November 25, 2024

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A logo for Amazon Web Services is displayed at the Collision conference in Toronto. (Reuters-Yonhap)

Not satisfied with its dominant position in the Korean market, Amazon Web Services, the cloud business arm of US tech giant Amazon, appears to be attempting to occupy an even greater presence here with an aggressive investment strategy, putting domestic companies under growing pressure.

According to a recent announcement made by AWS in Seoul, it plans to invest 7.85 trillion won ($5.88 billion) in Korea’s cloud computing infrastructure by 2027. The amount is about triple its previous 2.73 trillion won investment from 2018 to 2022.

The US tech giant says it expects that the investment will contribute about 15.1 trillion won to the country’s economy by 2027 by creating 12,300 full-time equivalent jobs a year in sectors involving the construction and maintenance of its data centers.

The five-year investment plan is also expected to further reinforce the market presence of the US cloud service provider, which already takes up a market share of over 60 percent in the South Korean cloud sector.

“We’ve decided to make the large-scale investment to respond to clients’ increasing demand for domestic cloud services. It is necessary to gradually expand cloud infrastructure and increase the size of our business in Korea,” an AWS official told The Korea Herald, showing confidence in making a significant impact for Asia's fourth-largest economy.

To tap deeper into the Asia-Pacific market, the world's leading cloud service provider set up a new regional operation in Seoul, the 12th of this kind, in 2016. The company’s key clients here include Samsung Electronics, Hyundai Motor Group, LG Electronics, Posco and Krafton.

Some industry sources also predict that the US web giant will build its first data cloud center cluster here within this year. Its four availability zones are equipped with independent power supplies and dedicated high-speed optical communication networks, but the US firm is reportedly using leased data centers.

The cloud computing market has strong growth momentum in Korea, where both domestic and foreign firms are actively expanding their business. According to the latest report released by the Korean branch of International Data Corp., the local cloud infrastructure market is expected to grow at an average of 8.8 percent a year from 2.7 trillion won in 2023 to 3.85 trillion won in 2027.

Market watchers believe AWS’ renewed investment push is based on its confidence that it can gain an upper hand in the number of services and support offered for local clients’ overseas expansion. Its five-year investment plan could also play a role in accelerating the local market’s growth, they said.

“Korean companies’ cloud computing adoption rate is not so high, compared to other technically advanced countries, despite its growth potential. (South Korea) is the land of opportunities for cloud service providers. … The additional investment flow from AWS can also be seen as a positive signal for the market's growth," an anonymous industry source told The Korea Herald.

But AWS’ latest announcement has also sparked concerns that the firm could dominate cloud services for the public sector, in addition to its No. 1 position in the private sector. KT, Naver, NHN and other domestic cloud service providers have so far been able to preserve their hold on the market for government-elated cloud services.

According to data released by the Fair Trade Commission in December last year, AWS accounted for 62.1 percent of the local cloud service market in 2021, followed by Microsoft with 12 percent and Naver with 7 percent.

An anonymous source said the ICT Ministry’s steps to ease regulations on security certifications of cloud computing services to introduce a classification system to the cloud security assurance program has been “enough to cause concerns” about the possibility of domestic cloud providers losing their footing.

Meanwhile, the public sector cloud market is expected to expand at an average annual rate of 15.5 percent from last year to 2026, according to IDC Korea. Data compiled by the Ministry of Science and ICT showed the value of public sector cloud services came in at some 1.2 trillion won as of the end of last year.

Jeon Seong-min, a business administration professor at Gachon University, said it has become "nearly impossible" for a local firm to compete against AWS. Local service providers should come up with their own niche market strategies instead, he said.

"While the US-based firm is raising its competitiveness by making an excessive investment and providing services at lower prices, the government's eased measures further threatened domestic cloud providers' survival," the professor said.

"Otherwise, they have to hope for (Amazon) to go through a business withdrawal like the once-successful Yahoo's unprecedented shutdown here (about a decade ago)."

By Jie Ye-eun (yeeun@heraldcorp.com)