Public cloud may serve more than half of China's digital economy in 2025

Introduction to Public cloud may serve more than half of China's digital economy in 2025

Ma Peng, Senior Strategy Director, Alibaba Cloud Research Institute

In 2020, the "black swan" of the epidemic will have a severe impact on the operation of the global economy and society, but the engine of the digital economy has become prominent against the trend. Last year, the overall scale of my country's digital economy reached 39.2 trillion yuan, achieving a rapid growth of 9.7%, which was 3.2 times the GDP growth rate during the same period. The digital economy's share of GDP increased by 2.4 percentage points year-on-year to 38.6%.
As an important part of digital technology, cloud computing has become a key support for the development of the digital economy. In 2019, the public cloud market size of 35 major economies around the world has a significant linear relationship with the volume of their digital economy (see Figure 1). However, my country, as the second largest economy, contributes 16.3% of global GDP (World Bank, data in 2019), but the public cloud market only accounts for 5.1% of the world (IDC, data in 2019), which is very different from the size of the economy. Matching, this may become a prominent problem restricting the development of my country's digital economy. Based on this, this article compares the development status of the cloud computing market in China and the United States, analyzes the underlying reasons for the differences in the cloud computing market between China and the United States, and discusses the development prospects of the cloud computing market in China.

Figure 1 Public cloud market size and digital economy volume in 35 major economies around the world in 2019

Note: The public cloud market size data comes from IDC, and the digital economy volume data comes from China Academy of Information and Communications Technology. The data is processed by logarithmic calculations.

01 Market size, proportion of public cloud, proportion of SaaS

(1) The scale of China's public cloud market is only 10.8% of that of the United States

IDC data shows that in 2020, China's public cloud market is worth 19.38 billion U.S. dollars, which is only equivalent to 10.8% of the US public cloud market in the same year (see Figure 2). However, in the past five years, the compound annual growth rate of China's public cloud market has reached 61.1%, which is significantly higher than the US's 23.8%.

Figure 2 2016-2020 China-US public cloud market size and growth rate comparison

Data source: IDC

(2) China's public cloud and private cloud are equally divided, while the US public cloud is the absolute mainstream

According to data from the Institute of Information and Communications Technology, the overall market size of China's cloud computing in 2019 was 133.45 billion yuan, of which the public cloud market exceeded that of the private cloud for the first time, with a ratio of 1.07:1. Due to the relatively unclear boundaries of the private cloud market, most market research institutions did not disclose data on the size of the private cloud market in the United States. Here, the ratio of private cloud deployment cost to public cloud deployment cost is used to reflect the relative size of the two markets. The ratio in the United States in 2019 was 28.7% (for comparison, China’s 70.3%), which is the size of the US private cloud market Obviously smaller than the public cloud, the public cloud is the first choice for American users to go to the cloud.

(3) China's public cloud IaaS accounts for over 60%, and the US public cloud SaaS accounts for nearly 70%

In 2020, the market size of IaaS, PaaS, and SaaS in China's public cloud accounted for 61.6%, 12.9%, and 25.5%, respectively. IaaS accounted for the highest proportion and the proportion has continued to increase in the past five years, from 49.6% in 2016 to 2020. In the same year, the market size of IaaS, PaaS, and SaaS in the U.S. public cloud accounted for 16.6%, 16.4%, and 67.1%, respectively. SaaS accounted for the highest proportion but the proportion has continued to decrease in the past five years. From 79.3% in 2016 to 67.1% in 2020.

Figure 3 Changes in the proportion of IaaS, PaaS, and SaaS in the public cloud market in China and the United States from 2016 to 2020

Data source: IDC

02 Factors Affecting China's Cloud Market

(1) Chinese companies have a short life cycle and low priority for investment in digital technology

According to the US "Fortune" magazine, the average life expectancy of American SMEs is less than 7 years, and that of large enterprises is less than 40 years; while the average lifespan of Chinese SMEs is only 2.5 years, and that of group companies is only 7-8 years. About 100,000 companies close down in the United States each year, while 1 million companies close down in China each year. The survival pressure of Chinese companies, especially small and medium-sized enterprises, is much higher than that of American companies. This makes Chinese companies more inclined to invest funds in places where the return effect is direct and significant when making investment decisions, such as the expansion of marketing channels. For expenditures with relatively long periods and unintuitive returns such as digitalization, it is usually not a priority or even a necessary option for Chinese companies.

