Read ‘Cloud Wars Go Global: How Amazon, Microsoft, Google and Alibaba Compete in Web Services’ in the attached file Complet
Read "Cloud Wars Go Global: How Amazon, Microsoft, Google and Alibaba Compete in Web Services" in the attached file
Complete the Case Analysis Template
Case Analysis Template[footnoteRef:1] [1: For general case preparation strategies, see also: http://plato.acadiau.ca/courses/Busi/IntroBus/CASEMETHOD.html.]
Current Situation
Step 1. The Facts
WHO is the decision maker? |
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WHAT is the task to be done (decision to make, problem to solve, opportunity to seize)? |
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WHY has the issue arisen now? What is its significance to the organization? |
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WHEN does the decision maker have to decide, resolve, act or dispose of the issue? What is the urgency to the situation? |
Step 2. In Depth Analysis
Analyze the case situation using the core model at right. Consider the following sorts of questions (the exact questions will vary somewhat depending on the case).
1. What business problem are we trying to solve?
2. Why is that problem important to the business?
3. How does the nature of the current IT contribute to or alleviate the problem?
4. How does the current organization (structure, people, culture etc.) contribute to or alleviate the problem?
5. How did we get here? Critically assess the factors that have contributed to our current situation?
Criteria
Use your analysis of the current situation to identify the relevant criteria.
Criteria |
Meaning/Measurement |
Why Selected? |
Analysis of Alternatives
What options are given in the case?
Are there additional options you think need to be considered?
Performance Against Criteria |
||||
Options |
1 |
2 |
3 |
|
1 |
||||
2 |
||||
3 |
Decision
Which option do you think is best? Why?
How does this proposed solution address the business problem identified in your analysis of the current situation?
Implementation
How will you go about implementing your decision (who will do what, when, and how)?
Short Term (= ________ days/wks/mths/yrs) |
Medium Term (= _____ days/wks/mths/yrs) |
Long Term (= ________ days/wks/mths/yrs) |
What are the major risks associated with your decision?
What steps will you take to avoid or mitigate those risks?
,
IN1658
Case Study
Cloud Wars Go Global: How Amazon, Microsoft, Google and Alibaba Compete in Web Services
This case study was written by Jason Davis, Associate Professor of Entrepreneurship and Family Enterprise, and Anne Yang, Research Associate, both at INSEAD. It is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.
To access INSEAD teaching materials, go to https://publishing.insead.edu/
Copyright © 2020 INSEAD COPIES MAY NOT BE MADE WITHOUT PERMISSION. NO PART OF THIS PUBLICATION MAY BE COPIED, STORED, TRANSMITTED, TRANSLATED, REPRODUCED OR DISTRIBUTED IN ANY FORM OR MEDIUM WHATSOEVER WITHOUT THE PERMISSION OF THE COPYRIGHT OWNER.
03/2020-6577
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Copyright © INSEAD 1
“At AWS, we keep a close eye on our competitors, but we are obsessed with our customers…Many large technology vendors are now trying to build a replica of what AWS has been building for the last decade.”
Alex Yung, Managing Director of AWS Greater China 1 (May 4, 2019)
"Amazon, Microsoft, and Alibaba all have different playbooks, but Alibaba is playing the home game in China, which gives them advantages Amazon or Microsoft would never have.”
Evan Zeng, Senior Research Director, Gartner 2 (May 4, 2019)
1. Introduction
Developed around 2006, cloud computing took off to become one of the IT innovations that defined the 2010s, transforming the way computers and software interacted and operated. Defined simply, cloud computing is the delivery of computing services—including servers, storage, databases, networking, software, analytics, and intelligence—from proprietary data centres over the internet (“the cloud”) to offer faster innovation, flexible resources, and economies of scale. The global public cloud market is forecast to grow from US$182.4 billion in 2018 to US$331.2 billion in 2022, a compound annual growth rate of 12.6%.3
By 2020, all the world’s leading digital businesses – from technology content companies like Netflix and Spotify, to innovative start-ups like Rovio and Zynga, to Fortune 500 companies like Colgate- Palmolive and Coca-Cola – had their IT operations running on the cloud. However, many other companies had yet to take advantage. Only one fifth of enterprise applications ran on the cloud – the result of legacy IT systems, slow corporate buy-in, and a lack of understanding of the many advantages it offered –
– First, it lowers the cost of deploying and maintaining IT systems by reducing or eliminating the need for businesses to purchase fixed equipment and build their own data centres.
