Author | Huang Yu

Editor | Zhou Zhiyu

Over the past two years, Tencent Cloud changed its life against the sky and found its own “way to learn.” Now it is getting closer and closer to going ashore.

On September 5, at the 2024 Tencent Global Digital Ecosystem Conference, Tang Daosheng, senior executive vice president of Tencent Group and CEO of the Cloud and Smart Industry Business Group, revealed to Wall Street that he is quite satisfied with the overall results of the changes over the past two years. This year, Tencent Cloud has significantly reduced losses compared to last year, and is not too far from the profit target.

Cutting off the burden of large packages and integrating, continuing to focus on self-research, and promoting integration, Tencent Cloud's inward reforms have opened up a new situation.

While the time for profit is getting closer, Tencent Cloud has also found three new tracks for future growth: AI, overseas travel, and integrated innovation. The reason these three new tracks can become Tencent's next development focus is that they can provide a new growth engine for the development of the industry.

Since last year, all walks of life have faced “internal rolling” competition and big model anxiety. According to Tang Daosheng, if the cake doesn't grow, the result will be a zero-sum game, and everyone will be very miserable.

Standing at the beginning of the second decade since its establishment, Tencent's ToB business has been in place for many years. With the support of waves such as AI and overseas travel, it has reached an important window of development, and is expected to reap more of the dividends of the industrial Internet.

However, as a particularly difficult business in Ma Hua Tengkou, Tencent Cloud no longer wants to be held hostage by size and ranking. In today's increasingly fierce competition in the cloud market, it places more importance on whether it can achieve first place in its competitive circuit.

The cloud services industry is undergoing a profound transformation, and only those who work hard to break out of the zero-sum game can be winners in the second half.

Metamorphosis

This round of Tencent Cloud's transformation began in 2022. This year, under internal and external challenges, the Tencent Group, which felt a crisis, generally initiated reforms centered on cost reduction and efficiency and convergence. Tencent Cloud was discontinued from its large-scale development model and moved away from the strategic line of self-developed products and integration.

Tencent's internal opinion is that Tencent Cloud should not be held hostage by outside voices about other cloud vendors falling behind in the ranking and falling behind, and lose its unique advantage.

By the beginning of this year, Tencent Group once again demanded that in addition to particularly important strategic products and basic investments, many Tencent Cloud products must be launched as soon as possible. In this context, Tencent Cloud also proposed the goal of achieving break-even this year.

Tencent Cloud's transformation process is certainly challenging because of the huge adjustments involved in the business model. Tencent Cloud wants to move away from a large number of integrated turnkey projects in front of the stage and retire to the role of a product company. This is also a transformation that Tencent Cloud must make after the domestic cloud computing industry moves from barbaric growth to a stage of rational development.

As the head of Tencent Cloud, Tang Daosheng is satisfied with the results of these two years of transformation. He believes that the changes have made Tencent Cloud's business more focused, while also making the team more aware of its products, aware of its shortcomings, and improving capabilities in more important places.

In the process, the development path of Tencent Cloud is also becoming more and more clear, and it is better understood which problems customers can solve through Tencent Cloud products and which partners they can choose to work with.

Tang Daosheng pointed out that Tencent Cloud will continue to follow the strategy set in the past, insist on self-research, and be integrated.

As reflected in performance, Tencent Cloud's strategic transformation has achieved good results.

According to Tencent's financial report, in the second quarter of this year, Tencent achieved revenue of 161.12 billion yuan, up 8% year on year, higher than the growth rate of the previous two quarters; non-IFRS net profit to mother increased 53% year on year to 57.31 billion yuan, exceeding market expectations. Revenue contributed by corporate services has achieved double-digit growth, which is an important help for Tencent to stabilize its performance and achieve a significant increase in profits.

As far as the much-publicized profit situation is concerned, Tang Daosheng told Wall Street News: “We have a strict financial model for managing the business. In many places, we are putting higher demands on our teams in the industry. I think the break-even balance is a matter of time. We are not far from that point, and the head office also has a lot to look forward to.”

In addition, Tencent Cloud released a report card. In three years, the number of partners with revenue over one million increased by 150%; in two years, Tencent conference partner revenue increased by 355%; in the past year, AIGC-related product partner revenue increased 550%, and SaaS partner revenue increased 100% year over year; since this year, partner public cloud revenue growth rate has been 1.5 times higher than the market average.

