In 2023, the technology circle is full of turmoil, and technology giants have sounded the horn of the Army Cup around AI. The AI technology represented by ChatGPT indicates that the fourth industrial revolution has arrived, and it is currently in a critical period.
Decades of accumulation and several months of "hurricane" have proved that AI is by no means a short-lived technological bubble, and it will bring about earth-shaking changes to the existing Internet logic. But we must also admit that such hard technologies require a long-term review, investment and construction, and cloud computing included in the AI industry chain is also the core area we have been paying attention to.
As another important technology that also brings great innovation to the Internet, cloud computing has already turned computing into a social resource . The strong demand for general computing capabilities triggered by AI has brought new market growth directions for cloud computing service providers.
Behind the seemingly optimistic market outlook, there is also a crisis of declining market share of cloud vendors and a "peaking" revenue.
Is the growth slowdown of traditional cloud computing inevitable?
At the 2023 Huawei Global Analyst Conference, Huawei Vice Chairman and Rotating Chairman CFO Meng Wanzhou stated that by 2030, general-purpose computing power will increase by 10 times, AI computing power will increase by 500 times, and cloud services will account for 20% of enterprise application expenditures. 87%.
Aliyun Huo Jia also expressed his opinion at the digital economy sub-forum of the 6th Digital China Construction Summit on April 27: "Cloud computing is the best solution for the development of general artificial intelligence." A cloud service provider with a break-even balance.
According to the statistics of China's public cloud service market released by IDC on April 23 this year, as of the second half of 2022, Alibaba Cloud will rank first in China with a market share of 31.9%. head.
But just before May Day, Alibaba Cloud announced the largest price reduction in history, with core product prices reduced by 15% to 50% across the board, and storage products with a maximum drop of 50%. Why did the soaring demand for computing power and good market performance of AI bring about the largest price cut in the history of cloud computing ?
It is conceivable that perhaps this is due to concerns about the narrowing of the cloud market and the slowdown in revenue growth, which has pushed the price war between cloud service giants to a climax by Alibaba Cloud. According to Alibaba Cloud's financial report, in the four quarters of fiscal year 2022, its revenue growth rates were 30%, 33%, 20%, and 12%, respectively. After offsetting the impact of cross-segment transactions, total revenue growth for the full year was only 3%.
Not only Alibaba Cloud, but also other cloud service giants at home and abroad are facing this severe situation. Titanium Media compared the performance data disclosed by top cloud vendors in their financial reports and found that compared with the rapid development of the cloud business in the early years of development, the revenue growth of the cloud business of the three major overseas cloud vendors, Microsoft, Amazon, and Google’s parent company Alphabet, slowed down. It is an inevitable problem when it progresses to a certain stage , and analysts generally predict that it will continue to slow down in the third quarter of this year. The revenue chart below allows us to clearly understand this trend.
Based on such a situation, we can infer that the "price war" is an active means adopted by cloud vendors to adjust their strategies, expand the user base and scale, and increase the market penetration rate of cloud computing, and has achieved certain results : Since announcing price cuts and free trials of core cloud products last month, more than 1 million people have visited Alibaba Cloud's official website for free trials. Alibaba Cloud also revealed that it will further expand the scope of free trials in the future.
New market growth "where"?
But if we extend the strategic cycle, or consider the cloud computing market in terms of years, "price war" is not the best strategy for long-term and healthy development.
Starting from the explosion of ChatGPT, the competition of large models has rapidly entered a white-hot stage, which undoubtedly opened up a new market for cloud computing. AI is subverting all walks of life, and the future demand of enterprises for cloud computing will inevitably reach a new height.
However, as far as cloud service providers are concerned, despite the strong market demand for artificial intelligence, their entry threshold is not low , and the cost behind it will usher in exponential growth after cloud resources reach a certain threshold. One of the big reasons CEO Sam Altman thinks we're at the end of the megamodel era.
Undoubtedly, the theory of diminishing returns to scale still applies in the innovative AI circle. Although AI will greatly improve human work efficiency and release huge productivity, emerging technologies will face challenges such as the number of data centers, construction speed, and cloud computing. We still have to face physical limitations such as hardware devices.
The cloud computing market in the field of AI is destined to be a battlefield for hard power. How to win the competition in the field of cloud services under the circumstances that computing power and other resources will eventually "peak" and market growth slows down, Web3 may provide us with another brand new way of thinking.
The gradual interest of domestic and foreign cloud service giants in the Web3 field has also released an important signal that Web3 is a cloud service development strategy. The major cloud vendors we mentioned above have entered the Web3 field in various forms.
