Winners In China's Cloud Industry: A Glimpse Of Alibaba Cloud And Tencent Cloud's Strategy

The world had never moved at such a speed to integrate with digitalization until the pandemic started, pushing everything to convert to a virtual form. In the past year, China had 85 million more Internet users along with increasing online activities. To adapt to the new circumstances in this digital-driven period, the Chinese cloud service industry has grown with momentum. Internet companies are inherently inspired to deploy cloud services. Two Chinese giants, Alibaba and Tencent, concurrently developed their own cloud service businesses: Alibaba Cloud and Tencent Cloud.

A brief review of Alibaba and Tencent's businesses

-        Alibaba

Not restricted to delving into the e-commerce marketplace, Alibaba has also engaged with a diverse array of businesses in media, fintech, logistics, retailing, and other segments. E-commerce, its primary business contributed over 85% of the total revenue in F2020. Meanwhile, Alibaba recorded a GMV of CNY 7.5 trillion on its marketplace platform.

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The company broke a new record with its latest shopping festival, 'Double 11': transaction GMV across all the platforms exceeded CNY 492 billion within one day, growing at a 29% rate year-on-year. Such a deal size cannot be reached without Alibaba's functional digital payment, logistic services, cloud computing, and other initiatives. These services collaboratively incubated Alibaba's online economy. It is noteworthy that its fintech division, Ant Group, had been valued at USD 220 billion by Warburg Pincus before it paused its IPO in November 2020. Ant's IPO pause influenced Alibaba's stock market performance instantly, but Alibaba's core business is resilient enough to mitigate the risk.

Impressively, with a steady expansion in Alibaba's business, the company is reaching beyond the national boundary through foreign investments. The company's blueprint rapidly extended to a global e-commerce environment. For example, Alibaba constructed its own global platform AliExpress while invested in regional companies. The e-commerce competition has been getting more intensified after decades of technological development. In China, Alibaba is directly competing with JD.com and Pinduoduo with the first-mover advantage while facing threats from newcomers like ByteDance and Kuaishou.

Now, Alibaba is more than a digital retail platform. Many of its spin-offs benefit from the solid e-commerce foundation at the beginning stage of its business and gradually become revenue pillars. Alibaba Cloud is a strategy-oriented company. With over CNY 10 billion of R&D expenses every year to date, it stated that it would further input CNY 200 billion to develop cloud products and services by the end of 2023. 

-      Tencent

Tencent started its business by building digital network platforms that have deeply penetrated the modern culture and entertainment spheres. With a market cap of HKD 6 trillion, Tencent has three revenue pillars: gaming, advertising and fintech, and business services. The company generated CNY 482 trillion in 2020. Around 55% of the revenue came from gaming, 27% from advertising, and 17% from fintech and business services. What makes Tencent outperform other Internet companies in China is its most valuable asset – Internet traffic.

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Disclaimer: Please consult your own advisor before making any investment decision. 

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