Over the past three years, Tencent Cloud has strengthened its channel ecosystem to sell its self-developed products and promote product integration. Tencent has stated that in the future, revenue contributed by partners will account for 50% of the market, becoming a sales channel along with the direct sales team.

After a difficult period of transformation, Tencent Cloud will use the strength of partners to welcome a rare period of opportunity.

future

Back in 2013, when Tencent, which was in the limelight, proposed to put aside its edge, return to what it is best at communication and social networking, and launch an “Internet +” and “Connect Everything” strategy. In this context, Tencent Cloud, which has accumulated rich cloud experience, is officially fully open to the public, becoming the soil for Tencent to “connect everything.”

As the demographic dividend of China's mobile internet gradually faded, Tencent made a rare major organizational restructuring in 2018. ToB became the key word of this transformation, striving to “take root in the consumer Internet and embrace the industrial Internet”, and the “Cloud and Smart Industry Business Group” (CSIG) was also established.

Great expectations are placed on Tencent Cloud. Tang Daosheng once said that if in the past 20 years, the important progress of the Internet was concentrated in the ToC field; then in the next 20 years, the important development of the Internet will come from the ToB field. The integration of the Internet and industry is the general trend. Tencent is determined to gather the strength of the entire company to welcome the advent of the industrial Internet era.

Then, after several years of rapid development, in recent years, the domestic cloud service market stock peaked, cloud service vendors are fiercely competitive, and the growth rate of Tencent Cloud has also slowed down, but it still remains in the first tier in the country.

According to IDC data, the overall market size of China's big data platforms reached 17.93 billion yuan in 2023, an increase of 24.6% over 2022. With a market share of 24.7%, Huawei took first place overall; Alibaba took second place overall with a 19.5% market share; and Tencent ranked third.

As an important strategic business for Tencent, Tencent Cloud must find a brighter future. How to find new room for growth while striving to achieve break-even has been an important task for Tencent Cloud in recent years.

After a period of exploration over the past period, Tencent Cloud has now clearly proposed three main channels of growth, namely AI, overseas travel, and integrated innovation.

The huge market space brought about by the big AI model is obvious to all, and all walks of life have participated in this wave. In Ma Hua Tengkou, the big AI model is an opportunity not seen in hundreds of years, similar to the industrial revolution that invented electricity.

In September of last year, Tencent also launched its own mixed-element model. In a context where the underlying technology of the AI model is still being iterated and the path of C-side commercialization is still unclear, Tencent chose to be the “AI closest to the industry,” first serving Tencent's own business, and then opening up big model capabilities to the industry through Tencent Cloud.

According to reports, at present, the mixed-yuan model has been implemented in more than 700 business scenarios for Tencent, while efforts are being made to take root in thousands of industries.

In this AI boom, revenue related to Tencent Cloud has increased, but Tang Daosheng claims that specific data is still difficult to quantify. However, it is clear that customer demand for computing power is very significant.

Going overseas is now as popular as AI, and it has become the consensus of most Chinese enterprises. While enterprises are going overseas to find new market growth points, they are also increasing demand for cloud services.

According to reports, Tencent Cloud can provide overseas companies with technical product capabilities including audio and video, edge acceleration, cloud-based products, big data and databases, security and compliance, and AI. At present, Tencent Cloud has successfully served more than 10,000 overseas customers.

In recent years, China has been vigorously promoting integrated innovation and development, and the central government and state-owned enterprises are increasingly demanding localization and autonomy. This has also brought new opportunities to cloud vendors.

Tang Daosheng revealed that Tencent Cloud has created full-stack self-innovating domestic enterprise-level software, and its supply capacity is at the forefront of integrated innovation vendors.

Although he proposed three important tracks for future development, Tang Daosheng once again emphasized that he didn't care about market rankings. “From a management perspective, I'm asking the team more about how to be number one on the track. Because the caliber of data provided by each manufacturer is different, we are competing on important product tracks, which may be more accurate and meaningful.”

According to Tang Daosheng, Tencent Cloud has “best products” at every level, such as high-performance computing and star networks at the IaaS layer; database, audio and video, security products at the PaaS layer; and connectivity software such as Tencent Conferencing at the SaaS layer. These are all advantages of Tencent Cloud.

Under the new market opportunities, all cloud service providers are eyeing it. In the face of opportunities and challenges, Tencent Cloud must come up with more competitive products and ecological strategies in order to move forward, become Tencent Group's second growth curve, and even achieve its ambition of “connecting everything.”

This time, Tencent Cloud must do its best.