Cloud Computing Welcomes Change: Alibaba Cloud and Tencent Cloud "Each Has Its Own Strengths"

Needless to say, no matter what industry you are in, the low-price strategy is a powerful weapon. For example, in the e-commerce industry, in addition to Pinduoduo's low-price strategy to the end, Taobao and JD.com will also focus on cost performance, and once again emphasize their "price power" through subsidies and seckills. Coincidentally, the cloud computing industry has once again set off a wave of price reductions, and cloud vendors have opened "volume" prices.

On February 29, Alibaba Cloud, a cloud service provider, announced that the official website price of cloud products will be lowered by an average of 20% and a maximum of 55% for more than 100 products and more than 500 product specifications, and the new price will take effect immediately. And this is also the largest price reduction in the history of Alibaba Cloud. Soon after, JD Cloud followed up with the news of price reduction and shouted the slogan of "Drop casually, compare to the end". With the "unbooked" prices of cloud service vendors, the cloud computing industry may set off a new wave of storms.

Illustration from Canva

What is the collective price reduction?

As soon as the news that Alibaba Cloud and JD Cloud announced price reductions successively, it attracted the attention of many parties. In fact, this is not the first time that manufacturers have cut prices in the cloud computing industry, and last year, cloud computing staged a collective price reduction. In April 2023, Alibaba Cloud announced the largest price reduction in history at the 2023 Alibaba Cloud Partner Conference, with the prices of core products being reduced by 15% to 50% across the board, and storage products being reduced by up to 50%. Subsequently, Tencent Cloud announced price reductions for a number of core cloud products, with some product lines dropping by up to 40%, and on the same day, Mobile Cloud also announced price reductions for a number of cloud products...... And behind the cloud service vendors joining the price reduction queue, it is not for nothing.

On the one hand, the development of the cloud computing industry has changed, and the slowdown in growth has become a fact. Previously, with the acceleration of enterprise digital transformation, the demand for cloud migration in all walks of life exploded, and cloud service providers entered the fast lane of development and continued to grow. However, in recent years, the growth rate of the cloud computing industry has slowed down compared with the past due to various factors such as the change in business strategies of enterprises and the gradual saturation of Internet customers.

According to the "China Public Cloud Service Market (First Half of 2023) Tracking" report released by IDC, the overall market size of China's public cloud services in the first half of 2023 will be 19.01 billion US dollars. Among them, the IaaS market size was US$11.29 billion, with a year-on-year growth rate of 13.2%; The PaaS market size was US$3.29 billion, with a year-on-year growth rate of 26.3%. From the perspective of the IaaS + PaaS market, the first half of 2023 will increase by 15.9% year-on-year, the lowest year-on-year growth rate in the past three years, and the growth rate of the public cloud market in Chinese mainland will continue to slow down. It can be seen that the slowdown in the growth rate of the cloud computing industry is a fact, and cloud service providers urgently need to find new breakthroughs.

On the other hand, the competition in the cloud computing industry is becoming increasingly fierce, and the price reduction strategy can attract more customers, thereby driving the continuous growth of the cloud service business. Nowadays, cloud computing has long become an important infrastructure in the digital era and an important way for enterprises to achieve digital transformation. As players from all walks of life continue to enhance their strength, the competition in the cloud computing industry continues to heat up.

In the face of the slowdown in the growth environment and the fierce competition in the industry, anxiety is hanging over the heads of cloud service providers, and price reduction has become one of the important strategies for cloud service providers to alleviate anxiety. Because the price reduction strategy is the most direct and effective, this move can attract more users to try cloud service products, and cloud service providers can also take this opportunity to enter more industries and fields, and ultimately promote the increase of market share.

It is worth noting that in order to compete for more market share and obtain more growth opportunities, cloud service providers have also made a lot of efforts in addition to promoting price reduction strategies. However, due to different emphases, the strategies of cloud service providers are also different.

Alibaba Cloud "Adjustment"

Alibaba Cloud can be said to be the big brother in the field of cloud computing, not only the first to achieve profitability, but also occupy a high market share in the market. According to the "China Public Cloud Service Market (Q3 2023) Tracking" report released by IDC, in the third quarter of 2023, the market size of China's public cloud (IaaS + PaaS) was 53.566 billion yuan, of which Alibaba Cloud's market share was 26.7%, ranking first in the market. However, although Alibaba Cloud is still the No. 1, its market share has declined. In the face of the slowdown in revenue growth and competitive pressure from other players, Alibaba Cloud is also actively adjusting.

First, Alibaba Cloud has carried out a new round of organizational restructuring to adapt to changes in the general environment, so as to better promote the development of cloud computing business. On November 23 last year, Alibaba Cloud adjusted its organizational structure, not only establishing a dedicated public cloud business unit for the first time, but also establishing a hybrid cloud business unit. In addition, Alibaba Cloud has also established an infrastructure division to build a future-oriented underlying infrastructure that integrates software and hardware. With the adjustment of the organizational structure, Alibaba Cloud can control and manage its business more accurately and flexibly, better adapt to changes in the general environment, and ultimately accelerate the growth of cloud business.

