Since the Trump administration, poor ol’ China has come under heavy economic and political fire. But that hasn’t stunted the nation’s growing influence, particularly in the tech scene. Part of this influence is from a rapidly growing cloud giant with a growing IaaS and PaaS footprint ready to take on the big three—Google, AWS, and Microsoft—at their own game in the region and beyond (see Exhibit 1). Smart service providers must recognize the growing influence of Alibaba Cloud if they are to have any relevance in the region.

Exhibit 1: Alibaba’s quick growth makes it a contender for the hyperscale cloud providers

_{Source: HFS Research based on company financials and estimates where public data does not exist}

Forward-thinking firms have already signed the dotted line to bring Alibaba Cloud into their arsenal

Service providers with considerable exposure to Chinese and APAC markets are already locking in partnerships with Alibaba Cloud. In recent briefings with major IT services players, we’ve already heard from early adopters. DXC, for example, got the heads up from its extensive VMWare development teams in China that without Alibaba Cloud, they’ll soon lose traction in the region. Another IT services firm told us that it’s soon to announce a business unit dedicated to Alibaba Cloud services.

Other firms have tentative relationships in place, but they openly acknowledge that clients are putting more pressure on them to offer services with the dominant cloud player in the region. There are also bonuses, according to some tech firms, to partnering up with a cloud giant native to the region when navigating Kafkaesque rules and regulations, particularly in China. A services firm rethinking how it deploys the cloud in the automotive industry leverages AWS and Alibaba, noting that a sizeable portion of the market sits in China. What better partner to have in place than one that has been navigating the unique regulatory and political environment since its inception?

Cloud growth—APAC is a key market in the competitive and booming cloud services space

In Exhibit 2, we can see the rapid onslaught of cloud services in the creaking global infrastructure services market. Cloud services—or as we classify them, OneOffice services—are eroding traditional infrastructure revenues, piling on up to $10 billion in revenues every year. The cloud services market is critical for the success of many IT services firms, particularly as the role of other service groups blends with cloud, as enterprises and providers push for more services and work into the public cloud.

Exhibit 2: The cloud market is booming as enterprises look to migrate from traditional environments

_{Source: HFS Research}

While overall growth in the infrastructure space may seem slow and at times negative, the reality is that cloud is more than capable of building in fresh revenue streams and thresholds of business value. But to be successful in this space, providers must have partnerships with the hyperscale public cloud firms. In the past, a decent partnership with AWS and Azure would see firms through. Then, with the growth of analytics and AI, Google quickly became a necessary tool in the toolbox. Now another player is encroaching on the market —and it’s putting incumbents under pressure.

Growth alone won’t be enough to sustain all the hyperscale players—some firms will lose out to Alibaba’s growing presence

Although the market is growing at a reasonable rate, it simply won’t be big enough to satisfy the ambitions of all of the hyperscale giants vying for superiority in the market. Data on which firm is dominating the market is generally inconsistent and hard to validate. Right now, the battle seems to be playing out between AWS and Alibaba. AWS has long benefited from its sprawl and presence in almost every geography. Even the most Azure-loyal multinational may end up leveraging AWS in some locations, according to some executives, simply because it is the only firm that can realistically meet their demands.

But with Alibaba driving an ambitious growth roadmap, not only in China but also in APAC more broadly, AWS may be less sure-footed over the next few years, particularly with Alibaba chewing into the value proposition that has allowed the firm compete in some areas with relative impunity.

The Bottom Line: Alibaba is quickly joining the ranks of the hyperscale firms. Service providers must start taking the firm seriously or lose relevance in China and APAC.

This time last year, when we were running the previous iteration of the IT Services Top 10 reports, Alibaba Cloud was very much on the periphery of the industry. Much has changed since then; the cloud giant has noticeably expanded its capability and regional reach. The firm fired its first warning shot in APAC earlier this year by opening multiple data centers in Indonesia, raising its flag over a rapidly growing nation. It shows no sign of slowing down. With forward-thinking IT services giants already shaking hands with Alibaba, it’s high time for your firm to do the same or risk losing traction in a critical global market.