Chinese e-commerce giant Alibaba Group is making a push into the U.S. cloud computing market, where it's expected to run into competition from Amazon.com, Google and Microsoft.
Alibaba subsidiary Aliyun is already the biggest cloud player in its home market, and on Wednesday, it opened a data center in California, its first data center outside of China.
The U.S. business will first focus on attracting Chinese enterprises based in the country, before it expands to international customers in this year's second half, Alibaba said in a statement.
No doubt Alibaba will face intense competition in the U.S., where Amazon Web Services and Microsoft Azure are major players. But opening the data center in Silicon Valley sends another message that it wants to be a global company, said Charlie Dai, an analyst with Forrester Research.
Although revenues from the U.S. business may be small at first, Dai added, "I think this is a good move, especially after their IPO. Every investor wants to know whether Alibaba has any huge potential globally."
Last year, Alibaba listed in the U.S., with the world's biggest IPO at US$25 billion. The company runs two of China's largest online retail sites, but in addition, Alibaba has been building up its cloud computing services.
In the public cloud space, Alibaba has over 1.4 million customers in China, where it's competing against Amazon and Microsoft for a share of the market.
To succeed in the U.S., Alibaba will have to find a way to stand out in a crowded market, Dai said. To do so, the Chinese company might choose to highlight its experience in running reliable e-commerce platforms.
Many Chinese businesses are also going global, giving Alibaba's cloud business a potential stream of new customers in the U.S. But not all Chinese tech companies have fared well in the U.S. market.
Back in 2012, networking equipment suppliers Huawei and ZTE faced U.S. congressional scrutiny over alleged ties with the Chinese government. Given that Alibaba is based in China, a country often accused of sponsoring hacking attacks, the company's cloud business could also face concerns over how it stores customer data.
Alibaba's use of its own proprietary technology for its cloud business could pose problems, Dai said. "It's totally different from Amazon and Microsoft," he added. "It could be difficult If some customers want to migrate from their old platform to the Aliyun platform."