On May 20, China Customs General awarded a RMB 85 million (about $14 million USD) cloud and Big Data contract to AliCloud owned by Alibaba Group, the first one of its kind. It signaled the government’s broader acceptance and support of public cloud services. AliCloud, initially built for Alibaba’s extensive eCommerce platform, was developed by Alibaba internally. It can process about 100PB of data in 6 hours. The first stage of the project, building a cloud platform for China Customs, is expected to be completed in a month. In China, the potential speed of change is often hard to gauge, where government is often the key driver for large initiatives.

The market potentials for cloud computing in China are apparent, especially with the direct value proposition of Big Data processing. With its huge mobile population, the data growth rate is unprecedented. By 2014, Chinese population already produced about 0.5 zettabyte (ZB) of data (One zettabyte is equivalent to about 250 billion DVDs) and it is predicted to reach about 40ZB by 2020. Thanks to the readily available open-source technologies on cloud and Big Data, many Chinese entrepreneurs are jumping onto the cloud market. UCloud, an Shanghai-based IaaS provider founded in 2012, just closed another round of $100 million funding from global investors. Here is a brief summary of the current challenges and opportunities on cloud development in this market:

1. Cloud computing is still a protected market in China. A commercial ICP (Internet Content Provider) license is required for all internet providers and it’s not open to foreign companies. This law itself could prevent many foreign cloud providers to directly enter China. (See a recent legal blog on ICP). Although internet laws often change quickly in China, the latest data sovereignty rulings worldwide triggered by the Snowden event have made Chinese government more cautious about opening up its market in this area. However TriStrategist thinks that global data sharing is unstoppable over a longer term.

2. China’s cloud market is still at the very basic stage. The estimate is about 3-year lag behind the US market on the adoption of new cloud and data technologies. Lacking of local technical talents is a major deterrent, but that can be improved by the active global recruiting efforts that many Chinese companies are engaging in these days.

3. IaaS is a highly competitive and decentralized market in China. Internet hosting services have long been a scattered market in China with data centers and colos all over China which are often not organized for large-scale cloud computing although things are improving. There is no dominant large IaaS provider, but there are monopolies in broadband services. The laws changed in March 2015 to level the broadband market to small players may help promote IaaS market directly. IaaS providers in China have to consider specific local realities to accommodate low IT level in general public and the needs for high customization and support. The speed and reliability of the services are often more important than the cost differentiation at the moment. Successful IaaS providers need to find their niche, bundle other value services and seriously protect themselves from the uneven competitions.

4. PaaS is growing at a slow rate in China due to the unwillingness to get locked in on technologies. Technology market in China is very diverse. However SaaS is growing rapidly in China, starting from gaming, banking, and financial industries. Niche providers with industry-specific Big Data solutions are often preferred.