While Alibaba Group Holding Ltd. is the most dominant player on the fiercely contested cloud computing market in China, the e-commerce giant finds itself challenged by tech rival Tencent Holdings Ltd., largely due to the company's rapidly expanding gaming and video business.
A breakdown of both companies' earnings shows that Alibaba’s cloud computing revenue increased between 2015 and 2017 at a compound annual growth rate of 118%, to 11.17 billion yuan.
Meanwhile, for the same period, Tencent’s revenue for its payment solutions, financial services and cloud services businesses, classified as "others," accelerated at a CAGR of 203% to 43.34 billion yuan.
More specifically, Tencent’s revenue for its cloud services, which caters to the requirements of online providers including those involved in games, live broadcast and financial services, more than doubled on a year-over-year basis, according to its latest quarterly earnings. The report did not provide a breakdown of Tencent's cloud revenue.
Acceleration in Tencent’s cloud business was largely driven by the growth of its games and video industry, as well as the rollout of new cloud products targeting financial, municipal and retail clients, the Shenzhen-based tech giant said in its first-quarter 2018 earnings report.
Tencent, which had about 46,000 employees at first quarter-end, saw its number of staff in the cloud and online game businesses grow by 17%, CFO John Lo said during an earnings call.
The owner of the giant Wechat International Pte. Ltd. messaging platform strategically opened its wallet to secure Chinese distribution rights to trending games, including "PlayerUnknown's Battlegrounds," to draw in smartphone users and, more importantly, create opportunities for its cloud business.
In March, Tencent also invested US$630 million in the livestreaming gaming platform Wuhan Douyu Network Technology Co. Ltd., which is gearing up for a US$700 million initial public offering in Hong Kong in July.
Meanwhile, rival Chinese e-commerce behemoth Alibaba has seen its cloud computing revenues accelerate, including those generated from data storage, elastic computing, web hosting and large-scale computing services.
The company said Alibaba Cloud and its Chinese and international retail businesses boosted revenues for the three months ended March 31 of this year. Alibaba Cloud’s business growth stems from an uptick in its paying customers, increased revenue per customer and the inclusion of content delivery network and database services. The group’s cloud computing paying customers grew to more than a million in June 2017, from 513,000 in March 2016.
Unlike Tencent, Alibaba's strategy to grow its cloud business has been to expand its footprint in China through partnerships with local Chinese cloud companies, thereby increasing its customer base. Alibaba also continues to work with various cities in China, including Hangzhou, by using its artificial intelligence and big data analytics platform, City Brain.
Further, Alibaba's cloud unit launched 316 products and features in March, 60 of which were focused on artificial intelligence, data management and security, its latest earnings report said.
The report added that Alibaba Cloud has increased its market share in the China market for infrastructure-as-a-service to 47.6%, based on its revenues in the first half of 2017, compared to 42.4% in the first half of 2016.
A common strategy among both Tencent and Alibaba has been the expansion of their cloud operations through data centers outside of China.
Tencent Cloud launched its operations in Hong Kong in late 2017 by collaborating with Hong Kong Science and Technology Parks Corp. to provide public cloud services to startups in an incubation program, as well as opening new data centers in the U.S. and India.
The strategic development comes a year after Alibaba increased its presence in Macau through its Alibaba Cloud unit. At the start of 2018, Alibaba's cloud computing services were also deployed in Malaysia.
As of June 8, US$1 was equivalent to 6.41 Chinese yuan.