Alibaba Cloud opened two data centres in London

The e-commerce giant Alibaba is challenging Amazon and Microsoft in cloud service by adding London to its global data centre map.

If anything can indicate that the world is still confident in the UK as a business hub, amidst all the confusions over deal or no deal of Brexit, new investment from Alibaba can certainly do. The cloud service division of the e-commerce giant, Alibaba Cloud, announced on Monday that it is opening two data centres in London.

“Our decision on the location is driven by the rapidly growing customer demand in the U.K. The United Kingdom is one of the fastest growing European markets for Alibaba Cloud,” said an Alibaba spokesperson. “We are also working with many global and local partners to make sure we are offering best-in-class technologies, services and consulting to customers.”

Among the services the data centres will provide include a so-called “elastic computing”, which is a dynamic system to manage traffic spikes in the network, as well as deliver application services and big data analytics. Alibaba Cloud’s UK clients come from sectors like retail, finance, media, education, research, and logistics, and include public companies like the software maker SDL and the B2B media and event company Ascential.

Cloud service has become a key battlefield for the webscale companies and are clearly delivering results for the market leaders. Over 60% of Amazon’s operating income was from AWS, its cloud service division, in the first half of 2018, while Azure has been the most stellar performer among all Microsoft products.

Meanwhile cloud services have also attracted unwelcome following. According to a report by PwC, “Red Apollo”, a hacking group based in China, launched a series of sustained cyber-attacks last year, specifically targeting cloud service providers. The logic goes that, if they could break the defence of a major cloud service, they would be able to spread spying tools and malware to all the companies on these outsourcing services.

London joins Frankfurt to form Alibaba Cloud’s network in Europe. By the time the new data centres are up and running the company will have 52 data centres sites in 19 regions for its cloud service.

Alibaba revenues soar but profit column takes a hit on the spreadsheets

Alibaba comfortably passed analyst estimates for the three months ending June 30, as total revenues soared 61% year-on-year.

Total revenues for the period stood at roughly $12.2 billion, while the team brought in net income of $1.1 billion. Profits at the business have dipped quite considerably, 45% compared to the same period in 2017, though this was primarily due to share-based compensation for Ant Financials’ recent fundraising, and investments in new revenue channels.

“Alibaba had another excellent quarter, with significant user expansion and even more robust engagement across our growing ecosystem,” said CEO David Zhang. “Our China retail marketplace business continues to gain share, with New Retail initiatives driving further revenue growth and enabling our retail partners to seamlessly serve customers. We are executing our plan of providing more value and choice to users along the consumption continuum, with digital entertainment and local service offerings that tap into big addressable markets beyond core commerce.”

“The exceptional growth across our major segments of core commerce, cloud computing and digital media and entertainment validates our strategy of investing in customer experience, product, technology and infrastructure for the future,” said CFO Maggie Wu.

The core eCommerce business performed strongly as you would expect, the Taobao site increased monthly active users to 634 million for example, though the new investments are starting to make some waves.

The cloud computing business almost doubled with revenue growing 93% year-over-year to roughly $710 million, driven by land-grabbing additional customers and also increased interest in higher value-added products and services. During June, Alibaba Cloud’s product innovation focused on big data analytics, artificial intelligence, security and IoT applications, though products which enabled migration from on premise data centres onto the public cloud platforms were a notable driver of revenues.

Over at the Digital Media and Entertainment business unit, revenues reached roughly $910 million, a year-on-year increase of 46%. Success has been primarily attributed to Youku, its video hosting service and China’s answer to YouTube, with daily average subscriber growth of 200% year-over-year for the period. Part of this growth will be down to partnerships, such as the relationship with China Central Television (CCTV) to stream all 2018 FIFA World Cup games to hundreds of millions of fans in China. While this is of course a massive boost for advertisers, without such a show-piece next year, the team will have to think of some new ideas.

While Alibaba does seem to now be taking the traditional internet giant approach to business, grow today and make money tomorrow, it does not usually sit well with investors who are in it for the cash. That said, investors will be happy to see success in the new ventures. Profits might be down, but with the cloud and digital media business units performing well, investors will sit easier with other investments in areas such as its AI-powered voice assistant Tmall Genie and online food delivery service Ele.me. Alibaba is demonstrating industry trends are not just myths.

Investors will also be extra pleased with this performance considering the woes of rival JD.com. Last week, the group reported a 31.2% year-on-year rise in revenue to $17.8 billion, though this was short of analyst expectations. This quarter usually sees a boost in revenues due to the mid-year ‘618’ shopping festival, though execs blamed a crossover with national holidays as the reason for declined sales this year.

