Will Chinese companies surge to the top of the public cloud market?

Chinese Huawei stated at its recent cloud event that it wanted to be one of the five major public clouds in the world – what does this mean and how likely is it?

Bombast and vaulting ambition are common themes amongst technology companies. But when Huawei announced recently that it wanted to be one of the “top five” public clouds, it seemed part and parcel of a far bigger picture.

Chinese culture in based on an extreme work ethic and emphasis on quantifiable achievement, this means they tend to demonstrate less of the bluster you may typically expect from a North American company. The upshot is a certain reticence when it comes to big, vague statements. Interestingly, when quizzed about specifics, Huawei proved very cagey.


What is Huawei hoping to achieve in the public cloud market?

The actual words used by Guo Ping, Huawei's Rotating CEO, during the kickoff keynote for its “Grow with the Cloud” event in Shanghai was: “We predict there will be five major clouds in the world. Huawei will work with our partners to build one of those five clouds, and we've got the technology and know-how to do it.”

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The inference was it would take fifth slot in the public cloud market after AWS, Microsoft, IBM and Google. The strategy would focus on partnerships with European telcos, Deutsch Telekom, Telefonica and Orange and this would enable Huawei to target most French, German and Spanish regions. 

In February 2016 Synergy Research Group listed the market share as follows: AWS (31%), Microsoft (9%), IBM (7%), Google (4%) and then Salesforce (4%). It also highlighted competitors for the fifth position to include Japanese Fujitsu and NTT, Chinese Alibaba, along with HP, Rackspace, and Oracle. This was supported by Gartner’s June 2017 overview of public cloud providers, which included two new to the ranking: Alibaba and Oracle.


What issues do Huawei and other Chinese companies face?

“'Hundreds' of Alibaba and Huawei-sized companies could soon be taking on the world,” Yossi Vardi, the chairman of International Technology Ventures, told CNBC recently. The piece seemed designed to whip up terror amongst a US audience and rammed home the point that businesses in the West – particularly those in North America – simply do not trust China. This makes the public cloud market a particular challenge.

To add to this, in June the new China Cybersecurity Law (CSL) came into effect. CSL is a tough piece of legislation to analyse because the eventual logistics are still open to interpretation. But the two striking things about it are, parallels with GDPR and the fact it will impact anyone that “runs a network”. This means it is causing quite a bit of concern amongst foreign firms operating in China.

“Alibaba Cloud, Tencent Cloud, AWS, Azure, Huawei Cloud and Kingsoft Cloud among the most secured in the China region,” reported IDC MarketScape recently. While the full paper provides assessments of 11 cloud companies operating in China and places local and international players side-by-side.

Soon a seesaw could be set in motion. While distrust of China, as a mass spying engine looks like it might be on the rise, faith in other governments  – and all data-holding tech firms – is on the wane. This could help catapult Chinese companies into even more serious positions on the world business stage.


Do fraught Sino-US relations actually cap Chinese companies’ potential?

Chinese growth is vast. The US’s stands at 1.6%, China's at 6.7%. The population disparity is also enormous. “Now broaden this outside of the immediate countries,” suggest Clive Longbottom, service director at analyst firm Quocirca. “The US drives what happens in Canada and Europe, and to a lesser extent the Middle East. China has a large impact on a large chunk of Asia, is investing heavily in Africa and has pretty impressive impact on the rest of the world - even the US itself.”

He adds: “If I had to bet on where the next global cloud will come from, it would not be from a Western country.”

“Japan, while strong, is suffering from continued stagnation in its overall markets. India is showing little capability to drive cloud adoption. Russia is too inward looking. Korea is a possibility, but has a few other problems at the moment as well. China looks like a given. Sure - the US will prevent any usage of a Chinese cloud by the government bodies, and few large US companies would use a Chinese cloud either. However, elsewhere, this may not be such a problem - and Huawei can play it cleverly enough so as to make sure that its cloud is seen as not a Chinese cloud.”


Can Huawei deliver on its big ambitions?

Charlie Dai, principal analyst at Forrester adds specific context. “Huawei has already gained significant progress in European market providing infrastructure hardware and software for telco players like Deutsche Telekom, Orange and Telefonica. It’s also strategically investing in China and ASEAN to expand its cloud coverage,” he says.

“[The likelihood of Huawei’s success also] depends on how Huawei define ‘top five’. If Huawei take all revenues as what they are doing in Europe into account, even if they don’t own and operate the public cloud service, then definitely it’s possible for Huawei to name itself as top five, given its market share in telco space as well as its huge investment in cloud and ecosystem.”

Dai points out that we have already seen more interactional collaboration with China’s ‘Belt and Road’ initiative – which focuses on connectivity and collaboration between Europe and China. “This is critical for Huawei and other Chinese companies to compete with technology giants in the States,” he says.

At the moment we still tend to look at Chinese companies and talk about they represent in relation to their large Western counterparts. In reality, the biggest challengers may come from within China itself.