Alibaba cloud unit sets sights on Amazon in $1 billion global push

BEIJING (Reuters) - China's Alibaba Group Holding Ltd BABA.N said on Wednesday it would invest $1 billion into its Aliyun cloud computing arm to challenge Inc's AMZN.O lucrative Web Services division, opening a global front in the battle between the two e-commerce giants.

The logo of Alibaba Group is seen inside the company's headquarters in Hangzhou, Zhejiang province early November 11, 2014. REUTERS/Aly Song

With the global cloud computing market estimated by analysts to be worth about $20 billion, Alibaba said in a statement the investment would go toward setting up new Aliyun data centers in the Middle East, Singapore, Japan and Europe. The firm also plans to strike business partnerships with telecom and enterprise technology providers in those regions.

Although Alibaba and Amazon have so far avoided competing directly in their core business of e-commerce outside China, Aliyun’s international expansion takes aim squarely at Amazon Web Services (AWS), an increasingly central and profitable division of the Seattle-based company.

Amazon shares soared last week after the company reported, among other items, an 81 percent revenue increase for AWS, which hosts Web customers like Netflix Inc NFLX.O and Airbnb.

Simon Hu, the president of Aliyun and former head of Alibaba's microfinance arm, said in an interview that Aliyun had focused on the Chinese market in its first six years but has now attained the technological maturity to challenge U.S. cloud players like AWS, Microsoft Corp MSFT.O and IBM Corp IBM.N.

“Our goal is to overtake Amazon in four years, whether that’s in customers, technology, or worldwide scale,” Hu said. “Amazon, Microsoft and others have already laid the groundwork for us by educating the markets about cloud in the U.S. and Europe, so we have an even better opportunity to join in the competition.”

As it expands, Aliyun will face stiff competition from some of the biggest names in technology. Amazon led the global cloud infrastructure market with a 28 percent share in 2014, trailed by Microsoft, IBM and Google Inc GOOGL.O at 10, 7 and 5 percent, respectively, according to Synergy Research Group.

After Amazon made a limited “beta” entry into China last year, where cloud adoption rates by businesses are far lower than in the rest of the world, Aliyun opened a data center in Silicon Valley in March to serve U.S. customers.

Although Amazon counts some of the largest companies on the Internet among its 1 million customers, Aliyun says it has amassed 1.4 million customers - amounting to over 20 percent market share in China - largely thanks to the countless Chinese sellers who host their online storefronts with Alibaba.

Aliyun also said Wednesday it had teamed up with Chinese enterprise software provider Yonyou to offer cloud infrastructure services to Yonyou’s customers.

Hu said the partnership would help promote cloud adoption in China, which had considerable room for growth as the government continues its campaign to digitize Chinese industry.

(This story has been corrected to remove the reference to the investment timeframe in the first paragraph)

Reporting by Gerry Shih and Paul Carsten; Editing by Kennethh Maxwell