There’s nothing quite like money in your pocket, but Amazon has proved the ‘invest in tomorrow’ business model can work. Alibaba might have bought itself a bit more breathing room to forget about profits and focus more intently on diversification.

Is mobile payment going too far when cash has become unacceptable?

When mobile payment with smartphones has become the means of choice at retail outlets, the central bank of China needed to remind businesses they should not reject cash payment.

Once upon a time, people said “cash is king”. Not anymore.

In most retail outlets in China, mobile payment with smartphone apps WeChat Pay (of Tencent) and Alipay (of Alibaba) has become the de facto option. Customers with credit or debit cards only, including the cards on UnionPay (China’s clearing platform), are sometimes in bad luck. It turns out even cash payment may not go all the way, which prompted the central bank, People’s Bank of China, to issue a warning notice to the retailers that rejecting cash is against the law.

This fast and massive move towards mobile apps based payment dwarves the slow uptake of NFC based contactless payment championed by the technology companies. This is despite the tech heavy weights Apple and Google having been supporting NFC payment since 2014. The enthusiasm in which consumers and businesses embrace it, even with the clout of Apple and Google thrown behind it, has been underwhelming.

According to the research firm Berg Insight, the total number of NFC enabled POS terminals grew by almost 100% in 2017 to reach 54.5 million, most actively in North America and Western Europe. Only about 30 million of the terminals have been activated.

Apple has refused to disclose user numbers or transaction values related to Apple Pay, although different research has put the number of users who could pay with Apple Pay and who actually did it at about 3%. The uptake of Android Pay is no better. The comparable adoption rate is estimated at about 1%.

It is safe to say Apple CEO Tim Cook’s ambition to replace wallets with Apple Pay has not gone too smoothly. Mr. Cook himself was reported to have been rejected to pay for his coffee with Apple Pay by a barista, reported The Information.

In contrast, WeChat Pay and Alipay did not only handle over 90% of China’s $16 trillion mobile payment transactions in 2017, they are also actively expanding overseas. An agreement was signed last week with the Kenya based Equity Bank to bring the services to eastern Africa including Uganda, Tanzania, Democratic Republic of the Congo, South Sudan, and Rwanda, in addition to Kenya. With a smartphone penetration level much lower than in China, we do not believe retailers in Africa will rush to refuse cash payment though.

Google, Alibaba and Apple erode Amazon’s smart speaker dominance

Research firm Strategy Analytics has published its latest numbers on the global smart speaker market and they reveal rapid growth and diversification.

Amazon, of course, was the first mover in this market with its Alexa-driven speakers sold aggressively through its own dominant retail channel. As you can see from the table below it pretty much owned the smart speaker market a year ago, but the situation is very different today. With Google, Alibaba and Apple among the tech giants to have made their move in that time.

“Amazon and Google accounted for a dominant 70% share of global smart speaker shipments in Q1 2018 although their combined share has fallen from 84% in Q4 2017 and 94% in the year ago quarter,” said David Watkins of SA. “This is partly as a result of strong growth in the Chinese market for smart speakers where both Amazon and Google are currently absent. Alibaba and Xiaomi are leading the way in China and their strength in the domestic market alone is proving enough to propel them into the global top five.”

“Further strong growth in smart speaker sales confirms our view that this new market is far more than just a flash in the pan,” said David Mercer of SA. “Today’s smart speakers are by no means the finished article but they have captured the consumer imagination and we will see rapid evolution in design, functionality and associated use cases over the coming years. We are clearly heading towards to a time in the not too distant future when voice becomes a standard mode of technology interaction alongside established approaches like keyboard, mouse and touchscreen.”

Mercer is spot on about the voice UI, although it could end up being most important in cars and wearables, rather than the living room. It’s also worth juxtaposing this market with smartphones, which amounted to 345 million units in Q1 2018. While the young smart speaker market is growing rapidly, it’s still a faction of the size of smartphones and is unlikely to ever achieve those kinds of volumes because of its relatively limited utility.

Global Smart Speaker Market by Vendor: Q1 2018 (Shipments in Millions of Units)
Vendor Q1 ’18 Shipments Q1 ’18 Market Share Q1 ’17 Shipments Q1 ’17 Market Share Growth Y/Y
Amazon 4.0 43.6% 2.0 81.8% 102%
Google 2.4 26.5% 0.3 12.4% 709%
Alibaba 0.7 7.6% 0.0 0.0% ~
Apple 0.6 6.0% 0.0 0.0% ~
Xiaomi 0.2 2.4% 0.0 0.0% ~
Others 1.3 13.9% 0.1 5.8% 806%
Totals 9.2 100.0% 2.4 100.0% 278%
Source: Strategy Analytics Smart Speaker service

Q4 2017 Earnings round-up: Microsoft, Qualcomm, Alibaba and AT&T

That time of the quarter is upon us so here is a quick snap-shot of the Q4 2017 results from Microsoft, Qualcomm, Alibaba and AT&T.