– Second, these systems are easy to scale as the enterprise grows its ERP, CRM, and other programmes based on their needs. The cloud provider often passes on the economies of scale to customers in the form of lower volume-based pricing. Savings on software, hardware, facilities and maintenance significantly reduce the total cost of ownership (TCO) of IT infrastructure.
– Third, hosting systems, programmes and apps on the cloud provides data-recovery safeguards in an emergency. Disasters can damage equipment and shut down critical IT functions, but cloud systems are safeguarded and thus can support recovery efforts.
– Cloud computing increases mobility and collaboration by enabling team members to work remotely. Although physically apart, they can collaborate seamlessly and receive updates to work-streams in real-time (e.g., when people have to work from home as a result of COVID-19).
1 https://asia.nikkei.com/Business/Companies/Amazon-prepares-to-battle-with-Alibaba-in-Asia-s-Cloud 2 https://asia.nikkei.com/Business/Companies/Amazon-prepares-to-battle-with-Alibaba-in-Asia-s-Cloud 3 https://www.cio.com/article/3397054/the-state-of-Cloud-computing-in-southeast-asia.html
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– Finally, the cloud gives access to the latest technologies and greater security at a lower initial cost as most apps and programmes come with flexible, subscription-based options. Beyond the cost savings, this enables companies to build apps, build solutions, and do analysis that would otherwise be impossible.
Cloud computing had thus evolved into an ‘enabler’ – a building-block of the digital economy. In addition to supplying the infrastructure for on-demand access to corporate data storage and computing power, it was the basis of new ‘ecosystems’ that enabled the digital transformation of industries and the creation of new products and services.
One-stop, plug-and-play cloud service providers such as Amazon Web Services (AWS), Google Cloud Platform (GCP) and Microsoft Azure appealed strongly to organizations that had product/service offerings with pay-per-use, could be scaled up or down based on usage, and were characterised by resiliency and self-service. To stay ahead of the competition, service providers continuously added functionalities to their cloud offerings that supported new digital-first business models, such as real-time streaming and data-warehousing capabilities.
2. The Race to the Cloud
Cloud computing took off with the creation of AWS and the introduction of its Elastic Compute Cloud (EC2) in 2006. Microsoft launched Microsoft Azure in 2010. Google Cloud Platform (GCP) was released in 2013. AWS, the early winner, dominated market share since the birth of the industry (see Figure 1).
Figure 1: Comparison of Growth of Top 3 Players
Source: Jefferies, company reports
Despite the benefits, many businesses, particularly in traditional industries, had yet to make the leap. A McKinsey survey revealed a gap between IT leaders that had migrated most of their
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Copyright © INSEAD 3
systems/processes and “the rest” that had migrated less than 5%.4 Meanwhile the race continued to heat up, with AWS, Microsoft Azure, Google Cloud Platform and Alibaba Cloud jostling for a bigger piece of the pie (see Figure 2).
Figure 2: Global Cloud Infrastructure Spending and Growth by Company
Cloud service provider
Full year 2019 (in billions)
Full year 2019 market share (%)
Annual growth (%)
Amazon Web Services
35 32 36
Microsoft Azure 18 17 64 Google Cloud 6 6 88 Alibaba Cloud 5 5 64 Others 43 40 23
Source: Canalys
The adoption of cloud computing by corporations was most prominent in North America, accounting for half of the global market, followed by Western Europe. The top players were targeting Asia Pacific as it had the highest growth projections – the region’s spending on public cloud services and infrastructure was valued at $26.0 billion in 2019, an increase of 47.1% over 2018.5 Public clouds were expected to grow exponentially, with spending in Asia Pacific forecasted to reach US$76.1 billion in 2023, a five-year CAGR of 33.9% (figure does not include private clouds used exclusively by one business located either on-site or hosted by a third-party service provider).
