You thought Amazon's cloud was big? Alibaba's is huge

[SAN FRANCISCO] After keeping the world waiting for nine years, Amazon finally broke out earnings for its Amazon Web Services today. The US$1.57 billion in sales for the quarter suggest the company is far ahead of rivals in the cloud computing business. But as AWS expands globally, it faces strong competition from a familiar foe: Alibaba.

Amazon already has 28 per cent of the worldwide market for cloud infrastructure services, followed by Microsoft with 10 per cent, according to a report by Synergy Research Group. To grow its share even more, Amazon has spent the past few years plunking down gigantic data centers around the globe to help it serve customers outside the US quickly. In some cases, it did so to abide by local regulations on where these servers should be located. Unlike many of its rivals, Amazon has also targeted China, opening a data centrE near Beijing in 2014.

Typically, when Amazon has expanded around the world to locations such as Brazil, Ireland, and Singapore, it has faced scant local competition aside from a few regional web hosting companies or telecommunication firms. China is different.

Since 2009, the local e-retailing giant Alibaba Group Holding has been operating its own cloud computing service, named Aliyun. And it's huge, with more than 1.4 million customers. It's also beginning an international expansion to serve Chinese businesses around the world, said Sicheng Yu, the vice president of Aliyun. Amazon, meanwhile, claims more than a million customers use its service globally.

Alibaba opened its first overseas data center in Silicon Valley in March to help provide cloud computing services to Chinese customers, Mr Yu said. At the time it said it had a 22.8 per cent market share of the Chinese infrastructure-as-a-service market in the first half of 2014. It currently has five data center hubs in Asia: Beijing, Hangzhou, Qingdao, Hong Kong, and Shenzhen. "One of the things I'm trying to do is a global deployment," Mr Yu said. This involves "expanding the technology everywhere to be self-contained," he said, which would let Alibaba's cloud function across the world, even if certain regions become unavailable due to connectivity losses or other events.

Like Amazon, Alibaba has a strategic partnership with Intel to do custom chips. Unlike Amazon it has been more public about its experimentation with low-power server processors based on designs from ARM Holdings. Alibaba joined a cross-industry engineering organization named Linaro in April to develop software to get the most out of new chip designs from ARM. The company is looking at ARM closely, said Yu, and will have more details to share next year.

By adopting a non-standard processor architecture, Alibaba would be able to save money on its mammoth electricity bills by tailoring its chips to its software. In doing so, it would join a small club of companies such as Google, Microsoft, and Amazon, with the scale and engineering talent needed to make such a move. Aliyun has more than 1,200 employees, with 80 per cent of them engineers, said Mr Yu.

The company began looking at doing heavy engineering on hardware and software about ten years ago, predating the formation of its cloud.

Unlike the US, where the cloud market is fairly mature, less than 10 per cent of the IT spending in China is on cloud computing, said Mr Yu. Based on data gleaned by the cloud unit, Mr Yu said spending by companies in China on the cloud is "eating the pie" of traditional tech companies.

"The cloud IT infrastructure grows much faster, or ten times faster, than the legacy IT spending," he said.

As is typical of large Chinese technology companies, Alibaba is woven into the bureaucracy of China. The company currently has strategic agreements with 12 Chinese provinces, regions, and municipalities, as well as an undisclosed number of government agencies, including the China Central Government Procurement Agency. That gives it a lot of guaranteed business in China, and ensures that its infrastructure is stress-tested in the same way large clouds from Google, Amazon, and Microsoft are. That helps to make its service more resilient.

As Amazon tries to keep the momentum going in China, a battle looms with Alibaba both in the country and abroad as Aliyun's cloud grows.

BLOOMBERG