Second, Alibaba Cloud has increased its layout of public cloud to expand its existing advantages. As a leading player in the field of cloud computing, Alibaba Cloud has set its sights on the fast-growing non-public cloud market in the past few years, but due to the fierce competition in the non-public cloud market and the inapplicability of Alibaba Cloud's previous experience, Alibaba Cloud's progress in the non-public cloud market has been quite slow. On the other hand, public cloud is an area that Alibaba Cloud is good at, with deep early accumulation, and Alibaba Cloud also occupies the largest market share in the public cloud market, and its strength should not be underestimated. After clarifying the strategy of "AI-driven, public cloud first", Alibaba Cloud has increased its layout of public cloud and established a special public cloud business unit to tap the potential of the public cloud market.

Thirdly, Alibaba Cloud has launched a promotional strategy to gain more customer growth. As mentioned above, it is an indisputable fact that the growth rate of the cloud service market has slowed down, and the largest customer group in the cloud service market, Internet vendors, have basically become cloudy, and it is more difficult for cloud service providers to expand customers. In this context, price reductions can be a good option to attract users and regain growth. Alibaba Cloud has lowered the price of its products, hoping to attract more incremental users and further open up the customer base. Although price reductions will compress profit margins to a certain extent, price reductions can also expand the number and scale of enterprise cloud migration, and the profit gap can also be flattened, and Alibaba Cloud can also obtain more growth opportunities.

Tencent Cloud "Transformation"

Tencent Cloud is also another heavyweight player in the field of cloud computing, and is at the forefront in many fields. The deepening complexity of competition and the slowdown in industry growth are clouds hanging over the heads of all cloud service providers, and Tencent Cloud is no exception. In order to achieve sustained and stable business growth, Tencent Cloud has also changed its approach.

First, Tencent Cloud has been actively transforming from an integrator to an integrated party. In the early days, Tencent Cloud played the role of an integrator, often subcontracting to partners after winning the project. Although this move has allowed Tencent Cloud to gain a large number of users, it has also increased spending and reduced Tencent Cloud's profit margins. At the Tencent Global Digital Ecosystem Conference at the end of 2022, Tencent CSIG CEO Dowson Tang clearly mentioned that Tencent Cloud will be the "integrated party", and Tencent Cloud has also begun to transform, no longer being an integrator, but playing the role of "being integrated" to help partners complete integration and delivery.

It is worth noting that after firmly turning to "being integrated", Tencent Cloud has gained a lot, not only has its revenue increased, but its "circle of friends" has also expanded. According to Tencent Cloud's disclosure data, in the past two years, Tencent Cloud's integrated revenue has increased by 200% year-on-year, and the number of Tencent Cloud's partners has exceeded 11,000 so far. In terms of partner performance, compared with 2020, the number of Tencent Cloud's partners with annual revenue of more than one million will increase by 200%, and the number of enterprise customers covered by partners will increase by 80% in 2023. In the SaaS field, Tencent Meeting agency revenue increased by 7 times.

Second, Tencent Cloud has increased its self-developed products in order to provide customers with better cloud services. Product strength is one of the important factors for customers to consider when choosing a cloud service provider, and after giving up its role as an integrator, Tencent Cloud began to focus on the product level and tilted more resources and funds to self-developed products. Tencent Cloud has also achieved outstanding results in self-developed products. For example, Tencent Cloud's self-developed enterprise-level distributed database TDSQL has set a new TPC-C world record by the International Transaction Processing Performance Council, with a transaction volume of 814 million transactions per minute, ranking first in the world in terms of performance and cost performance.

Third, Tencent Cloud continues to focus on the sinking market to find new increments. At a time when the demand in first-tier cities is gradually saturated, the development of non-first-tier cities has become a tacit choice for all walks of life, and the cloud computing industry is no exception. Tencent Cloud attaches great importance to the lower-tier market, and continues to increase its layout in lower-tier cities to expand new market increments. It is understood that in 2023, Tencent Cloud's sales, delivery, architects, and channel managers will all sink to various cities to serve customers together with partners.

Write at the end

The competition in the cloud computing industry has entered the second half, in order to maintain and expand their own advantages and get more growth opportunities, Alibaba Cloud and Tencent Cloud have done their best, and according to their own actual situation, they have chosen their own development strategies and directions. Alibaba Cloud's recent move to reduce prices has also caused all parties to once again focus on the field of cloud computing. Although Tencent Cloud has not followed the price reduction, it is also moving forward steadily at its own pace. It is worth mentioning that with the explosion of AI large models, the demand for computing power has risen rapidly, and cloud computing, which is the basic underlying technology support, has also been affected, and cloud service providers are expected to usher in a new wave of development opportunities.

All in all, despite the dual pressure from internal and external sources, cloud service providers represented by Alibaba Cloud and Tencent Cloud are actively seeking changes and achieving performance improvement and growth through some changes. Alibaba Cloud and Tencent Cloud cannot take it lightly, and only by continuously improving their own strength and competitiveness can they occupy an advantage in every change and usher in a brighter future.