To meet data sovereignty requirements and deliver superior performance to Asia-Pacific clients, all the top providers (AWS, Azure, GCP and Alibaba Cloud) were building more data centres, including in emerging markets such as Thailand and Indonesia. While Amazon dominated globally, Alibaba Cloud was a strong number two in the region, largely thanks to its domestic market (China). Providers were eyeing South East Asia, where the market was estimated to reach US$40.3 billion by 2025, given the surge in demand from small- and medium-sized enterprises (see Figure 3).
4 https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/McKinsey%20Digital/Our%20Insights
/Creating%20value%20with%20the%20Cloud%20compendium/Creating-value-with-the-Cloud.ashx 5 https://www.idc.com/getdoc.jsp?containerId=prAP45431219
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Copyright © INSEAD 4
Figure 3: Cloud-Enabling Technology Market – Growth Rates by Region (2019-2024)
Source: Mordor Intelligence
3. Key Players in Cloud Computing – "Big Tech"
The decade 2010-20 had seen the rapid rise of "Big Tech", of which the four providers featured here are only a subset. The “Big Five” (Apple, Amazon, Alphabet, Microsoft and Facebook) collectively generated a staggering US$801.5 billion in 2018, with average margins of 17.3%.6 The top three players, Amazon, Alphabet (Google) and Microsoft, were strongly positioned, while Apple and Facebook remain focused on consumers. China’s Alibaba and Tencent had moved into the top ten most valuable publicly traded companies globally.
The convergence of trends in technology, social media, globalization and deregulation had propelled ‘Big Tech’ into the biggest companies in the world, overtaking former titans like Exxon, Berkshire Hathaway and General Electric (see Figure 4).
6 https://www.visualcapitalist.com/how-tech-giants-make-billions/
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This document is authorized for use only by Jia ye Li in MIS 441 – Global E-Commerce-1 taught by Richard Johnson, Washington State University from Jan 2022 to Jun 2022.
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Figure 4: Largest Companies by Market Cap (2019)
Source: https://www.visualcapitalist.com/a-visual-history-of-the-largest-companies-by-market-cap-1999-today/
However, web services were only part of the businesses of the four cloud providers featured here. The dominance of Big Tech was the result of broader dynamics. The rise of Google, Facebook, Amazon, Alibaba and Tencent has changed the way we lead our daily lives, using a fundamentally different business model in which massive amounts of user data are collected and analysed by these platforms, then monetized. With the ubiquity of social media, platforms and e-commerce apps, Big Tech companies derive insights from everything bought, sold, said or done on smartphones. The internet is essentially a giant machine for sharing, processing and predicting information, made possible by cloud computing as the basis of ecosystems that collect, integrate and analyse massive amounts of user data.
While Amazon’s online store still generated most of its revenue, its non-retail segments including AWS and subscription services reported higher growth in Q2 2019 (see Figure 5). Founder Jeff Bezos had built an empire from investments and acquisitions that included groceries (Whole Foods), gaming (Twitch.tv) and fashion (zappos.com).
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Copyright © INSEAD 6
Figure 5: Amazon Revenue and Segments, Q2 2018 vs Q2 2019
Source: https://www.statista.com/chart/15917/amazon-revenue-by-segment/
Although cloud computing had its roots in early efforts by companies such as Salesforce.com to offer software as a service (SaaS), the first cloud computing hosts did not emerge in earnest until 2006. AWS dominated cloud computing throughout the next decade, while Google, Microsoft and Alibaba emerged as challengers. Microsoft Azure surged with the introduction of tools for the ‘hybrid cloud’ – systems that allow companies to move some computing to the cloud but keep control of highly confidential data.7
Amazon Web Services (AWS)
Global leader AWS was the first to gain a solid foothold. With the most complete and technically advanced system, it expanded aggressively. It led in infrastructure-as-as-service, moving to expand the stack to include the Internet of things (IoT), artificial intelligence (AI), augmented reality (AR) and data analytics.
