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    China’s globalizing startups could be a boon for US cloud giants • todaybusinessupdates.com

    After quarters of rapid growth fueled by remote working, the cloud market is cooling as companies look for ways to curb cloud spending in post-COVID times and an uncertain economy. AWS saw its growth slip into the mid-teens in the first month of the new year; across the industry, the market slowed to 21% growth, up from 36% the year before.

    There is a silver lining: American cloud giants are getting business from Chinese internet companies looking to establish themselves abroad. Chinese tech companies have been expanding abroad for decades, but many feel a new urgency to venture out amid growing competition and compliance risks at home (which you can read about in detail here, here, and here).

    TikTok’s meteoric rise to global dominance has been a source of inspiration for the legion of Chinese chuhai startups, a term that literally means startups that “go to the sea” and is used to describe those who build an overseas business. TikTok, the third largest social network after Facebook and Instagram, will approach one billion users by 2025, predicts market research firm eMarketer. But the challenges in the West – questions about data security and the relationship with Beijing – are also alarming to his followers.

    In an effort to convince the US government not to disclose Americans’ data to China, TikTok formed a partnership with Oracle in late 2020 after the Trump administration’s plan to force the sale of the short video giant fell through. In June last year, TikTok said it was migrating all US user data to Oracle’s US servers. And in August, it was reported that Oracle was monitoring TikTok’s algorithms and moderation system for possible manipulation by China.

    All these moves show that the West today distrusts companies with a Chinese link, whether that means having a founder of Chinese nationality or a technical team on Chinese soil. The first and arguably most important step in these firms’ localization efforts – most crucially, building trust in Western customers and government – is storing data in their destination market if it’s a big one like the US or at its least a neutral country like Singapore.

    Unsurprisingly, AWS, Microsoft Azure, and Google Cloud are the top choices for China chuhai companies, according to dozens of conversations we’ve had over the years with globalizing Chinese startups. China’s own tech powerhouses Alibaba and Tencent also offer cloud solutions to seafaring customers, but choosing a Chinese supplier is probably the last thing companies want to do to assuage Western regulators’ concerns about data security.

    Would this wave of chuhai startups can be a big boost for the Western cloud market? Probably not in the short term. Most of these companies are still at the beginning of their global expedition; even the TikTok deal won’t significantly change the needle of Oracle’s cloud market share, my colleague Ron wrote. But assuming some players eventually get a meaningful footprint abroad, their preference for US cloud providers will hurt Chinese cloud providers.

    As an example, Alibaba pointed out in its June 2022 earnings report that its cloud segment was hit by the loss of a key customer as it is a “decline in revenue from the largest internet customer that has phased out the use of our overseas cloud services for its international business due to non-product related requirements.” It was speculated that this top internet client was TikTok, what reportedly moved from Alibaba Cloud as geopolitical tensions increased.

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