Microsoft beats Amazon to get the SHEIN cloud deal

This article was originally published in Chinese by Xu Xiaofei of Leiphone, translated and republished with permission. The views and perspectives expressed in the article are those of the author, not of Momentum Works. 

You can refer to Momentum Works’ “Who is SHEIN” report for structured analysis and insights about the company. You can also read our book “Seeing the Unseen: behind Chinese tech giants’ global venturing” for more case studies, analyses, and reflections. 

In the fall of 2022, a team from Microsoft Cloud business (Microsoft Azure) arrived in Nanjing to conduct cloud migration tests for SHEIN. 

After careful preparation, SHEIN’s Global and US sites began migrating from Amazon’s AWS to Microsoft Azure. 

It is reported that both sites have now completed the migration, with only some historical data remaining on AWS. The two cloud services are still running in parallel, but AWS functions are gradually being shut down, and it is expected to be fully decommissioned in 1-3 months. 

SHEIN has three major sites globally: US, Global, and Europe. 

A year ago, SHEIN migrated its European site from AWS to Google Cloud. The other two sites, which account for the largest proportion of the business and the most cloud usage, have become the focus of attention and competition in the cloud industry. 

To win this business, Microsoft offered SHEIN “an irresistible offer”, leading this Chinese cross-border ecommerce giant’s cloud orders, worth billions, to move from AWS to Microsoft Azure.

It is understood that SHEIN had visited both Amazon and Google, hoping they would invest in SHEIN and endorse its overseas business. In return, SHEIN would give more cloud services and advertising traffic orders to AWS and Google Cloud. Unfortunately, both negotiations ended in failure. 

In contrast, Microsoft has more bargaining power in hand. Microsoft does not only have better government relationships compared to Amazon and Google (to help SHEIN expand in global  markets) but may also directly invest in SHEIN in the future. 

The deal was quickly agreed upon, and SHEIN’s cloud services immediately began migrating to Microsoft Azure, which subsequently became SHEIN’s largest cloud service provider.

Microsoft Azure has recently achieved three victories: securing a ¥20B (US$ 2.9B) deal with ByteDance’s overseas business, acquiring Pinduoduo’s Temu as a customer, and winning over AWS for SHEIN. 

In fact, Microsoft Azure has been on a strong upward trajectory in recent years, frequently snatching large clients from AWS. 

In the past year, Microsoft Azure has secured several large clients from Chinese companies going global, with billions of dollars at stake, including ByteDance’s overseas business, Pinduoduo’s cross-border ecommerce platform Temu, and SHEIN.

Both ByteDance and SHEIN had been using AWS for their cloud services from 2015 to 2017, but eventually switched to Microsoft Azure. 

Six years ago, when ByteDance first expanded outside China, most of its overseas business, represented by Music.ly, was deployed on AWS. However, in 2019, Yang Zhenyuan (杨震原), Vice President of ByteDance, discovered that the annual procurement cost of cloud services was extremely high, so he decided to re-evaluate various cloud suppliers and reduce cloud usage costs.

Faced with ByteDance’s billion-dollar cloud deals, senior executives of various cloud giants paid great attention to it. The “Four Cloud Titans” – AWS, Microsoft Azure, Google Cloud, and Alibaba Cloud – all participated in the bidding. 

In the end, Alibaba Cloud and Google Cloud took the lion’s share, while AWS was directly kicked out of the game.

AWS’s defeat directly led to a “personnel earthquake” within AWS’s management, with a core executive resigning due to the loss of the deal. 

Shortly thereafter, as US-China relations became increasingly tense, Alibaba Cloud began to cut its presence in the North American market. After Alibaba Cloud’s withdrawal, ByteDance bought over the servers and started operating on its own. However, as Bytedance’s business grew rapidly, both Google Cloud and self-built data centers were unable to meet the demand, so ByteDance brought AWS back onto its supplier list. At this time, Google’s share was four to five times that of AWS.

For a time, ByteDance’s overseas business was a typical multi-cloud layout, with Google having the largest market share in North America, followed by AWS, and then Microsoft. 

However, last year Microsoft Azure won the ¥20B (US$ 2.9B) deal with ByteDance’s North American business, further eroding Amazon’s market share. In the past year, Microsoft’s cloud has had higher revenue growth and profit margins than AWS, and the gap between them in global market share is now only about 10%.

With Microsoft’s cloud recently winning over ByteDance’s North American business, Temu, and SHEIN, some industry insiders say that this has at least two important effects on the global cloud market:

Firstly, Microsoft has proven it can handle high-traffic internet clients such as ecommerce and short video, rather than just traditional government and enterprise clients. 

Previously, the impression of Microsoft Azure was that “its technology was not strong enough to handle high-traffic and large resource consumption”. But now, this impression has been reversed.

Secondly, this makes it difficult for AWS to continue to claim that it is one of the few cloud providers with the ability to serve high-traffic clients. This means that AWS’s advantages compared to Microsoft Azure are increasingly being diminished, while its new capabilities such as AI and large models are lagging behind Microsoft.

As a result, the world’s leading cloud computing giant, AWS, has to face the enormous pressure brought by the strong emerging Microsoft Azure.

Currently, AWS’s Chinese customer base is mainly divided into three categories: 

One is the Chinese local customers, through data centers in Ningxia and Beijing regions, managed by NWCD (西云) and SINNET (光环新网); 

Sidenote: Many people may not know that in the early days of JD’s cloud computing business, it almost acquired SINNET. At that time, at the JD Investment Committee, Xu Lei 徐雷 (current CEO of JD) and Yu Rui 余睿 (current CEO of JD Logistics) both voted in favor of the acquisition, but it was vetoed by JD’s then Chief Strategy Officer Liao Jianwen (廖建文).

Another category is Chinese companies that have gone global, such as Anke Innovation and SHEIN; 

And the other is blockchain and financial companies, such as Binance.

However, facing the strong emergence of Microsoft’s cloud services amongst the Chinese and international markets, AWS’s customer base is already under pressure.