Amazon’s cloud was the backbone of Amazon’s architecture, powering everything from its smart assistant Alexa to predictions of shoppers online and its massive e-commerce site. AWS boasted an impressive list of customers including Netflix, LinkedIn, Facebook, Expedia, Cars.com, the BBC, Baidu and even NASA, which streamed images received from its space rover Curiosity, through the AWS cloud.
By 2019, only half of Amazon’s revenue came from e-commerce, and a third came from providing a retail platform for others. AWS reported profits of $9.2 billion, while profits from 'everything else'
7 https://www.wsj.com/articles/microsoft-steps-up-push-to-dominate-hottest-segment-of-the-Cloud-11572876001
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were $5.3 billion.8 In 2019, AWS reported revenues of $35 billion, a 37% increase over 2018. Despite its dominance in the $107 billion cloud market, its rivals were catching up. AWS grew by 34% in 4Q 2019, reflecting a downward trend that started in 2018.9
Microsoft Azure
Launched more than two years after AWS, Microsoft Azure had been playing catch-up ever since. Built using Microsoft’s own digital software, the number two in cloud computing was popular with multinational corporations that used MS software like Windows and Office. Its commercial cloud offering included a range of MS products from Office 365, to Azure and LinkedIn services. Its Azure stack of clouds was combined with a data centre, differentiating it from its competitors. The cloud unit actively forged synergies to drive corporate sales of its servers and enterprise software, homing in on industry verticals in healthcare, retail and financial services. Companies like Dell, British Heart Foundation, Heineken, eBay, Samsung, SMRT (Singapore’s main transport provider) and DBS Bank were among Microsoft Azure’s customers.
Microsoft targeted retailers that tended to avoid AWS out of a perceived conflict in the retail sector, such as Walgreens, ASOS and Bemol (a Brazilian retail powerhouse). CEO Satya Nadella switched strategy from the internet and mobile to focus on the cloud. Its subsequent rise to a trillion-dollar company leveraged its experience of selling to firms, which drove large gains from cloud computing services. Microsoft’s ‘Intelligent Cloud’ hub recorded revenues of $10.8 billion in Q4 201910 and grew by 62% in the last three months of 2019, faster than any other provider.11
Google Cloud Platform
Having neither Amazon’s retail muscle nor Microsoft’s enterprise sales pedigree, Google Cloud Platform (GCP), while as technically advanced, had grown less swiftly than its rivals. Its consumer- centric legacy had held it back, but it was making up ground. Google’s focus on Machine Learning and AI had gained traction among banks and financial services firms. G Suite had positioned it in direct competition with Microsoft’s Office 365. A partnership with SAP tied its AI and Machine Learning to SAP’s pervasive system. Analysts predicted that Google would gain share over time, with companies choosing GCP over AWS and Azure for its lower pricing and higher speed of up to 10tbps.
With Spotify, Apple, Lush Cosmetics and Evernote part of its impressive clientele, GCP emerged as a strong competitor. Its huge data, collected over 17 years, had the potential to provide incomparable insights. The platform went gone from generating $500 million in 2016 to $8.9 billion in 2019, a 53% increase on 2018.12 While it had a long way to go to catch up in terms of revenue, it was putting up a good fight – 88% growth in 2019.
8 https://twitter.com/benedictevans/status/1223275886599921666/photo/1 9 https://qz.com/1798530/can-google-or-microsoft-beat-aws-in-the-Cloud-wars/ 10 https://www.marketwatch.com/story/microsoft-earnings-trounce-expectations-as-quarterly-profit-tops-10-billion-2019-
10-23 11 https://qz.com/1798530/can-google-or-microsoft-beat-aws-in-the-Cloud-wars/ 12 https://www.geekwire.com/2020/google-discloses-Cloud-revenue-first-time-heres-compares-amazon-microsoft/
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Alibaba Cloud
Alibaba Cloud, also known as Aliyun (‘yun’ means cloud in Chinese) was established as a subsidiary of the Alibaba Group in 2009. Like AWS, it grew out of Alibaba’s e-commerce ecosystem to providing cloud computing services to other online businesses. While lagging the other three global players, it was catching up fast and was the leading cloud provider in China. By virtue of its Chinese customer base, it had expanded globally, along with Chinese firms like XD.com and Lazada. It had also made headway with MNCs like SAP, K’archer and Ford, particularly in Europe and Asia. Big airlines including Cathy Pacific and Air Asia, as well as hotel chains like IHG, were among Alibaba Cloud’s clients.
