China: the silver lining in Alibaba's cloud computing market strategy

Domestic alliances will help Alibaba's cloud unit Aliyun gain experience before challenging market leaders Amazon, Microsoft and Google.

PUBLISHED : Friday, 19 June, 2015, 11:55pm
UPDATED : Sunday, 21 June, 2015, 10:23pm

E-commerce giant Alibaba Group is an underdog in the global cloud computing industry, but it has one thing going for it: it's Chinese.

Alibaba this week scored a minor deal with the northeastern port city of Dalian to build a cloud computing centre and provide online government services such as bill payment.

The pact is a small part of a growing portfolio of similar cloud services tie-ups between Alibaba and government bodies around China and comes against a backdrop of Beijing's deepening paranoia about foreign technology.

The domestic alliances will help Alibaba's cloud unit Aliyun, literally "Ali Cloud", gain experience before any global campaign to challenge market leaders Amazon, Microsoft and Google.

"Basically, they are following the political trends and they're grabbing the business opportunities that result," said James McGregor, at US communications consultancy Apco Worldwide.

"China wants control of its information, of its data, of its news, of its technology food chain, and so there are huge opportunities."

The sector has boomed as it has become cheaper for companies to store data on remote servers, or in the cloud, rather than maintaining servers in-house.

Global cloud IT infrastructure spending is expected to grow 21 per cent to US$32 billion in 2015 from a year earlier, according to US market researcher IDC, and rise to US$52 billion by 2019.

For the time being, Aliyun is small. It accounted for just 1 per cent of Alibaba's overall revenue for the year ended March 31. But in China it has the biggest market share in cloud computing.

Building up expertise to become a global player requires a great deal of time and resources. For now, Aliyun is working on expanding market share at home to profit from China's scale and unwelcoming environment for foreign providers.

Alibaba has forged cloud agreements with more than a dozen Chinese provinces and cities including Hainan , Guangdong, Tianjin and Shanghai. It also works with China Meteorological Administration, China Central Government Procurement Centre and the state railway service centre.

The deals range from developing cloud storage solutions to helping Guizhou province gather and crunch data to optimise its traffic lights.

Aliyun in April announced a deal with state oil and gas giant China Petroleum & Chemical Corporation, known as Sinopec, to create a cloud system to track its production and emissions.

Cheng Jing, an Aliyun director, said his main consideration was the bottom line. "First, we have to be sure our services can make money," he said. "If these services can also promote Ali's relationship with the government then that's a good thing."