Alibaba Cloud posts modest growth, mostly thanks to other Alibaba business units

Customers from beyond the Chinese giant are being let go if they've signed for low-margin contracts

Chinese tech giant Alibaba revealed on Wednesday its own operations are a better source of growth for its public cloud business than third-party customers.

"Year-over-year revenue growth was mainly driven by Alibaba-consolidated businesses. Revenue excluding Alibaba-consolidated businesses decreased year-over-year, primarily due to the decrease in revenue from low-margin project-based contracts as a result of continued effort to improve revenue quality," explained Alibaba in its latest quarterly results [PDF].

"However, revenue from our public cloud products and services experienced healthy year-over-year growth," it added.

The org also provided some insight into its growth strategy – relinquishing its less desirable contracts.

"Our cloud intelligence group revenue quality continues to improve as we proactively reduce revenue from low-margin project-based contracts," revealed CFO Toby Xu on an earnings call, in the associated earnings call.

CEO Eddie Wu stated that in addition to reducing revenue from project-based contracts, Alibaba had optimized its business structure and increased investment in public cloud.

"We've also upgraded Alibaba Cloud's sales operations, establishing different sales and service systems to serve different types and sizes of customers," explained Wu.

According to the CEO, Alibaba's top priority is to "reignite the growth of our core businesses: e-commerce and cloud computing."

Alibaba is not alone among Chinese clouds in prioritizing profitable customers and asking others to leave. Tencent Cloud has already used a similar strategy.

In 2022 Tencent chief strategy officer James Mitchell outlined plans to upsell customers into higher margin PaaS offerings instead of IaaS. Mitchell declared Tencent Cloud would "be much more disciplined in terms of IaaS pricing and also in terms of not engaging in reselling of hardware at a loss."

Alibaba's results missed analyst estimates – an outcome it attributed to a rough retail environment. However, Xu claimed signs of recovery in e-commerce were showing.

"We are beginning to see early signs of GMV growth recovery – driven, in part, by investments made since earlier this fiscal year," he said, warning: "We still have a lot of work ahead."

Overall revenue for Alibaba in the third quarter of 2023 was roughly $36.7 billion – an increase of five percent year-on-year. ®

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