(2) Labor costs in China are still relatively low, and companies tend to use human rather than technical means to solve problems

According to public information from the US Bureau of Labor Statistics, the per capita income of U.S. residents in 2018 was 36,000 U.S. dollars, of which the “non-agricultural employment population” had an annual income of about 50,000 U.S. dollars. In comparison, although China's per capita disposable income has continued to increase in recent years, in 2018, the per capita disposable income of residents was only 28,228 yuan (approximately 4,266 U.S. dollars), and the per capita disposable income of urban residents was only 39,251 yuan (approximately 5,931 U.S. dollars). Labor costs in China are only about 12% of those in the United States. However, the costs of digital products and services between China and the United States are almost the same. In this context, Chinese companies are more inclined to use labor rather than information technology to deal with business needs when facing business needs. Compared with information business systems, the use of human resources is inefficient, but the short-term cost is low. Resources are easy to reuse.

(3) The digital level of the service industry is higher than that of other industries, and the proportion of the service industry in the United States is higher than that in China

Whether in China or the world, the development of digitization is rising and prospering for individual users; accordingly, in commercial organizations, industries and businesses that are closer to individual users have a higher level of digitization, that is, in the national economy, The level of digitalization and cloud usage in the tertiary industry is usually higher than that of the secondary and primary industries. Research by the China Academy of Information and Communications Technology also proves this point: In 2019, the global digital economy penetration rates of agriculture, industry and service industries were 7.5%, 23.5%, and 39.4%, respectively. The current industrial structure between China and the United States is significantly different: in 2020, the added value of the primary, secondary, and tertiary industries in the United States will account for 0.8%, 17.7%, and 81.5% of GDP in order, while China's share in the same year will be 7.7 in order. %, 37.8% and 54.5% (see Figure 4). The service industry with the highest level of digitization and the most cloud usage has a significantly higher proportion of the industrial structure in the United States than in China.

Figure 4 Comparison of the three industrial structures of the national economy of China and the United States in 2020

Data source: National Bureau of Statistics of China, Bureau of Economic Analysis, US Department of Commerce

(4) China's information infrastructure is weak, and cloudification and informatization are developing simultaneously

Informatization is the foundation and pre-development stage of digitization. The United States has laid a solid foundation for informatization through large-scale investment in information technology in the 1980s and 1990s: data shows that in 1993, all major US companies have achieved office Automation; in the late 1990s, nearly 80% of the world's top 500 companies had used ERP (Enterprise Resource Planning, enterprise resource management) software. Before the advent of the cloud era, the United States had completed the construction and popularization of information technology infrastructure. When cloud computing began to rise in China in 2014, the information technology infrastructure of the entire society was still under construction in Daxing. This has made China's information technology infrastructure investment and cloud computing basically synchronized development in recent years. IaaS is in China's cloud computing market. Dominate for a long time.

(5) The gap in market supply capacity is significant, and China's industrial ecology is still in its infancy

The imperfect industrial chain and insufficient supply capacity are another important reason for the small scale of China's cloud computing market and the low proportion of SaaS. In China's cloud computing industry, core hardware such as server CPU and memory and basic software such as databases and middleware are highly dependent on foreign products. For example, Intel accounts for more than 97% of my country's server CPU chip market. The supply of common basic products can still be solved through global supply, while the supply of the business application market is still under difficult exploration: China has a complete range of industries and many personalized needs. Foreign SaaS products can only meet a few needs, while most local SaaS vendors There is no personal experience in the information age and lack of software standardization experience. The overall SaaS market is still in the initial development stage of target user selection, product polishing and even business model verification. SaaS supply cannot meet market demand in terms of quality or quantity.

03Cloud computing reshapes the digital industry ecology, public cloud services more than half of the digital economy

(1) The scale of the cloud computing market will continue to grow, driving a significant increase in China's information technology market expenditure

1. The increase in the industrial penetration rate of the digital economy will drive the cloud computing market space

The research results of the Institute of Information and Communications Technology show that the digital economy penetration rates of China's primary, secondary, and tertiary industries in 2019 were 8.2%, 19.5%, and 37.8%, respectively. The penetration rate of the digital economy excluding the primary industry was slightly higher than the global average. (7.5%), the secondary and tertiary industries are lower than the global average (23.5%, 39.4%), and the digital economy penetration rate of the tertiary industries is all significantly lower than the level of developed countries represented by the United States (13.3 %, secondary production 33.0%, tertiary production 46.7%), as shown in Figure 5. In the next few years, under the guidance of the National Fourteenth Five-Year Plan, such as “continuously strengthening the basic position of agriculture” and “maintaining the basic stability of the manufacturing sector”, it is expected that the proportion of China's three industrial structures will be basically stable, and the proportion of the service industry will be slightly higher. improve. On this basis, the digital level of the three industries will be comprehensively improved, and cloud computing as the infrastructure of the digital economy will be widely used.

