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Business

Alibaba empire moves to expand cloud data business

Over 200 major companies use Alibaba's cloud service.

SHANGHAI/BEIJING -- Facing relentless assaults from rivals trying to take on its e-commerce empire, Chinese Internet behemoth Alibaba has set its sights on the next goal: conquering the cloud data business.

     "We will use data to transform industry, and the change will spread to many sectors," declared Simon Hu, president of Alibaba's cloud computing subsidiary, Aliyun.

     The company announced a number of new cloud services in Beijing on Wednesday, attracting over 2,000 participants. Alibaba will invest nearly 1 billion yuan ($161 million) annually to bolster its information technology infrastructure -- including data centers and high-speed networks -- inside and outside China. The goal is to serve 2,000 large corporate customers in three years, a tenfold increase.

     Alibaba entered the cloud computing business six years ago to provide online infrastructure to the individuals and small to midsized companies operating in its virtual marketplace. Those sellers lack the finances to develop necessary IT infrastructure on their own.

     The service now has 2 million merchant users -- but only 200 big-name companies. Cloud services totaled only 1.7% of overall sales in the fiscal year ended March 31.

     Alibaba has not made sales goals public, but this was the first time the company held an explanatory meeting focused on cloud services. Alibaba sees a changing market environment that makes it imperative to turn its cloud service, once a supplementary business, into a major earnings driver.

     Chinese companies once were so preoccupied with growing big that they were unconcerned about wasting resources. With slowing economic growth now the new normal, "cutting IT system expenses through cloud technology and spurring business efficiency through big-data analysis have grown in importance," an Alibaba executive said.

     Growing encroachment by competitors in e-commerce also is pushing Alibaba. China's No. 2 Internet retailer, JD.com, entered a capital and business tie-up with instant messaging company Tencent, now guiding the 400 million users of the WeChat app to its online marketplace. Wal-Mart Stores has taken full ownership of Yihaodian, China's sixth-largest net seller.

     Alibaba aims to separate itself from the pack by focusing more on selling popular Japanese products and improving service. But with competition intensifying, Alibaba needs a new growth driver.

     Major Chinese telecom equipment companies like Huawei and ZTE already are in the cloud business. Foreign companies such as NEC, Fujitsu and IBM also look to expand similar operations.

     But Alibaba's e-commerce data on 350 million customers gives it a considerable advantage. This information includes age, earnings, spending habits and preferences based on season and weather, a gold mine for product developers and sales strategists. In addition to storing data for clients, it can provide consulting based on data analysis.

     In logistics, analysis of its data on handling and shipping products worth $404 billion a year "will result in a reduction of a total of 10 million excess kilometers in travel each day," Hu said. Alibaba now handles a ticket-booking system for China Railway Corporation.

     Alibaba founder and Executive Chairman Jack Ma frequently refers to "data technology," or DT, as opposed to IT. In addition to information from his e-commerce operation, Ma will absorb even more valuable data as clients line up to use his cloud service. The question of who owns data remains a nagging question. Still, those who control information over 1.3 billion consumers will control the marketplace. After building a net retailing empire, Alibaba seems set to become the data overlord.

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