Amazon has made a big move. Is there another price war in the Chinese cloud market?

A big move by Amazon may make the Chinese cloud market even more intense.

The US technology giant held its AWS Technology Summit in Shanghai, where Amazon's cloud computing subsidiary AWS announced price cuts for some of its products, with the price cuts reaching as high as 49%.

This is not the first time that a price war has occurred in the Chinese cloud market, but the price cuts launched by the American giants this time are expected to cause a chain reaction in the market industry.

Market research firm IDC predicts that by 2021, the size of China's cloud infrastructure and software market will more than triple from $2.4 billion last year to $9.8 billion. The enterprise cloud service market will be a huge and juicy pie.

AWS is the abbreviation of Amazon Web Services, which is an enterprise cloud service. The key technical storage and response distribution speed it requires belong to the CDN field. For major Internet companies at home and abroad, whether it is Microsoft, Google, Alibaba, or Tencent, the CDN market is a place where they must compete for a place.

As early as 2016, Amazon AWS revenue accounted for about 10% of the total revenue and became an important source of the company's operating profit. At that time, AWS's single operating profit reached US$861 million, while the company's overall operating profit was US$575 million. In other words, without AWS, the entire Amazon would be in a loss.

This 49% price cut shows Amazon's emphasis on the Chinese cloud market and also indirectly confirms the fierce competition in the Chinese cloud market.

In fact, as early as 2015, the entry of Alibaba Cloud and Tencent Cloud triggered a wave of price cuts in the CDN cloud market. At that time, Alibaba Cloud was able to enter the CDN market and announced a 21% price cut for its "Extreme CDN" product, saying that "there will be no independent vertical CDN vendors in the future." The price after the price cut was only one-third of similar products from traditional CDN companies. Tencent Cloud followed closely and reduced the price of its products by 25% when it entered the CDN market. The strong price cuts by AT and Tencent triggered the second wave of price cuts among CDN vendors.

The first large-scale price cut in the cloud service market was brought about by Amazon AWS in 2014. At that time, Amazon's revenue growth slowed significantly. In order to save the situation, it cut prices six times in the first quarter of 2014. AWS's revenue growth in the second and third quarters of that year dropped from 69% to 43% in the same period.

However, Amazon's price reduction strategy had little effect. By 2017, Alibaba, Baidu, and Tencent, the three major companies, all had their own cloud services and concentrated on the CDN market.

Since then, the Chinese cloud market has seen price cuts several times: On November 22, 2017, Alibaba Cloud announced a 25% price cut for CDN. In November of the same year, Amazon also made five significant price cuts. With Alibaba, which has the largest market share in China's CDN market, slashing prices, it seems to indicate that the price war in the domestic CDN market has begun to get into full swing.

According to a public response by Li Dong, then assistant president of NetEase Technology, the new market structure in the CDN field has been basically established, and simply lowering prices can no longer shake the market structure, and price wars have become ineffective.

Although Li Dong believes that the price war has failed, Amazon still launched a price cut for Amazon EC2 this year. The 49% drop exceeded the previous historical record set by Alibaba. Such a big move means that the price competition faced by the cloud service market is becoming increasingly fierce.

According to data from market research firm IDC, Alibaba Cloud held 43% of the domestic public cloud market in 2018, followed by Tencent Cloud and China Telecom, with Amazon AWS ranking fourth. Although it is only fourth, it has become the largest foreign cloud service provider. As a foreign company, Amazon has chosen to cut prices again in the hope of maintaining its market share in China. It is just unknown whether Alibaba and Tencent will join this price war.