Internet & Tech


Amazon sells part of its cloud business to meet new rules on ownership

Amazon President, Chairman and CEO Bezos speaks at the Business Insider's "Ignition Future of Digital" conference in New York City

Bezos: not backing out of China

In an interview with NPR this month, the CIA’s former station chief in Beijing warned, “Chinese firms can utilise the open systems of the US and the EU and elsewhere, whereas getting the access here to do the same is… for all intents and purposes blocked off.”

It’s not a new observation but it was corroborated when Amazon was reported to be selling its cloud business in China because of regulatory pressure.

Beijing Sinnet Technology – Amazon’s local partner in cloud services – said in a stock filing that it was buying Amazon Web Services’ (AWS) Chinese operations for around Rmb2 billion ($301 million). The purchase, Sinnet said, was to “comply with our country’s laws and regulations”.

Not so fast, said Amazon, which rushed out a statement that refuted some of the reports.

“AWS did not sell its business in China… In order to comply with Chinese law, AWS sold certain physical infrastructure assets to Sinnet… AWS continues to own the intellectual property for AWS Services [sic] worldwide,” it insisted.

Amazon’s point is that it has sold some of the operational capacity of its cloud business, but continues to have a commercial interest in its success in the Chinese market.

“We’re excited about the significant business we have in China and its growth potential over the next number of years,” it added.

Amazon conceded that local law forbids foreign entities from “owning or operating certain technologies” in cloud computing. Part of the problem are rules that focus on data localisation, requiring that information about Chinese citizens be stored domestically on servers within China. This is challenging for international firms like Amazon that regularly move or mirror data across their networks of data centres. Now they are having to give up control of key areas of their cloud operations to their local partners too, in a market where the Chinese players already account for well over 80% of sales, according to Synergy, a research group.

Naturally, China’s cloud service providers have ambitions to expand abroad themselves. IT Times reports that UCloud was the first to test the market in 2013 and it has grown its client base to over 3,000 companies across 10 “overseas” cities. The company’s chief operating officer told the newspaper that it wins business with much cheaper pricing than companies like AWS. But Tencent Cloud’s senior product manager, Ma Liang, counters that price isn’t the key consideration for most customers. Major cloud providers generally charge more or less the same and as component costs go down prices will see even greater parity.

The more important considerations, Ma argues, are coverage, speed and stability. This is why cloud firms don’t simply extend their domestic services globally from their home base but set up Internet Data Centres (IDCs) overseas. The servers are closer to the client, delivering speed and stability.

Of course, if foreign service providers are restricted from controlling the hardware that underpins a robust network of IDCs in China, as the AWS sale suggests, their competitive position is weaker.

Chinese firms seem unlikely to face the same challenges in their international efforts and they are hoping to follow in the slipstream of trends that are reshaping the domestic marketplace.

IT Times reports that it was the surge in popularity of online gaming (such as League of Legends) that spurred some of the cloud operators to provide offshore services, for instance. Alibaba – the most direct competition for AWS in cloud services in China (see WiC339) – was a little different, introducing its cloud platform to smooth the way for its core e-commerce business overseas. “We are very much relying on Alibaba Cloud to be a key service provider and enabler in the markets where Alibaba is targeting to grow,” Alibaba president Michael Evans confirmed to the South China Morning Post this month.

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