Recently, LD investments, a company that provides investment management, published an analysis of China’s cloud computing market, analyzing in detail the development status, main players and development potential of China’s cloud computing market. ICC is compiled as follows.

Abstract

China is the second largest cloud computing market in the world

However, cloud computing only accounts for the national IT expenditure 2.7% , its it expenditure only accounts for 1.4%

In contrast, cloud computing accounts for more than half of it spending in the U.S 11.4% , it spending as a percentage of GDP 4.7%

Alibaba and Tencent are the most powerful companies.

China’s cloud computing market is already the second largest market in the world, but still only one tenth of that of the United States (the world’s largest). China’s cloud computing spending only accounts for a small part of China’s total it spending, which shows that the market has huge growth space.

China’s cloud computing market is growing rapidly. According to Canalys, China’s cloud infrastructure spending increased in 2019 63.7% , reaching US $10.7 billion, making it the second largest cloud market in the world with a market share of 10.8% 。 However, according to IDC data, compared with the world’s largest U.S. public cloud market, China’s public cloud market size is insignificant. Cloud computing spending in the United States is estimated at $124 billion in 2019, more than 10 times that of the second-largest Chinese market.

In addition, according to the National Association of software and services companies (NASSCOM) report in 2019, China’s IT spending only accounts for the GDP of the country 1.4% , while its total it expenditure is only 2.7% For cloud services. In contrast, the U.S. is the world’s largest cloud market, with it spending as a share of its GDP 4.7% , where 11.4% For public cloud services.

The outbreak of covid-19 may accelerate China’s shift to the cloud. During the pandemic, supply disruption caused problems such as cash flow. Traditional enterprises reconsidered their future strategies. Therefore, after covid-19, the Chinese market is expected to increase the demand for cloud computing services. Companies that have just entered the cloud market or were lured to try to use cloud services during the outbreak of covid-19 may also end up paying customers. At the same time, enterprises may accelerate cloud initiatives to facilitate remote work and remote interaction.

Such a scenario is expected to occur globally. IDC forecasts that global IT spending will fall by 5% this year, while it infrastructure spending is expected to grow 3.8% To US $237 billion. Internet content providers and others are expected to maintain their cloud spending while deferring other IT spending (such as on premise data centers and Applications) to control costs. ( Source from IDC )      

Canaalys, a technology market research company, agrees, and expects the global IAAs market to grow by 32% in 2020 to reach US $141 billion, to US $248 billion in 2024, with a compound annual growth rate of 15%. According to Canalys, despite the slowdown in the migration of large enterprises, global cloud infrastructure spending rose 34% to $31 billion in the first quarter of 2020 due to the demand for remote work caused by the outbreak of covid-19.

Main players in China market

According to Canalys, Alibaba cloud, Tencent cloud and Baidu cloud are the three largest cloud companies in China, accounting for two-thirds of the market. Among them, Alibaba takes over 46.4% Is the market leader.

In addition, according to the National Association of software and services companies (NASSCOM) report in 2019, China’s IT spending only accounts for the GDP of the country 1.4% , while its total it expenditure is only 2.7% For cloud services. In contrast, the U.S. is the world’s largest cloud market, with it spending as a share of its GDP 4.7% , where 11.4% For public cloud services.

Alibaba serves more than 3 million corporate customers around the world, including 38% of Fortune 500 companies, 80% of mainland high-tech companies and more than half of China’s A-share listed companies. And its user base is growing. Since the outbreak of covid-19, Alibaba cloud services have developed rapidly. About 200 million Chinese use the Dingtalk to work at home, and about 50 million students use the app to study at home. With the application’s traffic surging hundreds of times, Alibaba cloud has expanded its capacity to meet this demand.

Baidu’s search trend also shows that, in terms of popularity, nail exceeds Tencent’s super app, and nail quickly became the most downloaded app in China in February.

In addition to the Chinese market, Alibaba’s strength is growing. According to Gartner, Alibaba cloud is the third largest IAAs cloud service provider in the world and the largest cloud service provider in Asia for the third consecutive year. According to Gartner, Alibaba’s IAAs market share in the Asia Pacific region increased from 26.1% Growth to 2019 28.2% , and in the first quarter of 2020, Alibaba cloud is the only major cloud company to increase its market share (from 5% to 6%). Microsoft’s share fell from 18% to 17%, while Google and AWS maintained their market share

Alibaba’s growth momentum is likely to continue. In the next three years, alibaba will invest 200 billion yuan (US $28 billion) in cloud infrastructure such as data centers, vigorously expand one of its fastest-growing business areas to more countries, and support the development of technologies such as AI reasoning chips.

Alibaba also has an advantage in its extensive business ecosystem. It has invested in more than 150 companies in China, helping it build a business empire in various industries and regions, covering companies in various stages of growth. This has created a considerable customer base for Alibaba cloud. Ant financial services (Alibaba’s subsidiary, the world’s largest financial technology company) and Weibo (Alibaba as an investor) are well-known users of Alibaba cloud.

Another major competitive advantage of Alibaba is that Alibaba cloud has been fully integrated into its own e-commerce market. For example, Alibaba cloud said it provides a series of e-commerce solutions to help organizations adversely affected by the epidemic. These plug and play solutions enable retailers to launch B2C e-commerce platform in just a few days, and involve many fields such as computing, database, multimedia, video and live broadcast, collaboration, security and data analysis to help retailers carry out e-commerce business.

These advantages make Alibaba unique. But Wal Mart and Tencent backed Jingdong, Alibaba’s biggest e-commerce competitor in China, have recently joined the cloud computing arena and are likely to be strong competitors. However, Alibaba’s first mover advantage keeps the company ahead of the competition, and it may take JD several years to catch up.

Compared with AWS, it is not only affordable, but also provides low latency for mainland users compared with AWS, thanks to its cooperation with China Mobile, China Unicom and China Telecom, the three major network providers in China.

Alibaba’s unique competitive advantage in the field of cloud computing, coupled with its aggressive expansion plan, indicates that the company is likely to continue to maintain its leading position in the Chinese market for some time. Alibaba’s cloud computing revenue in 2019 is 24.7 billion yuan, accounting for about 7% of the total revenue. Alibaba is one of the best players in China’s fast-growing and relatively early-stage cloud market, and its cloud segment has great potential for revenue growth in the future.

Tencent, China’s second largest cloud computing company, also deserves attention. Tencent serves more than 1 million paid customers, and it has reportedly persuaded 75% of game companies to use its cloud services.

Tencent has also formed a partnership with Huawei to develop a cloud game platform. The platform will stream Games directly to users’ devices, thus reducing the hardware requirements of game players (however, it requires high-speed Internet connection and powerful streaming media server to ensure the user experience, so Tencent needs to cooperate with Huawei, the main 5g player). The game platform will be hosted on Tencent’s own cloud infrastructure. And with the game market growing at a compound annual growth rate of 20% in 2019-2025 and the development of Tencent cloud business, the market share gap between Tencent and Alibaba is expected to narrow.

Tencent has its own competitive advantage in the field of cloud computing. As the No. 1 game company in China, it may have more professional knowledge and experience in games, which can meet the cloud needs of game companies. Tencent is also China’s largest social media company and the operator of super app wechat (with 1.1 billion wechat users). The company has taken advantage of this advantage, with at least 160000 stores, restaurants and other operators using wechat to communicate with customers using Tencent’s cloud services reported.

Currently, Tencent’s cloud computing revenue is 17 billion yuan, accounting for only 5% of its total revenue. But like Alibaba, Tencent cloud’s share of its revenue is expected to grow in the future.