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Inside the Race to the Cloud in China

It’s too early to call the race to the cloud in China, but there’s one thing Microsoft can tout that others cannot: By navigating a maze of regulatory and technical issues, Microsoft became the first non-Chinese company to offer a public cloud in China.

In the U.S., the business of storing and processing data remotely for companies is dominated by three big players—Amazon, Microsoft and Google—ranked in that order and with plenty of separation between. In China, a clear cloud market leader has yet to emerge, although the big domestic Internet firms including Alibaba Group, Tencent and Baidu have the early edge.

The public release of Microsoft’s Azure in China earlier this year represents an early move in the effort to crack that market, which offers a potentially huge payoff to U.S. firms. Aside from having 618 million Internet users, Chinese consumers are more likely to access the Internet on mobile devices, making cloud-based services more important.

But the U.S. companies face a tough road ahead. American firms must work with domestic companies because commercial data centers must obtain a government license that isn’t available to foreign players. And China has no network neutrality rules requiring service providers to interoperate, so its Internet is fragmented. To get nationwide coverage, U.S. companies would either have to negotiate deals with telecommunications companies city by city or team up with a Chinese player that already has such deals in place.

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