In a swift response to Alibaba Group Holding Ltd.’s price reductions in cloud computing services, JD.com Inc. wasted no time in implementing its own aggressive cuts, setting the stage for intense competition that promises benefits for customers but may dent profits for China’s top tech firms.
Alibaba initiated price cuts of up to 55% on over 100 services on Thursday, aiming to regain market share in the fiercely contested sector. JD.com, a formidable player in e-commerce and cloud services, quickly followed suit with its own price reductions announced on its WeChat account later the same day. While Alibaba’s stock dipped by as much as 1.9%, JD’s remained relatively steady.
Alibaba’s proactive measures signal a robust effort to stave off competition from Tencent Holdings Ltd., Baidu Inc., and JD.com. Last year, Alibaba stunned investors by reversing plans to spin off its cloud business into a separate publicly traded entity. Instead, it redirected its focus toward bolstering the public cloud segment, particularly domestic services targeted at enterprise clients, amid U.S. sanctions hindering the supply of advanced chips to Chinese companies. CEO Eddie Wu, who assumed leadership last year, has assumed direct oversight of the unit and initiated significant strategic overhauls.
What Bloomberg Intelligence Says
JD.com’s announcement of a cloud price war on February 29, likely in response to Alibaba’s plans to reduce fees for its cloud services earlier in the day, suggests that Alibaba may have to sacrifice more profits than initially anticipated to bolster revenue growth in its cloud business. JD.com intends to price its cloud services 10% lower than those of an undisclosed competitor starting March 1.
Analysts Catherine Lim and Trini Tan believe that Alibaba has faced challenges in restructuring its extensive e-commerce, logistics, and cloud empire over the past year amid intense competition and geopolitical uncertainties. The company aims to reignite growth following two years of regulatory scrutiny and economic instability due to the COVID-19 pandemic. To achieve this, Alibaba plans to divest non-core assets to raise capital and streamline its operations into more clearly delineated segments.
However, despite these efforts, the cloud business—originally established over a decade ago to support Alibaba’s massive e-commerce operations—remains a focal point. This is especially true as the demand for computing power surges alongside advancements in AI development. Nevertheless, in recent years, Alibaba has experienced a loss of clients not only to its traditional competitors but also to state-backed entities and emerging players like Huawei Technologies Co.
Now Alibaba may have galvanized the competition. In its post on Thursday, JD declared its intent to compete, though with few specifics.
“Cut all you like, let’s fight to the end!” the company proclaimed in a big banner-like declaration.