Canalys: Expects cloud service spending in mainland China to grow by 18% in 2024

According to the information from Zhitong Finance and Economics APP, data released by Canalys shows that in the fourth quarter of 2023, China's mainland spending on cloud infrastructure services increased by 22% year-on-year, reaching $9.7 billion, accounting for 12% of global cloud spending. For the full year of 2023, the overall growth of China's cloud service market was 16%, higher than the 10% in 2022. Canalys predicts that the growth rate of China's cloud infrastructure service spending will further accelerate to 18% in 2024. As enterprise customers gradually move out of the IT optimization phase, they will restart their investments in cloud services, and the rise of generative AI will further drive cloud consumption growth. Meanwhile, in order to attract more cost-conscious customers to migrate to the cloud, Chinese cloud providers have been lowering prices, accelerating market competition. To stand out in the escalating price war, cloud providers need to focus on improving service standards, promoting technological innovation, and enhancing the overall cloud service ecosystem.

In the fourth quarter of 2023, the top three players in the Chinese cloud service market - Alibaba Cloud, Huawei Cloud, and Tencent Cloud - continued to maintain their leading positions, achieving a combined growth of 28% and occupying 74% of the entire market share. Since the beginning of 2024, Huawei Cloud and Tencent Cloud have both held partner summits, showing increasing emphasis on developing partner ecosystems to rapidly expand their businesses. In the fourth quarter of 2023, cloud revenue generated through channels accounted for 25% of the total revenue in the Chinese market, and this proportion is expected to continue to rise.

In 2023, Huawei Cloud maintained double-digit growth throughout the four quarters, Tencent Cloud gradually broke away from the profit optimization cycle in the second half of the year, showing signs of revenue growth. However, Alibaba Cloud faced challenges with weakening growth momentum, potentially influenced by frequent organizational restructuring over the past year.

Facing sluggish growth, some cloud providers have started implementing price reduction measures to increase customer acquisition and retention rates. Alibaba Cloud initiated a price cut in April 2023, prompting competitors such as Tencent Cloud and China Telecom to take similar actions in May 2023. In February 2024, Alibaba Cloud implemented a new round of price cuts aimed at attracting a wider customer base through its low-cost strategy.

Canalys analyst Zhang Yi stated: "Under the competitive pressure of price reductions, cloud computing providers are currently facing the dual challenges of maintaining revenue growth and profitability. At the same time, as generative AI continues to develop, market demands on cloud providers are also increasing. In addition to profitability issues, providers must also increase investment in emerging technologies. In this situation, effective cooperation with partners helps reduce investment risks and integrates professional knowledge and resources from partners. Partner ecosystems can help providers respond to competitive pressures in an AI-driven future and achieve sustainable growth." In the fourth quarter of 2023, Alibaba Cloud maintained its leading position in the Chinese cloud computing market with a market share of 39%, but the year-on-year growth slowed to only 3%. Part of the reason for the slowdown is that Alibaba Cloud proactively reduced contracts with lower profits. Looking back at the entire year of 2023, Alibaba Cloud's revenue growth remained in single digits (excluding the impact of statistical adjustments). To reignite growth, Alibaba Cloud announced in February 2024 a 55% price reduction for over 100 core cloud products. This move aims to target a wider customer base, especially small and medium-sized enterprises. Meanwhile, Alibaba Cloud's sales management team also underwent a structural reorganization at the end of 2023. This transformation could bring new changes to its channel ecosystem.

Huawei Cloud continues to maintain its position as the second largest cloud provider in mainland China, with a market share of 19%. In the fourth quarter of 2023, Huawei Cloud achieved a year-on-year growth rate of 23%. Throughout 2023, Huawei Cloud's revenue grew by 17%, compared to 13% in 2022. Its performance in each quarter has been stable, gradually narrowing the gap with its competitor Alibaba Cloud. In January 2024, Huawei Cloud held the Huawei Cloud Partner Conference, revealing that over 150 partners achieved sales of over 10 million RMB (1.4 million USD) through the Huawei Cloud ecosystem, demonstrating Huawei Cloud's commitment to its channels. In 2024, Huawei Cloud will advance two plans for cloud general distributors and cloud solution providers, while continuing to expand through new customer incentives and annual growth incentives.

Tencent Cloud achieved a revenue growth of 27% in the fourth quarter of 2023, with a market share of 16%. This growth indicates that Tencent Cloud has successfully passed the profit adjustment phase, with its growth stabilizing at a double-digit level once again. Tencent Cloud's investment in building its partner ecosystem is beginning to pay off. As of January 2024, 90% of the sales of Tencent Cloud's core SaaS product "Tencent Meeting" were driven by partners, with top partners achieving triple-digit performance growth. At the industry partner conference held in January 2024, Tencent Cloud further committed to helping partners succeed, releasing 30% of its original direct sales customers to partners, a proportion that will increase to 50% in the future