Amazon should introduce AWS to China the Microsoft Way, says China VC

What’s the best way for Amazon to take its vaunted cloud computing platform to China? Follow Microsoft’s lead. That’s the opinion, anyhow, of famed China venture capitalist Kai-Fu Lee.

Lee, who has worked for Apple, Microsoft, and Google, is currently head of Innovation Works, a Beijing-based incubator for Chinese tech startups. Among the things he is most famous for are his role as head of Google China and his early support for Sina’s now wildly popular microblogging service, Weibo. Having headed both Microsoft’s research department in China and all of Google China’s operations, Lee knows a thing or two about the intersection of multinational tech companies and the Chinese market.

He also hasn’t shied away from criticizing the track record of these companies in China. Lee began an early October LinkedIn article by stating “Almost without exception, American Internet companies failed in China.” Among the companies Lee highlights in his piece is Amazon, whom he characterized as “losing” in China.

Lee reiterated this stance in a recent interview with Chinese tech blog Huxiu, stating that, when it comes to e-commerce, “Amazon has already missed the bus.” According to Lee, Alibaba is now so strong in the Chinese e-commerce realm that even if Amazon wanted to find a local partner with whom it could combine and improve its services, it would be hard-pressed to challenge the Hangzhou-based tech giant.

But what about cloud computing? After all, Amazon is not solely an e-commerce company, it is also one of the world’s leading cloud computing pioneers, having created the popular Amazon Web Services (AWS) platform.

In a recent interview with contextChina, Steve Mushero, co-founder and CEO of ChinaNetCloud had the following to say about the state of the cloud computing industry: “the whole world is far behind Amazon and China is far behind the rest of the world.” So why isn’t Amazon capitalizing on this opportunity by introducing AWS to the Chinese market? Mushero attributes Amazon’s absence to regulatory issues associated with data centers as well as special licenses required for foreign companies to operate a cloud in China. He also doesn’t anticipate an improvement in the regulatory environment and, therefore, expects local cloud computing players, such as Alibaba, to win out over foreign providers.

Lee doesn’t broach the topic of competition in the Chinese cloud computing realm, but he does offer Amazon some advice on how to successfully introduce AWS to China – do it the Microsoft way.

Last November, Microsoft announced that it was launching its cloud computing services – Office 365 and Windows Azure – in China. Its approach in doing so was to create a partnership with a Chinese provider, in this case 21ViaNet, which itself flirted with cloud computing services in the late 2000s. Per the partnership agreement, Microsoft licensed the rights to its cloud computing technology to 21ViaNet and 21ViaNet agreed to handle the operation of Office 365 and Azure. This cooperative relationship, Lee notes, enabled Microsoft to become the first multinational company to obtain the certification necessary to offer public cloud services.

More generally, Lee advocates the partnership model as the best China market entry strategy for foreign tech companies. According to Lee, it is no longer viable for multinationals with complicated products to successfully penetrate the China market through a direct subsidiary: “It’s too difficult. While they are learning and adapting, precious time flies by. During this time, Chinese rivals rise quickly and will develop faster than these multinationals.”

Will Amazon take Lee’s advice? Only the Seattle-based tech giant’s top executives know. Their decision, however, is likely to hinge on several important considerations, including:

1. Amazon’s assessment of the regulatory difficulties associated with introducing AWS to the Chinese market itself – can they go it alone or do they need a local partner?
2. If they need a partner, can they identify a good one? AND
3. Are they comfortable licensing out technology that is so crucial to their future to a Chinese company?

The last of these considerations is perhaps the most important, and is a topic that Lee does not touch on in his interview. Licensing technology to Chinese companies is neither a new method for entering China nor a market entry strategy free of controversy. Many companies in many industries have licensed their technology to Chinese partners, only to later accuse their partner of reproducing the technology for their own use. Microsoft clearly felt that this either wasn’t a risk in their partnership with 21ViaNet or was a risk worth taking. Whether Amazon shares that view, however, remains to be seen.

Editor’s Note: contextChina is a Seattle-based media company following the growing impact of China on the Pacific Northwest across business, technology and policy. You can follow contextChina on Twitter @contextchina.