As Alibaba Cloud Steps up Challenge to Amazon, Microsoft, it Expands Data Centers

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

Dubai, Tokyo in Japan, Germany and Sydney, Australia are the places where the data centers will be located. With the Chinese technology giant now on nearly every major continent, it takes the number of Alibaba Cloud data centers outside of China to eight.

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

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

Yu said that “within a few week” the Sydney data center will come online. There are revenue sharing agreements in place even though the executive said Alibaba was not disclosing the financial terms of the deals. With 40 percent owned by Alibaba, the JV with SoftBank will be 60 percent owned by SoftBank.

According to data from Synergy Research Group, the likes of Amazon, Microsoft, IBM and Google combined control over half of the worldwide cloud market, and Alibaba’s global expansion is a bid to challenge this status quo. Alibaba is growing very quickly even though it is much smaller than Amazon Web Services (AWS).

Alibaba reported revenue from its cloud computing division that increased 130 percent year-on-year to $224 million in its latest fiscal quarter ended September 30. The growth seen by Microsoft, Google, and Amazon’s cloud units is thus outpaced by Alibaba Could.

651,000 of the 2.3 million customers of Alibaba’s cloud are paying customers. While offering no time frame, Yu said the company’s next milestone is 1 million paying users. 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.

The Chinese government has made the development of cloud computing a priority and Alibaba Cloud – also known as Aliyun – has been helped by supportive government regulation. While foreign vendors have found it difficult to enter the market, domestic players like Alibaba have benefitted.

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

“We have a strong flavor 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 said.

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

But what a Donald Trump presidency means for their business is still tried to be figured out by technology companies. While it is unclear whether his high import tariff plans would go through, the president-elect has touted the idea of a 45 percent import tariff on Chinese goods.

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.

(Adapted from CNBC)

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