Alibaba may stoke US paranoia with cloud move

US disdain for Huawei over cyberspying allegations hasn't been extended to fellow Chinese peer Alibaba, but will the latter stir up similar concerns as it makes aggressive moves into the cloud?
Written by Eileen Yu, Senior Contributing Editor on

At a tech conference held in Miami in June, former US secretary of state Condoleezza Rice reflected on her country's disapproval of Chinese networking giant Huawei Technologies, but support for e-commerce operator Alibaba.

Speaking in a tone that presumed Huawei's involvement in cyberspying activities, Rice noted that after China's plans to use Huawei as a Trojan Horse for espionage failed, it learnt the error of its ways and changed its approach, resulting in the success of Alibaba's global operations.

"China wanted Huawei to be a big, dominant telco player. The problem is, nobody trusts Huawei because of cybersecurity issues," she said. "You will get investment because you are a huge market, but there are rules of the game... You don't use your cyber-power to spy on other people. You don't use your national champions to take other people's IP."

She added that the Chinese realized there was a "tradeoff" if they wanted to be a global economic power. "So they've not made that mistake with Alibaba. They are delighted that Alibaba is in the markets and that the IPO was a stunning success. Once in a while they call [founder and chair] Jack Ma and remind him it's a Chinese company--the propaganda people do."

Of course, Rice made no mention of the US National Security Agency's own cyberspying activities involving China and other nations. Huawei also has repeatedly denied any wrongdoing on its part.

The question is, though, whether Alibaba will continue to revel under the bright lights of the US as the e-commerce giant now begins to make more aggressive moves into the cloud, inching closer into the enterprise back-end infrastructure.

Alibaba aims for US cloud market

Alibaba last month announced it was setting aside a whopping US$1 billion to drive its cloud business, Aliyun. It is looking to edge out US rival, Amazon Web Services (AWS), using the investment to expand its datacenter footprint, grow its partner ecosystem, as well as develop new cloud and big data products.

Aliyun President Simon Hu said the cloud division had accumulated sufficient technological maturity over its first six years, and now would be looking beyond Chinese shorelines to grab market share from global cloud players such as AWS, Microsoft, and IBM.

In a May report, Forrester Research pointed to Alibaba's big goals for the market. "Alibaba has publicly stated its appetite is limited to Chinese companies doing business in the US. Don't believe it. Its real strategy is far more ambitious, but a China-centric customer base will probably grow to be a nice niche with which it can dominate over time as China's enormous economy continues to expand."

Should the Chinese internet juggernaut succeed in enticing US enterprises to its cloud network, will it stoke suspicion that its platform includes "backdoors" to facilitate spying and espionage? Will there be concerns that the Chinese government may emulate the US and issue search warrants that include customer data stored in servers located outside the local data center?

These are questions that Alibaba may want to address quickly if it's serious about its cloud ambition and needs US businesses, as well as government, to jump on its platform. The Chinese player already faces stiff competition in the public cloud market, dominated by AWS with a 28 percent market share in 2014, followed by Microsoft at 10 percent, IBM at 7 percent, and Google at 5 percent, according to Synergy Research Group.

Alibaba also may want to focus instead on the European market, where Huawei has found much success. EMEA was the second-largest region for the Chinese networking vendor, generating 35 percent of its revenue last year. Its domestic market accounted for 37.7 percent of its 2014 revenue, while the Americas contributed just 10 percent.

In announcing its US$1 billion cloud investment last month, Alibaba did point to plans to build out its datacenter footprint in Singapore, Japan, the Middle East, and Europe. So it seems the company may be looking in the right direction.

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