• New data center in Germany planned to open next year
  • Alibaba targeting finance, online gaming companies as clients

Alibaba Group Holding Ltd. opened its second data center in Silicon Valley as it invests $1 billion in its cloud computing business globally to compete for clients with Amazon.com Inc.

The facility will target customers on the U.S. West Coast in the next three to five years, said Ethan Yu, who is leading the AliCloud unit’s international expansion. Alibaba is planning its first data center in Europe in the first half of 2016, he said in a phone interview.

Alibaba is betting on Internet-based computing and big data to boost growth in the next decade, tapping into demand for processing and storage from governments, finance and online gaming companies. AliCloud could account for more than $1 billion of Alibaba’s revenue by 2018 and public cloud presents a $120 billion global market opportunity, according to research by SunTrust Robinson Humphrey Inc.

“In our expansion we run into Amazon Web Services frequently as we both are addressing a fast-growing market,” Yu said by phone. “As a competitor there are a lot of things we could learn from them, but there’s also a lot of ways we can differentiate ourselves.”

Alibaba’s cloud business only contributes a small part of total revenue, with computing and Internet infrastructure accounted for 2.6 percent of sales in for the June quarter, according to data compiled by Bloomberg.

Chinese companies will most likely need to compete for local business to reach scale, said Steven Lu, a Shanghai-based partner at Bain & Co.

“When Chinese companies go overseas, following the diaspora of Chinese companies might be a good first step,” Lu said. “Yet the majority of cloud customers overseas are local, so Chinese companies have to penetrate the local market if they want to really grow.”

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