Figure 5 Comparison of the digital economy penetration rate of the three industries in China, the world, and developed countries in 2019

Data source: China Academy of Information and Communications Technology

2. New infrastructure brings unprecedented opportunities for the development of cloud computing

At present, the state is accelerating the deployment of "new infrastructure" to promote industrial upgrading and foster new momentum for economic development. Cloud computing is an important part of the new infrastructure. At the same time, it has become a key support for the value realization and utility enhancement of the new infrastructure through its advantages in resource management integration, technical environment deployment, network connection optimization, and flexible computing power scheduling. The "Fourteenth Five-Year Plan" is a period of concentrated construction and installation of new infrastructure. According to the China Electronics and Information Industry Development Research Institute, direct investment in new infrastructure will reach about 10 trillion yuan by 2025, driving a cumulative investment of more than 17 trillion yuan. Under the guidance of the new national strategy for infrastructure construction, the entire society will increase its investment in cloud computing in the coming period.

3. The rapidly growing data volume will support the application space of cloud computing

According to IDC research, China will generate 13.1 ZB of data in 2020, accounting for 21.4% of the total global data that year. In the next five years, China's data volume will continue to grow rapidly, with a compound annual growth rate of 24.4%, exceeding the global annual compound. With a growth rate of 22.9%, it is one of the fastest growing regions in the world in terms of data volume (see Figure 6). Data needs to be processed by the calculation and storage of the information technology infrastructure in order to become a production factor. Cloud computing has become the mainstream model of information technology infrastructure. In 2019, China's cloud infrastructure investment surpassed traditional information technology infrastructure investment for the first time. The rapid growth of data volume will support the development of China's cloud computing market.

Figure 6 2020-2025 China's data volume and growth forecast

Data source: IDC

next few years, China's cloud computing market will develop rapidly, which will drive the continuous growth of China's information technology market. According to the China Academy of Information and Communications Technology, China’s cloud computing market will reach 375.42 billion yuan by 2023, an increase of 1.8 times compared to 2019, and the compound growth rate for 2019-2023 will be as high as 29.5%. Driven by the development of cloud computing, the scale of China's information technology market will continue to grow. It is expected to reach US$547.78 billion in 2024, an increase of 23.6% compared to 2020, as shown in Figure 7.

Figure 7 2019-2024 China's information technology market size and growth rate forecast

Data source: IDC

(2) Public cloud may serve more than half of China's digital economy in 2025 and become a key infrastructure

1. Enterprises have increased their awareness of digitalization, and public cloud has become the best entry point for digitalization

In the sudden new crown epidemic, the strong vitality shown by the digital economy has reshaped people’s perception of digitalization, that is, digitalization is no longer just an option for companies to seek better development, but has become a must for companies to face uncertainty. Survivability. When companies, especially small and medium-sized enterprises, build digital capabilities, public cloud has unparalleled advantages: its pay-as-you-go model transforms Capital Expenditure (Capital Expenditure) of traditional information technology projects into Opex (Operating Expense) ), which effectively reduces the financial pressure of enterprises; compared with private clouds, public clouds have lower cost, no maintenance, and good scalability. It is the best choice for enterprises to quickly acquire digital capabilities at low cost.

2. Labor costs continue to rise, and the advantages of public cloud gradually appear

Although labor costs in China are still low enough compared to the United States, they have continued to rise in recent years. Especially since 2012, China's working-age population has declined year after year. It is foreseeable that China's labor costs will continue to rise in the future. At the same time, under the dual effects of Moore's Law and marginal effects, digital products and solutions have continuously improved their performance and lowered their prices. Under this trend, companies will re-examine the two methods of labor and digital technology, and increasingly tend to solve problems through digital technology, especially the public cloud with significant cost advantages and rich application ecology.

