E-commerce giant Alibaba Group Holding Ltd (阿里巴巴) is an underdog in the global cloud computing industry, but it has one thing going for it: It is Chinese.
Alibaba this week scored a minor deal with China’s northeastern port city of Dalian to build a cloud computing center 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 (阿里雲), literally “Ali Cloud,” build scale and gain experience before any global campaign to challenge market leaders Amazon.com Inc, Microsoft Corp and Google Inc.
“Basically, they are following the political trends and they’re grabbing the business opportunities that result,” said James McGregor, chairman for Greater China 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 percent to US$32 billion this year from a year earlier, according to US market researcher International Data Corp, and rise to US$52 billion by 2019.
For the time being, Aliyun is small.
It accounted for just 1 percent of Alibaba’s overall revenue for the year ended on March 31, but it says that in China, it has the biggest market share in cloud computing.
Building up expertise to become a global player requires a great deal of money, time and resources. For now, Aliyun is working on expanding market share at home to profit from China’s sheer scale and an unwelcoming environment for foreign cloud service providers.
Alibaba has forged cloud agreements with more than a dozen Chinese provinces and cities, including Hainan, Guangdong, Tianjin and Shanghai.
Aliyun also works with China Meteorological Administration, China Central Government Procurement Center and the state railway service center.
The deals range from developing cloud storage solutions to helping the government of Guizhou Province gather and crunch data to optimize its traffic lights.
In April, Aliyun announced a deal with state oil and gas giant China Petroleum & Chemical Corp (中國石油化學), also known as Sinopec, to create a cloud computing system to track its petrochemical production chain and emissions.
Cheng Jing, an Aliyun director who deals with government agencies, said his primary consideration was the bottom line.
He said the company could be a national enterprise and make contributions to China’s development, citing Jack Ma (馬雲), Alibaba’s charismatic founder and executive chairman.
“First, we have to be sure that 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.”
Alibaba is doing the right thing, Gartner Inc Beijing-based analyst Jimmie Chang (張致銘) said. “Partnering with government will help Alibaba become more valuable in China, hence more valuable to the global companies to do business in China, hence more valuable to the global market.”
Aliyun said last week it had partnered with a number of foreign firms to help it offer enterprise cloud computing overseas.
Those included Intel Corp; telecoms firms Singapore Telecommunications Ltd and Hong Kong’s PCCW Ltd (電訊盈科); and data center company Equinix Inc.
This move is a step in the right direction for Aliyun and could eventually help it become a real enterprise player, analysts said.
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