In the second quarter of 2023, spending on cloud infrastructure services in mainland China surged to an impressive $8.7 billion, reflecting a substantial year-on-year growth of 19 percent, according to the latest Canalys report.
The surge in cloud infrastructure spending was primarily attributed to structural shifts in Alibaba Cloud’s reporting of cloud revenue following its separation from the Alibaba Group. Excluding this impact, the Chinese cloud services market maintained a conservative growth trajectory, expanding in the mid-single digits.
Enterprise clients in China continued to prioritize cost-cutting and operational efficiency in response to macroeconomic pressures, prompting a cautious approach to IT spending. To boost demand, major cloud vendors are introducing self-developed AI foundation models, leveraging AI-related applications to accelerate cloud investments by enterprises. This increasing integration of AI technology underscores a focus on AI partnerships as a competitive aspect within the cloud market.
Key Players Maintain Dominance:
Alibaba Cloud, Huawei Cloud, and Tencent Cloud, the industry heavyweights, maintained their dominant positions in China’s cloud infrastructure market during Q2 2023. Combined, these tech giants accounted for a substantial 72 percent of the total cloud expenditure in mainland China.
Alibaba Cloud recently underwent significant restructuring, splitting from its parent company Alibaba Group to form the Cloud Intelligence Unit, gearing up for a planned spin-off and possible IPO in the coming year. This restructuring led to a shift in how Alibaba Cloud reports cloud revenue, encompassing cloud consumption within Alibaba Group subsidiaries. Consequently, there was a rise in direct sales revenue, while revenue generated via channels slightly decreased from the previous quarter.
Focus on Robust Partner Ecosystems:
Top cloud vendors in China have shifted their focus towards cultivating robust partner ecosystems, enhancing their partner programs and allocating increased resources to partners. This strategic approach has expanded growth opportunities for partners and alleviated some pressure on vendors in terms of customer expansion.
Emphasizing AI Integration:
As the adoption of AI applications and products gains momentum, the availability and diversity of AI offerings have emerged as focal points for competition among cloud vendors. Partnering with cloud ecosystem partners has proven to be an effective strategy for vendors to navigate this competitive landscape. Cloud vendors are initiating efforts to establish their AI partner ecosystems, recognizing the growing significance of AI in the industry.
Alibaba Cloud’s Market Leadership:
Alibaba Cloud continues to lead the Chinese cloud service market, securing a significant 39 percent revenue share in Q2 2023. However, the recent restructuring of Alibaba Group raises questions regarding Alibaba Cloud’s future strategy. Anticipating surging demand for AI, Alibaba Cloud has introduced notable AI products: an AI audio transcription offering, “Tongyi Tingwu,” and a text-to-image conversion tool, “Tongyi Wanxiang.” These additions complement the previously launched self-developed foundation model, “Tongyi Qianwen,” and underscore Alibaba Cloud’s commitment to AI integration. Additionally, Alibaba Cloud is accelerating its partner ecosystem expansion through new policies aimed at enhancing transparency, partner commissions, and defined roles.
Huawei Cloud’s Steady Growth:
Securing second place in Q2 2023 with a 19 percent market share, Huawei Cloud demonstrated steady growth, narrowing the gap with Alibaba Cloud. Huawei Cloud launched its self-developed foundation model, the “Pangu Model,” in July, aiming to seamlessly integrate AI technology with specific use cases across various industry verticals, aligning with its “AI for industries” strategy. Huawei also unveiled a dedicated partner program centered around the Pangu Model, providing incentives, certifications, and technical support to partners.
Tencent Cloud’s AI Acceleration:
Tencent Cloud secured the third position in Q2 2023, commanding a 15 percent market share with a 6 percent year-on-year growth. While its AI product releases were somewhat slower compared to competitors, Tencent Cloud unveiled its AI foundation model roadmap in June, introducing “Model-as-a-Service” (MaaS) with a focus on industry-specific solutions. The official launch of its foundational AI model, “Hunyuan,” in September 2023, marked a significant milestone, as it will be integrated into several flagship SaaS products within Tencent’s portfolio.
This rapid evolution of the cloud infrastructure market, coupled with the integration of AI technologies, showcases an exciting trajectory for China’s tech landscape, with Alibaba Cloud, Huawei Cloud, and Tencent Cloud at the forefront of this transformation. Their strategies and innovations are likely to shape the future of cloud services and AI integration in the region.