3. Large-scale government and enterprises are paying more and more attention to individual user services, and related businesses tend to be deployed in public clouds

When the Chinese government and large enterprises conduct digital transformation, they usually build a unified private cloud platform and use this platform to open up business systems to improve process efficiency. Today, the main industry users of private cloud, including government, finance, etc., have increasingly emphasized the ability to serve the public. For example, the government hopes to promote governance modernization and functional transformation through "Internet + government services". The level of coverage and service capabilities of public clouds for individual users cannot be replaced by private clouds. In the future, large governments and enterprises will deploy more and more individual user services on public clouds.
Under the combined effect of the above-mentioned multiple factors, China's public cloud market will achieve rapid growth. IDC predicts that China's public cloud market will reach US$65.95 billion in 2024, which is 3.5 times the market size in 2020 (see Figure 8). The existence and development of the digital economy depends on computing power and data, and information technology infrastructure hardware is the physical unit that carries computing power and data. In recent years, the proportion of China's public cloud IaaS in information technology infrastructure hardware expenditure has increased year by year, reaching 25.7% in 2020. IDC predicts that public cloud IaaS will account for 45.3% of information technology infrastructure hardware in 2024, as shown in the figure. 9 shown. Considering that the growth rate of the public cloud IaaS market is much higher than the growth rate of the information technology infrastructure hardware market, and nearly 40% of the public cloud services are provided in the form of PaaS or SaaS, the corresponding hardware resources are not entirely carried by IaaS It can be seen that the public cloud may serve more than half of China's digital economy by 2025 and become a crucial digital economy infrastructure.

Figure 8 The scale and growth rate of China's public cloud market from 2020 to 2024

Data source: IDC

Figure 9 2019-2024 forecast of changes in the proportion of public cloud IaaS in information technology infrastructure hardware

Data source: IDC

(3) Cloud computing will lead a new round of technological innovation and reshape the digital industry ecosystem

1. Cloud computing has become a breakthrough for my country to build new advantages in the development of the information technology industry

As the core link of new infrastructure, cloud computing is the key base for the new generation of digital technologies such as big data and artificial intelligence. Under the new technology system with cloud as the core, China has rapidly narrowed the gap with the information technology industry of developed countries by grasping the historical opportunities brought by technological updates-the top 7 service providers in the global public cloud IaaS market announced by IDC in 2020 Among the names, 3 are from China. This makes it possible for China to break through the old technology system with mainframes as its core, which has been dominated by Europe and the United States for a long time, and seize the next technological commanding heights with cloud computing as a breakthrough.

2. With the help of cloud's powerful ability to define upstream and downstream products in the industry chain, my country's digital industry is expected to become bigger and stronger

Cloud computing can define the evolution of core hardware such as chips, storage, and networks downward, and re-plan the development path of basic software such as operating systems, databases, middleware, and big data platforms upward. core hardware, China’s cloud computing industry has reached a scale and can provide development space for server CPUs and other chips. : Utilizing the characteristics of strong fault tolerance in distributed deployment, a single chip failure will not affect the overall performance, and cloud computing has naturally become the chip industry’s The best proving ground and incubator, driven by this, the chip represented by "Hanguang 800" has achieved large-scale applications. At the same time, almost all software, especially basic software, needs to be remodeled on the cloud, which provides an opportunity for China’s software industry to "change lanes and overtake" : Take the database as an example. In the past, the Chinese market was monopolized by foreign giants for a long time. After entering the cloud era, China's database product "PolarDB" has ranked third in the global cloud database market share and has become one of the most popular in the world.

3. The positioning of the cloud has expanded from basic information resources to digital operating systems, and SaaS has become the focus of manufacturers’ efforts

For a long time, cloud computing has been regarded as a kind of inclusive and flexible basic resource. With the continuous advancement of the digital transformation of the entire society, the cloudification of basic resources cannot meet the needs of enterprises, and enterprises expect more comprehensive business application systems. Cloudification.
Cloud computing is regarded as a social innovation platform that can provide "digital base + digital operating system". Among them, the base solves the problem of computing power support, and the operating system provides enterprises with rich application services to help enterprises achieve business upgrades, operational efficiency improvements, experience optimization, and organizational upgrades. Correspondingly, the focus of cloud computing has moved upward, and SaaS has become the focus of manufacturers' efforts: traditional software vendors such as UFIDA and Kingdee have continued to promote transformation with cloud as their core strategy; the number of SaaS startups has grown rapidly; Internet vendors have adopted Dingding And other collaborative office products are used as a platform to provide users with industry solutions through the construction of an ecosystem. In the next few years, China's SaaS market ecology will gradually take shape, and service capabilities will rapidly improve.

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