Like Amazon (perhaps even more so), Alibaba could leverage the e-commerce world – which was its bread and butter business. Alibaba Cloud leveraged sales synergies with an installed base of e-commerce vendors. On 17 February 2020, Alibaba Cloud exceeded US$1.5 billion in revenue, up 62% year-on-year.13 On 11.11 (Singles Day), the robustness of its cloud infrastructure was demonstrated by handling more than $40 billion in transactions and 544,000 orders per second at its peak – without a hitch. However, with the COVID-19 epidemic, speed of growth would be hampered in 2020.
4. Global vs. Localization Strategies
All the cloud companies emphasized that their focus lay with the customer, not the competition. The power dynamics between AWS, Azure, GCP and Alibaba were slowly shifting. The adoption of services from multiple providers – known as a “multi-cloud strategy”, while more costly, allowed companies to avoid dependency on any one provider, increase reliability, and enjoy the best services that each could offer.
To date the focus had been on cloud providers, but this could change as governments started to mandate data localization laws and support national champions. The European Union had passed regulations which had pushed companies to implement data storage in local servers and require encryption of products and services. Its underlying goal was to break the dominance of the US and China with a project named Gaia-X, using existing cloud infrastructure and Europe-specific applications and technologies, albeit a similar European cloud initiative had previously failed.
Alibaba faced additional challenges as a Chinese company: non-Chinese companies were wary of trusting it with a mission-critical workload, an issue exacerbated by the rhetoric of international trade and politics.
The various cloud players had adopted different strategies of “localizing products” versus keeping them “fully global”. While Alibaba touted its localization in various markets, AWS had largely succeeded with its global clouds coupled with local customer sales and relationships. It boasted over 165 fully featured services and claims, over 40 of which were not available anywhere else. Its broad range of applications included computer storage, databases, networking, analytics, Machine Learning and AI, IoT, security, and application development, deployment and
13 https://www.Cloudcomputing-news.net/news/2020/feb/17/alibaba-Cloud-breaks-15bn-revenues-amid-hope-
ecommerce-migration-encouragement/
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management. Additional functionality included powerful Graphics Processing Unit (GPU) instances for Machine Learning workloads and more database services than its competitors.
Amazon and Microsoft had built their cloud businesses in ‘traditional’ enterprise-sales fashion, acquiring clients through key decision-makers in companies, taking a ‘top-down’ approach. Google and Alibaba took a ‘bottom-up’ approach, whereby IT teams advocated their products and offerings. This was reflected in their presence worldwide. Google Cloud Platform had more than 100 points-of-presence in 135 countries and intended to focus on the Asia Pacific region with long- term investments to support its growing business there. Alibaba grew exponentially in China but remained China-centric until 2015, when it set up an international headquarters in Singapore and earmarked US$1 billion in investment to expand its data centre footprint, build up its partner ecosystem, and develop new cloud services.
From the technology perspective, the top three players, particularly AWS, still had the edge over Alibaba in terms of breadth and diversity of offering. The cloud is synergistic, so while Google seemed comparatively constrained, Microsoft and Alibaba continued to drive incremental sales on top of existing products and services.
5. Enabling Digital Entrepreneurship on the Cloud
Cloud service providers played an important role in levelling the playing field, allowing organizations of all sizes to embrace digital transformation and new business models to compete in the fast-evolving technology landscape. With innovation a key determinant of success in the digital age, the cloud opened the field to digital entrepreneurs seeking to test their ideas efficiently and cost-effectively. In addition to providing cloud computing services to large corporations and SMEs, it gave anyone with a great idea the tools to innovate, grow, and compete with bigger players. Enabling unprecedented speed and agility, it let start-ups experiment initially and scale up quickly when necessary.
When digi
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