Urbanization opens new vistas for cloud companies

China's ambitious urbanization plans are a new business opportunity for overseas cloud computing companies as local governments seek smarter ways to manage their cities.

A sound municipal administrative platform is deeply needed because population in Chinese cities is surging rapidly, industry observers said.

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"Mounting pressure in urban areas, such as air pollution, traffic jams and crime, are a wake-up call for city planners that a more sustainable and scientific management method needs to be implemented," said Li Tie, director-general of the China Center for Urban Development. The organization works under the National Development and Reform Commission, the country's top economic planner.

Cloud technology is a model of network computing where a program or application runs on a connected server or servers rather than on a local computing device such as a personal computer, tablet or smartphone.

China is expected to spend at least 2 trillion yuan ($322 billion) on smart city initiatives by 2025, according to industry research firm International Data Corp.

Cloud computing platforms give critical support to the smart city initiative.

Overseas cloud providers are eager to tap into the emerging market. They have teamed with Chinese providers to offer public cloud services in the country because foreign companies are not allowed to set up public cloud services in China.

Microsoft Corp made its cloud services available in China earlier this year by partnering with 21Vianet Group Inc.

Amazon Web Services Inc, the world's largest cloud solutions provider, also joined with a number of local governments to put their computing centers in the country.

Although roughly 70 percent of cloud investment went to hardware installations in China, software vendors were also able to get a cut of the multi-billion-dollar market.

In late April, Germany's SAP AG said its cloud business in China had clocked a triple-digit year-on-year growth in the first quarter because of strong demand from the human resources sector. Mark Gibbs, president of SAP Greater China, said the company will further expand its cloud and other businesses in China and the company's entire cloud solutions will be introduced there by the end of the year.

The German company is putting all its software on HANA, a self-developed database management platform, to boost sales. Company executives are satisfied with the HANA project and are looking for a bigger installation rate of the platform.

Overseas providers are poised to face strong challenges from local cloud companies though. Internet firms such as Alibaba Group Holding Ltd and Baidu Inc offer cheaper cloud-based services and are rapidly gaining market share.