Tencent, China's second-largest cloud services provider, has publicized that its annual cloud revenues reached CNY 10 billion in the fourth quarter of 2019, challenging the share of the market leader, Alibaba. "We're going to give each of our 8000 employees at the cloud division the newest Iphone11 as an award," the internet gargantuan boasted.
Cloud services are an emerging field, worth rising billions, where China's three musketeers have been trying to build autonomy against their multinational contenders.
As of September 2019, four companies dominated 80% of the Chinese cloud market, with only one foreign outlier – Amazon Web Services – which is likely to be tackled down the line by Baidu's three-digit-paced annually growing cloud arm, Canalys reported. Tencent has around 15 % of the Chinese cloud market, with an annual growth rate of over 85%.
The market tends to be driven solely by the domestic players in the near-term.
For Tencent, ‘to-business’ models represent a safe harbor for its gaming-dominated revenue generation model, and the company is betting particularly high on the cloud.
"Tencent has been expending tremendous efforts to develop a sophisticated cloud business, from the CEO-level to the tiniest business developer. And this effort is not only to support the cloud gaming business but to create a brand-new long term operation field, allowing it to hedge its very volatile and risky mobile gaming revenues," a researcher at Baidu's AI Lab (who preffered to stay anynymous) told EqualOcean.
In the third quarter of 2019, Tencent posted over CNY 97 billion in revenues, mostly generated from prolific mobile and PC games such as Honour of Kings and PUBG, which was included in the Value Added Services (VAS) segment. What were outstanding were the fintech and business services revenues, with over 36% YoY growth, which was powered by cloud services revenues, the firm said. Yet the firm had not clarified the exact revenue generated from the cloud services until it was announced yesterday, as CNY 10 billion, to much fanfare.
The AI researcher gave Honor of Kings as an example, a war game that generated the most significant portion of its gaming revenues for Tencent. "Honor of Kings witnessed many rounds of multi-dimensional regulatory headwinds in recent years. Each time people thought that it would be banned, yet it all ended up with a different story, so far," said EqualOcean analyst Chenli Shuhong. "Tencent has been leveraging its government relations skills to deal with that sort of problem," she added.
Tencent is also a big-bettor in cloud gaming. The Chinese conglomerate is expected to diversify its business across emerging regions and industries as the Chinese domestic market saturates.