In March, Blockchain Academy and Alibaba Cloud officially reached a strategic partnership, aiming to provide young people and entrepreneurs with more exciting opportunities to learn Web3.0 and build Web3.0; in the 2023 Hong Kong Web3 Carnival in April During the event, Pan Jiahe, Architecture Director of Alibaba Cloud Hong Kong and Head of the Web3 Solution Department, said that Alibaba Cloud can provide Web3 companies with customizable cloud service solutions. Currently, virtual asset companies have used Alibaba Cloud's public cloud, Alibaba Cloud has solid experience in Web2 construction and is confident in supporting different platforms in the Web3 field. It will not only help the Web3 industry improve its infrastructure, but also provide consulting services for Web3 companies to help Web3 companies build a secure cloud architecture. Guide the development of smart contracts.
Based on the above statement of Alibaba Cloud, we can also simply believe that providing cloud services for Web3 applications is one of the important directions for these traditional cloud vendors to seek market growth points .
There are countless such cooperations: In February this year, Tencent Cloud announced the development roadmap of a full set of blockchain API services and a new Tencent Cloud Metaverse-in-a-Box product at the first Global Web3 Summit, providing Web3 builders with powerful technologies According to the news on April 26, AWS Hong Kong announced that AWS is cooperating with Cronos Labs to support the expansion and development of Web3 startups through the Cronos Accelerator Program to promote DeFi, GameFi , SocialFi and other application development.
But more importantly, while cloud vendors are expanding their Web3 business and exploring new incremental markets, some Web3-native cloud projects are also emerging, forming a new competitive landscape with these traditional cloud service giants.
Does the development of cloud computing coincide with Web3?
Whether it is AI or Web3, the opportunities they bring to cloud vendors cannot be ignored, but as mentioned above, behind the opportunities are challenges.
According to professionals, an important reason for the slowdown in revenue growth of cloud vendors is that customers began to reduce spending and optimize the use of cloud resources . An analyst said: "Due to concerns about inflation and economic recession in the general environment, Large enterprise customers want to optimize a large number of existing digital applications, so as to invest the saved funds in new projects." Cost reduction and efficiency increase are inevitable in the market.
There is such a view that electricity itself is useless, only when refrigerators and televisions are built, can electricity be valuable. Cloud computing is the power resource in the Internet era. Ali’s official technology account once issued a document saying, “The development of cloud computing as infrastructure is just like the development of electricity as infrastructure in the past. There is still a long way to go. It is about trust, cost and self-service capabilities. ”
First, cloud computing is a business of trust . Safe, stable, and reliable service assurance is an important consideration for customers to choose to put their business on the cloud. In order to solve the trust problem, traditional cloud services have made great efforts in technology and service, but the Web3 blockchain technology is more thorough in solving the trust problem. A philosophical point of view is that a decentralized distributed cloud computing network is more respectful of human nature, because it does not require a trusted center as a guarantee for all services.
From this level of understanding, Web3 cloud service providers such as Phala Network, DFINITY, and Akash are undoubtedly more convincing than traditional Web2 cloud giants. At the same time, the introduction of privacy protection technology has further solved the security problem of the blockchain. For example, Phala relies on TEE technology to provide secure computing services for Web3.
Second, cost reduction is a market demand . As far as the current prices of major cloud vendors are concerned, the cost of cloud resources has not become low enough. This statement applies to both enterprises and cloud service providers. It is a more basic logic to solve the cost problem from the side that provides the service. As we mentioned above, as far as the current cloud services are concerned, the expansion of scale will inevitably bring about exponentially increased costs, which is not what we want to see.
However, the Web3 distributed cloud service based on the blockchain solves the problem of computing power improvement in a more flexible way. Taking Phala Network as an example, only one computer with a TEE environment is needed to join the network and provide computing resources. Fang provides a more direct and efficient access. At the same time, the upgrade of each node's hardware will expand the computing power of Phala. Compared with the cost of traditional cloud service upgrade hardware, the average cost of each node is much smaller, and Phala's off-chain computing solution is also Further reduce the blockchain Gas fee to further help reduce costs.
Finally, self-service provides easier and more accessible cloud service resources . Simply put, cloud computing is a pay-per-use model that provides available, convenient, and on-demand network access. When enterprises in need enter a configurable computing resource sharing pool (resources include network, Basic capabilities such as servers, storage, application software, and services), documents, consoles, and OpenAPI will be an important guarantee for reducing the interaction between enterprises and cloud service providers and improving self-service capabilities. In this dimension, traditional cloud service providers undoubtedly provide extremely high customer service value, but the efforts of the Web3 native cloud project in terms of technology stack cannot be ignored.
In short, there is a "coincidence" between the development logic of the cloud computing market and the Web3 technology and value concept. It is inevitable for traditional cloud giants to enter the Web3 field. At the same time, the cooperation methods will continue to deepen . Tencent Cloud has reached a strategic cooperation with Oort, a Web3 data cloud company. Tencent Cloud will serve as a full-node provider of the Oort network and provide support for Oort's data services.
We expect traditional cloud giants to help Web3 construction through self-improvement, and we are also very optimistic about the vitality brought to the market by Web3 native cloud projects. With its own unique advantages, it will promote the overall development of the future technology industry.