Microsoft

While investors might not have been blown away by this performance, all things are looking rosy for Microsoft as it hit roughly what analysts were expecting.

Share price remains relatively stable (at the time of writing) but a 12% year-on-year rise for total revenues to $28.9 billion is certainly something for Microsoft to be proud of. Operating income was also up 10% to $8.7 billion, with IoT, data, and AI services taking the praise in the cloud business.

“This quarter’s results speak to the differentiated value we are delivering to customers across our productivity solutions and as the hybrid cloud provider of choice,” said Satya Nadella, CEO of Microsoft. “Our investments in IoT, data, and AI services across cloud and the edge position us to further accelerate growth.”

Revenue in Intelligent Cloud was $7.8 billion and increased 15% year-on-year with Azure up 98%, while the Productivity and Business Processes unit, which includes Office and LinkedIn, collected $9 billion, a 25% increase. Even the More Personal Computing unit contributed to the party, perhaps owing to the Christmas period, with revenues of $12.2 billion, a year-on-year increase of 2%.

Qualcomm

On the other side of the coin, a flat financial performance from Qualcomm was not enough to stop a dip in share price as investors seemingly ponder the battles ahead.

Over the course of the last three months, Qualcomm managed to cobble together $6.1 billion in revenues, a 1% increase year-on-year, while net income was effectively nothing. Numbers like these are not exactly perfect for a management team which is trying to convince investors the Broadcom takeover is not the right path, but there is optimism.

“Our fiscal first quarter results reflect continued strong performance in our semiconductor business, as well as continued strength in 3G/4G handset ASPs,” said Steve Mollenkopf, CEO of Qualcomm. “We recently detailed our roadmap for value creation, outlining the significant growth potential for Qualcomm as we enter the 5G world and our products and technologies expand into attractive new markets.”

There is some good news however. Qualcomm effectively lost $6 billion this quarter, though this is down to the repatriation of cash owing to tax reforms in the US. While this is a win for the business, it will have to do quite a bit to convince investors it is in a good position considering the amount of time it is spending in the courtroom.

This quarter also included the European Commission’s €1 billion fine for abusing its dominant market position, as well as numerous lawsuits and countersuits to/from Apple. That said, it is a pretty fair comparison to the year before, as Q1 2017 included a $868 million imposed by the Korea Fair Trade Commission. Perhaps investors aren’t nervous about lawsuits, they’ve just gotten used to them.

Alibaba

Companies hailing from China seem to be able to print money and Alibaba is no different.

$12.8 billion in revenue, a 56% year-on-year increase, says it all. The eCommerce business grew an impressive 57% while the cloud computing side of things accounted for a 104% uplift. Revenue from digital media and entertainment division increased 33% to $832 million, with Youku video’s daily average subscribers grew over 100% year-on-year driven by successful launches of hit original drama series. Few would complain.

Tagged along with the earnings announcement was the decision to take a 33% stake in Ant Financial, the company which operates Alipay and other financial services. While this might look like a good move for the company which is looking to capitalize on the digital revolution in China, investors have been less than receptive. Although there has been a slight recovery, share price in Alibaba dropped almost 6% when the markets opened.

AT&T

Perhaps it should just be taken as standard now, but AT&T is another of the US giants to capitalize on tax reforms in the country.

Over the course of the fourth quarter, AT&T reported revenues of $41.7 billion, and profits of $19 billion, largely thanks to the tax reform. The injection of this cash will result in an extra $3 billion of cash to play with over the next twelve months, most of which will be spent on improving its network.

“The impact of tax reform and regulatory rationalization will be substantial and positive for the U.S. economy and AT&T,” said Randall Stephenson, AT&T CEO.

“Our FirstNet win and the opt-in by 100 percent of all states and territories will enable us to put the industry’s most robust spectrum assets to work in building a best-in-class nationwide network for public safety and first responders. On the Time Warner front, we look forward to presenting our case in court and closing the deal.”

The ongoing Time Warner headache seems to be one of the few negative marks over the last quarter. AT&T recorded 4.1 million total wireless net adds for the fourth quarter, only 329,000 were postpaid phone net adds however as the rest were connected devices and prepaid subs. Video added 300,000 subscriptions while there were 19,000 total broadband net adds. These aren’t the biggest numbers ever, but better than losing customers.

