Alibaba Enters US Cloud Market To Contest Amazon

by CXOtoday News Desk    Mar 04, 2015

alibaba

Chinese e-commerce giant Alibaba Group, which held the largest IPO in history last year, is bringing cloud computing services in the US after it announced a data center in Silicon Valley. By making a push into the US cloud computing market, the company is expected to compete against Amazon.com, Google and Microsoft.

While Alibaba dominates e-commerce in China, Aliyun, also known as Alibaba Cloud Computing, is already the biggest cloud player in its domestic market, which holds about a 23 percent market share. It faces both Chinese and foreign competitors, from carriers like China Telecom to Microsoft and Amazon. But, It is the first division outside of China, where it claims 1.4 million cloud services customers. The company has four data centers in China and one in Hong Kong, and it plans to expand its reach into Europe and Southeast Asia before the end of the year

Alibaba’s Aliyun cloud division intends the new data centre to cater initially to Chinese companies with operations in the United States, including retail, Internet and gaming firms. It will later target US businesses with a presence in both countries, Ethan Yu, a vice president at Alibaba who runs the international cloud business, told Reuters. “This is a very strategic move for us,” Yu said, declining to say how much Alibaba invested in the data centre or disclose its location for security reasons. “International expansion is actually a company strategy in the coming few years.”

A more immediate concern may be how Alibaba intends to compete with the likes of Amazon, Microsoft and Google, which are slashing prices on cloud services to try and sustain double-digit growth. They’re battling over a public cloud services market that could grow into an $100 billion industry by 2017, according to researcher IDC.

Alibaba has big plans for Aliyun, which now accounts for about 1 percent of its revenue but supports its core e-commerce operation and will also play a pivotal role in the long run, believe experts. Alibaba sees cloud computing as key to its plans to aggregate and analyse the vast quantities of data it collects, including on consumer behaviour.

No doubt Alibaba will face intense competition in the U.S., where Amazon Web Services and Microsoft Azure are major players. But opening the data center in Silicon Valley sends another message that it wants to be a global company, said Charlie Dai, an analyst with Forrester Research told Reuters.

Although revenues from the U.S. business may be small at first, Dai added, “I think this is a good move, especially after their IPO. Every investor wants to know whether Alibaba has any huge potential globally.”

Last year, Alibaba listed in the US, with the world’s biggest IPO at US$25 billion. The company runs two of China’s largest online retail sites, but in addition, it has been building up its cloud computing services, which according to sources, is the company’s fastest-growing business segment in the December quarter, increasing sales 85 percent to $58 million.