The cloud market was approaching its peak in 2017, but instead of growth, it faced a severe crisis. With Alibaba Cloud's aggressive price cuts, many cloud vendors found themselves struggling to survive. The market was entering a phase of "morbid competition," where price wars had become the norm, and only the strongest could endure.
This situation arose because domestic cloud providers, caught in a price war, were facing their biggest challenge yet. At the Yunqi Conference in 2017, Alibaba Cloud announced its sixth round of price reductions for enterprise-level ECS instances, RDS instances, CDN, and security services—some of which saw a 25% drop, hitting the lowest prices on the market. Despite the complex pricing strategies and promotions, the public perception was clear: small and medium-sized cloud companies were being pushed to the brink of collapse.
With continuous price cuts, more and more CDN providers were going bankrupt, especially those who relied solely on scale to compete. Many had to sell off large clients, restructure their architecture, or even change leadership just to stay afloat.
**Price Cuts and Clearances: A Common Strategy**
In the 2C market, price wars and subsidies have long been effective tools for capturing market share. Consumers are naturally drawn to cheaper options, and this strategy has proven successful for companies like Didi, Uber, and shared bike startups. However, when these tactics were applied to the 2B cloud computing and CDN markets, the consequences were far more severe.
Alibaba Cloud, in particular, became a key player in triggering these price wars. By introducing 2C-style subsidies into the 2B space, they not only disrupted the market but also put immense pressure on smaller competitors. At the Shenzhen Yunqi Conference, Alibaba Cloud criticized Tencent for "destroying the industry" with low-price bids, while simultaneously launching new price cuts.
Despite claims that these cuts were meant to support businesses and entrepreneurs, many cloud manufacturers felt otherwise. They argued that sustained losses were not sustainable, and that the real goal was to eliminate competition. As one executive put it, "It's not about supporting innovation—it's about burning out the competitors."
Interestingly, Alibaba Cloud’s own spokesperson acknowledged that the price war might be coming to an end. He noted that customers were now more concerned with whether their problems were solved, rather than just the price. Yet, just a month later, Alibaba Cloud once again reduced prices, shifting public attention back to cost-cutting.
This pattern reminded some observers of the catering industry, where restaurants that focus too much on price often sacrifice quality. Similarly, Alibaba’s approach raised questions about whether they were truly committed to innovation or simply trying to dominate the market through aggressive pricing.
**The Struggle of Cloud Vendors**
The ongoing price war has left many cloud vendors in a desperate position. Some admitted that following Alibaba's lead would mean deeper losses, while not following would mean losing market share entirely. This dilemma has led to widespread frustration within the industry.
Chen Lei, CEO of Thunder, pointed out that the dominance of large internet companies has created a culture of unsustainable expansion. In the 2C space, this led to "morbid competition," and now it's spreading to the 2B sector. He warned that such monopolistic practices threaten innovation and create an environment where only the largest players can thrive.
CDN, in particular, is a capital-intensive business. Building a high-standard platform requires hundreds of nodes, massive bandwidth, thousands of engineers, and annual investments in the hundreds of millions. Many companies are struggling to keep up, with some reporting negative gross margins.
Even companies like Yun Entropy, which once aimed to disrupt the CDN market with decentralized technology, have admitted defeat. Their CEO stated that despite having a strong cost structure, they couldn’t compete with Alibaba’s pricing model. The reality is that the 2B market is becoming increasingly unviable without significant investment.
Sun Jia, from Vision Cloud, expressed shock at how low prices had gone. He pointed out that CDN is a "play-level" business, where even small bandwidth costs can add up quickly. Ucloud’s CEO, Ji Yuhua, echoed similar sentiments, stating that the CDN market had turned into a "red sea" of fierce competition.
**The Endgame?**
Many cloud vendors are now forced to make tough decisions. Some have sold off large clients, others are cutting orders to avoid further losses, and a few have even shut down. The result is a market that’s collapsing under the weight of aggressive pricing.
According to calculations, a CDN startup with 2T bandwidth faces monthly costs of around 2–3 million yuan. When combined with R&D and operational expenses, the required investment can easily reach 400–500 million annually. For most startups, this is simply unsustainable.
As the market becomes more saturated, many cloud companies are looking to diversify. Some are focusing on value-added services, while others are trying to find alternative revenue streams. However, without continued funding, survival is uncertain.
Chen Lei, CEO of Thunder, said that the CDN market was no longer profitable and that investors were pulling back. Without capital, many companies will eventually fail. Ji Yuhua of Ucloud also warned that the current state of the CDN industry is a bubble that will eventually burst.
In the end, the cloud market is at a crossroads. While some companies continue to fight, others are quietly exiting. And as Alibaba Cloud continues to cut prices, the question remains: who will be left standing?
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