China’s Alibaba Takes On Amazon in European Cloud
Competition shows how Chinese internet firms and Silicon Valley now view Europe as a battleground
Alibaba Group Holding Ltd. of China and Amazon.com Inc. AMZN 4.86% are squaring off in Europe—and not just in e-commerce, but also in the quickly growing cloud-computing industry.
The competition with Amazon, the world’s biggest cloud-computing player, is a sign of how Europe is turning into a battleground between Chinese tech giants and Silicon Valley.
“Europe is very strategic for us because a lot of European countries are quite advanced markets,” said Yeming Wang, who runs Alibaba’s European cloud business.
Cloud computing is an important growth engine for Alibaba and Amazon. Amazon Web Services is one of the U.S. company’s biggest profit drivers, while revenue at the Chinese company’s cloud business more than doubled to about $2.1 billion during fiscal 2018.
Alibaba opened its second and third European cloud-computing centers in October—both in London—and is trying to build the customer base for its cloud division. However, it is still a small competitor outside Asia. Its world-wide infrastructure as a service market share rose to 4.6% in 2017, up from 3.7% the year before—well below Amazon’s 51.8% share of the market, according to research firm Gartner. The firm says Alibaba’s share in Europe last year was just 0.3%.
Amazon—which also faces cloud competition from Microsoft Corp. and Alphabet Inc.’s Google—isn’t standing still. It announced a new AWS data center in Italy last month and said in October that it would add jobs in the U.K. to work for the division. Microsoft declined to comment, while Amazon and Google didn’t respond to requests for comment.
China’s internet giants are increasingly looking to Europe for growth amid heightened tensions with the U.S. over trade and concerns about the Chinese government’s influence on companies from the country.
Growing resistance from the U.S. has been a factor in JD.com Inc.’s focus on other Western markets, said Yuguang Han, a senior product manager for data and supply chain at the online retailer. “For the long-term strategic plan, you do not want to put eggs in one basket,” he said.
Earlier this year, JD.com executives said the company planned to open an artificial-intelligence lab in Cambridge, England, and that it would invest €1 billion ($1.13 billion) over two years to build a delivery network in France.
Its relations with America soured in September when its billionaire founder was arrested in the U.S. on suspicion of rape. He denied wrongdoing and has since returned to China. Some JD.com scientists were this year denied U.S. visas for a research trip to Silicon Valley, Mr. Han said.
Tencent Holdings Ltd. , which runs China’s ubiquitous WeChat messaging service, also has bolstered its presence in Europe. In October it formed a partnership with a London health-care company to develop artificial intelligence to diagnose Parkinson’s disease. It also has signed partnerships with a U.K. government department and the BBC—with which it has co-produced a documentary—and plans to develop a British version of one of its mobile racing games.
China’s internet giants are still small in Europe, but analysts say they could eventually challenge the dominance of U.S. tech giants on a continent that hasn’t produced its own leading internet company.
European countries “are less likely to throw out Chinese tech investment and joint-venture opportunities as they seek to nurture their own technology sector within the digital single market and stand up to the U.S. giants," said Jamie MacEwan at Enders Analysis.
However, Alibaba’s expansion into the European cloud-computing business reflects both the promise and challenges of the European market.
Alibaba is dominant in China, with a 47% share of the cloud-computing market, but has a small presence outside Asia. In Europe, it has offered discounts to try to lure customers from rival services.
Many companies use multiple cloud providers, and Alibaba’s European expansion could pose headwinds for the major cloud businesses of Microsoft and Google, said Forrester Research analyst Paul Miller.
Alibaba’s Mr. Wang, who previously oversaw Huawei Technologies Co.’s European expansion, said the company is targeting European businesses that could benefit from its e-commerce expertise, as well as companies that want to expand to China.
At the same time, Mr. Wang said some potential customers ask about whether the Chinese government could order Alibaba to hand over information. Mr. Wang said he tells them that Alibaba complies with the laws of the country in which it is doing business.
“Everyone is talking about if it’s good to engage with Alibaba Cloud,” said Francois Chazalon, chief marketing officer at Paris-based Linkbynet, a cloud-computing firm that uses Alibaba’s service and provides it to customers.
“They are worried about IP [intellectual property] and data security and the Chinese government behind them. But in the end, you want to do business. It is a balance between risk management and business development,” Mr. Chazalon said.
Mr. Miller, the Forrester analyst, said many of his European clients are conducting due diligence and security checks with Alibaba’s cloud service, and he expects more European companies to move nonsensitive data to Alibaba in the next two to three years.
Some European companies are avoiding Alibaba for commercial reasons: It is unproven in Europe, and there is no reason to use it now unless they want to go to China.
“They showed us all the services they have, super popular in China, just like Amazon. But the reality is nobody is using it here in Europe,” said Rebecca Blackmore, marketing manager at OutSystems UK. The software firm chose not to use the service.