operations.”

Prominent domestic customers of AWS include Swire Coca-Cola, the Shaanxi University of Science and Technology, artificial intelligence firm Shanghai CraiditX Technology and bitcoin mining equipment maker Canaan Creative, according to its website.

What has held back AWS expansion in China are existing government policies. “Unlike domestic players, AWS cannot build cloud infrastructure in China because of policy limitations and uncertainties,” Liu said. “Foreign operators, for example, must rely on licensed local companies to deliver their cloud services.”

Alibaba sees growth in cloud as China doubles down on digitalisation

Cloud computing services enable companies to buy, sell, lease or distribute a range of software and other digital resources as an on-demand service over the internet, just like electricity from a power grid. These resources are managed inside data centres.

AWS provides cloud services in China through two local partners, Beijing Sinnet Technology Co and Ningxia Western Cloud Data Technology Co. US rival Microsoft Corp’s Azure services are also delivered in China by a domestic partner 21Vianet Group, which also provides its data centre facilities to various local firms.

Amazon Web Services has the largest share in the global cloud services market.
Amazon Web Services has the largest share in the global cloud services market.

Apart from policy constraints, foreign cloud services providers will find it difficult to enter major business areas including public service, smart city projects and local finance, according to Liu, who described those areas as among the largest users of cloud services in China.

In Amazon’s fourth-quarter financial results released on Tuesday, in which founder Jeff Bezos’ transition to the role of executive chairman was also announced, AWS reported net sales of US$12.7 billion for the quarter and US$45.4 billion for the whole of 2020.

“AWS saw its underlying growth accelerate as more companies shifted parts of their business to the cloud,” said Martin Garner, chief operating officer at CCS Insight.

Amazon’s Jeff Bezos to step down as CEO

The gains of AWS last quarter were made on the back of business expansion in the financial services, media and entertainment, retail and e-commerce, power and utilities, technology, travel and automotive sectors, according to Amazon’s results announcement.

“How AWS will perform in the future [in China] will depend on who will next lead the business, [the state of the] US-China relationship and [any change in] policies in the local cloud services industry,” IDC’s Liu said.

More from South China Morning Post:

This article AWS made cloud computing services mainstream, but it still hasn’t cracked China first appeared on South China Morning Post

For the latest news from the South China Morning Post download our mobile app. Copyright 2021.