Microsoft and Alibaba officially have AI that’s smarter than humans

Microsoft and Alibaba are the first two firms to officially beat humans using the Stanford Question Answering Dataset, known among researchers as SQuAD.

SQuAD is essentially a reading comprehension test for artificial intelligence algorithms which uses questions based on various Wikipedia entries. University researchers and various businesses around the world can use this test and receive a score to see where their algorithm stands up against the rest of the world.

Over the last couple of days, both Microsoft and Alibaba put their AI up against the team and did very well. Microsoft got a score of 82.650, while Alibaba managed 82.440. Both of these scores beat the human performance of 82.304 for the same test.

“Microsoft has made a significant investment in machine reading comprehension as part of its effort to create more technology that people can interact with in simple, intuitive ways,” said Allison Linn on the Microsoft blog.

“With machine reading comprehension, researchers say computers also would be able to quickly parse through information found in books and documents and provide people with the information they need most in an easily understandable way.”

This is certainly a positive step forward for the AI world, as while it might seem like a simple test it does demonstrate the potential in customer services. For customer interaction platforms which are text based (as opposed to on the phone), Microsoft and Alibaba have pretty much nailed it. Such scores indicate the human operative can be replaced, in theory, without any negative impact on performance.

Having a look through the SQuAD leaderboard is certainly an interesting read, and while we would not want to take the shine off some very good Microsoft news, there are a few missing names. Two names which we suspect would perform quite well at this task would be Google’s Deepmind and Amazon’s Alexa research team. Microsoft and Alibaba are certainly making progress, but it would be interesting to see where Google and Amazon would figure on this list.

The achievement from both firms just demonstrates how close the industry is to actually nailing AI. It has been gradually gaining greater traction in our lives over the last couple of months, but most would assume a radical disruption from AI would still be years away. Perhaps this leadership table just indicates how close the day is when machines will take jobs away from people.

For those who are beginning to look over their shoulder, there are still a couple of hurdles saving our race. Firstly, this is a text system, there will still be millions upon millions of people who will want to actually talk to someone. AI might be able to handle the text interactions, but there will at least be a job for phone operatives for a while.

Another area is on natural language processing. The majority of these Wikipedia pages will be written in standard, grammatically correct language; this is not necessarily how a customer will interact with a company.

Alibaba sets aside $15bn R&D war chest to be a world beater

How do you try and become one of the biggest and most influential technology companies in the world? Just move the $15 billion you have stashed away into the R&D business.

This might not be realistic for most companies, but apparently it is a goer for Alibaba. This is a company which has serious ambitions to emulate Huawei on the global stage. By 2036, the company wants to serve two billion consumers, create 100 million jobs around the world and serve 10 million companies through its various platforms and services. It certainly aims high.

But wishing big is never enough; there has to be some substance behind the dream. This is the part of the equation which most cash-shy telcos seem to be missing. Over the next three years, Alibaba will invest $15 billion into future applications of the technologies which we are finding out about today. Some might say it sounds similar to the Moonshot labs over at Google, and why not try to emulate one of world’s most successful businesses.

“The Alibaba DAMO Academy will be at the forefront of developing next-generation technology that will spur the growth of Alibaba and our partners,” said Alibaba Chief Technology Officer Jeff Zhang at the company’s Cloud Computing Conference (thank you to Alibaba’s news service for a breakdown of the conference).

“We aim to discover breakthrough technologies that will enable greater efficiency, network security and ecosystem synergy for end-users and businesses everywhere.”

Just in case you are wondering, DAMO is an acronym for Discovery, Adventure, Momentum and Outlook. The initiative will open seven labs in Beijing, Hangzhou, San Mateo, Bellevue, Moscow, Tel Aviv and Singapore, initially hiring an additional 100 researchers, though this will increase. The initial focus areas will include data intelligence, the Internet of Things, fintech, quantum computing and human-machine interaction; the type of tech which people are hoping will turn business on its head.

Alibaba looks to be one of those companies who has the ambition to take on the technology world, but let’s hope a slowish start does not count against it. Cash injections in the R&D department are certainly a good sign, but perhaps reaching out to the international community is a much more positive one. Widening the international footprint is a necessity to ensure a business is capturing the best talent, and this is where Alibaba has been lacking to date.

When you look at all the Chinese firms who have successfully ventured (or hoping to) into the international arena, research has been geographically diverse. Huawei is all over the place, ZTE is getting more prominent as well. Tencent has announced plans to open up an AI research site in Seattle and Baidu has a research centre in Silicon Valley specializing in big data, deep learning and artificial intelligence.

Alibaba is slow off the mark in this regard, but first off the line doesn’t always mean first to the finish.