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CNBC

Alibaba Cloud expands data centres as it steps up challenge to Amazon, Microsoft

The data centres will open in locations outside of China, consequentially widening the tech giant’s presence worldwide

PUBLISHED : Tuesday, 22 November, 2016, 12:32pm
UPDATED : Tuesday, 22 November, 2016, 12:41pm

Alibaba is planning to launch four new data centres across the world, the Chinese e-commerce giant said on Monday, as it steps up its competition against Amazon and Microsoft in the rapidly-growing cloud computing market.

The data centres will be located in Dubai, Tokyo in Japan, Germany and Sydney, Australia. It takes the number of Alibaba Cloud data centres outside of China to eight, with the Chinese technology giant now on nearly every major continent.

“With the addition of those four data centres, it will cover our customers globally,” Ethan Yu, general manager of Alibaba Cloud Global, told CNBC in a phone interview.

In each market, Alibaba Cloud has formed joint ventures (JV) and partnerships. In Dubai, Alibaba has formed a JV with Meraas Holdings called YVOLV. In Germany, Alibaba has partnered with Vodafone to open its first data centre in Europe. Alibaba will use Vodafone’s data centre in order to sell its cloud services. In Japan, a JV with Softbank called SB Cloud Corporation was formed earlier this year.

The Sydney data centre will come online “within a few weeks,” Yu told CNBC. The executive said Alibaba was not disclosing the financial terms of the deals but there are revenue sharing agreements in place. The JV with SoftBank will be 60 per cent owned by SoftBank with 40 per cent owned by Alibaba, the companies said earlier this year.

Alibaba’s global expansion is a bid to challenge the likes of Amazon, Microsoft, IBM and Google, who combined control over half of the worldwide cloud market, according to data from Synergy Research Group. Alibaba is much smaller than Amazon Web Services (AWS) which leads the market, but is growing very quickly.

In its latest fiscal quarter ended September 30, Alibaba reported revenue from its cloud computing division that increased 130 per cent year-on-year to US$224 million. This outpaced the growth seen by Microsoft, Google, and Amazon’s cloud units.

Alibaba’s cloud unit has 2.3 million customers of which 651,000 are paying customers. Yu said the company’s next milestone is 1 million paying users but offered no time frame on when this would be achieved. The cloud business is also still unprofitable with the focus still on scaling.

“We are not looking at profitability as the near term goal. For now, our goal is to keep expanding our market leadership and therefore we will continue to make investments and develop that for rapid expansion,” Yu told CNBC.

Alibaba Cloud – also known as Aliyun – has been helped by supportive government regulation in China, which has the development of cloud computing a priority. Domestic players like Alibaba have benefitted while foreign vendors have found it difficult to enter the market.

This is a differentiator for Alibaba Cloud and is attractive for international businesses trying to crack the Chinese market.

“We have a strong flavour of China and Asia. We are the true cloud that can provide a global infrastructure to our end users and are connected globally especially in China,” Yu told CNBC.

Alibaba currently has two data centre locations in the U.S. and Yu said the company has seen a “big number” of customers using cloud services to expand their U.S. footprint.

But technology companies are trying to figure out what a Donald Trump presidency means for their business. The president-elect has touted the idea of a 45 per cent import tariff on Chinese goods, though it’s unclear if this plan will go through.

Yu said it’s too early to tell what effect Trump’s policies will have.

“We will be in a much better position in a few months down the road. For me, a very positive relationship between China and the U.S. will be helpful for all business moving forward. From our perspective, we will focus on our business first,” Yu said.

Alibaba Group is the owner of the South China Morning Post.