America’s Biggest Data Center Landlords Vie for Chinese Cloud Giants as Clients

As they battle tooth-and-nail to lease megawatts upon megawatts of data center capacity to American cloud giants, the largest US-based data center providers are also placing strategic bets on the hopes those giants’ Chinese competitors have of winning market share in the US.

Executives of Alibaba, the Chinese e-commerce giant and the largest cloud service provider in the country, have been vocal about wanting to overtake Amazon Web Services, including in the US market; Tencent, whose two messaging apps dominate in China, is in the process of adopting its hit mobile video game Honor of Kings for the US market; Baidu, which is often referred to as Google of China, has been eyeing the US market since at least last year.

Such expansion usually requires data center presence in the markets being targeted.

“We believe that it could be the start of something very important for us,” Daniel Papes, senior VP, global sales and marketing, at Digital Realty Trust, one of the world’s largest data center providers, said on the company’s third-quarter earnings call this week, following CEO Bill Stein’s mention of six “fairly sizable” deals Digital closed during the quarter with Chinese companies, two of them “with leading Chinese cloud and internet service providers.”

Related:DCK Investor Edge: CyrusOne’s Big Play for the Chinese Cloud Business

Those two deals were among the company’s top five wins in the three-month period.

“I would not say these are anomalous transactions,” Papes added. “I think that there will be several more in the future, and we want to go capture those.”

That Digital Realty execs chose to highlight Chinese cloud deals at this particular moment is unlikely to be an accident. Earlier this month, CyrusOne, one of Digital’s top rivals in the US market, announced a major strategic move designed to capture hyper-scale deals with Chinese cloud giants in the US.

CyrusOne has invested $100 million to buy an 8 percent stake in GDS Holdings, a large Chinese data center provider whose particular strength is winning deals with the top Chinese cloud and internet players. Those players, including Alibaba, Tencent, and Baidu, take up 75 percent of all contracted space in GDS facilities in China, according to CyrusOne.

The $100 million investment is not the main component of CyrusOne’s partnership with GDS. It was made to ensure that the main component – the agreement that the two companies will sell each other’s services to customers in their home markets – is taken seriously. As part of the deal, Gary Wojtaszek, CyrusOne CEO, also joined GDS’s board of directors.

Related:Digital Realty, Mitsubishi Launch Data Center Joint Venture in Japan

At least for now, Digital Realty hasn’t made a move of comparable proportions to go after big Chinese clients. Its Hong Kong office however has hired a Mandarin-speaking salesperson, whom Stein apparently credited with the recent Chinese cloud wins.

“We're covering the Mainland Chinese companies from that office with this person, and that has clearly worked out well,” Stein said. “That person had prior relationships with the Chinese internet companies.”

Answering a question from an analyst about specific markets within the US Chinese customers are targeting, Andy Power, Digital Realty CFO, said a broad geographic spread was in play. The larger Digital signings with these clients were in Northern Virginia, Silicon Valley, and Chicago markets, with smaller deployments in Atlanta and Portland.

Four of the six deals were with Digital’s existing customers (three direct and one through a channel partner) and two with new ones, Stein said.

Digital Realty reported $610 million in revenue for the quarter – up 12 percent year over year.