China’s globalizing startups could be a boon to US cloud giants

After several quarters of rapid growth, fueled by remote work cloud computing, the market for cloud services is slowing down as companies are looking for ways to cut back on the use of cloud services in post-COVID conditions and an uncertain economy. AWS has seen its growth slow to the mid teens in its first quarter of year. In the overall sector, the market has slowed to 21%, down from 36% in the previous year.

There’s an upside to this — U.S. cloud firms are gaining orders from Chinese internet companies that are planning to open businesses abroad. Chinese tech firms have been expanding internationally for years, but many have a greater need to set out in light of growing threats to compliance and competition at home.

TikTok’s rapid rise to become a global player can be a source of inspiration for the throng of Chinese startup companies known as chuhai the term literally means “going to ocean” as well as used to describe the people who are establishing a business in the overseas market. TikTok is the third largest social media platform, just behind Facebook and Instagram is set to surpass 1 billion active users in 2025, according to market research firm eMarketer. However, its issues in the West and concerns over its security of data and its relations with Beijing are also an alarm for its users.

In an effort to make it clear to the U.S. government that it does not provide Americans their data in the hands of China, TikTok forged a partnership with Oracle in the second quarter of 2020 following the Trump Administration’s plans to force the sale of the short-video giant. In June of last year, TikTok said it was transitioning the entirety of U.S. user data to Oracle’s servers in the United States. In August, it was revealed that Oracle had been monitoring TikTok’s algorithm and moderation system to detect manipulative actions by China.

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These moves demonstrate the distrust of the West towards firms that have a Chinese connection regardless of whether it’s founders who have Chinese nationality or having an engineering team in China. The first and the most crucial aspect of these companies’ efforts to localize and, most importantly building trust with Western clients and the government by storing their information in the market they are targeting in the event that it’s a major market similar to in the U.S. or at least an open country such as Singapore.

China's globalizing startups could be a boon to US cloud giants https://t.co/iuX6FobY9A by @ritacyliao

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It’s not surprising that AWS, Microsoft Azure and Google Cloud are the top choices for China’s chuhai businesses in the dozens of discussions we’ve had with the globalizing Chinese startups over the past few years. China’s tech giants Alibaba along with Tencent also provide cloud-based solutions for sea-going customers, however selecting the right Chinese supplier is likely to be the last thing they would like to do when trying to placate Western regulators’ security worries.

Could this wave of startups from China provide a significant increase to cloud computing in the Western cloud sector? Most likely not in the short time. Many firms are in the beginning stages of their global expansion and even the TikTok deal will not change Oracle’s share of cloud market needle in any significant way according to Ron, my coworker Ron wrote. If a few players ultimately establish an international presence the preference they have to U.S. cloud services could affect the cloud providers in China.

For instance, Alibaba pointed out in its earnings report for June 2022 that its cloud business was affected due to the departure of a major client, as it experienced an “decline in the revenue of the most valuable Internet client that gradually ended its use of our cloud for their international operations due to non-product-related demands.” The top internet user was believed to be TikTok who was reported to have moved away from Alibaba Cloud because the geopolitical tensions escalated.