Mainland China’s spending on cloud services grew by 8% in the second quarter of 2024, reaching USD9.4 billion, according to analyst company Canalys. Alibaba Cloud, Huawei Cloud and Tencent Cloud continued to dominate, collectively accounting for 71% of the market.
While broader macroeconomic conditions have led to a deceleration in certain industries, cloud services customers, especially those prioritising digitalisation, have expanded their consumption spending because of AI. Leading cloud providers are now focused on deeply integrating AI with cloud computing to tap into new growth opportunities.
Canalys defines cloud infrastructure services as services that provide infrastructure-as-a-service and platform-as-a-service, either on dedicated hosted private infrastructure or shared public infrastructure. This excludes software-as-a-service expenditure directly but includes revenue generated from the infrastructure services consumed to host and operate them.
The influence of AI on cloud consumption is becoming more pronounced, emerging as a key driver of business expansion. The customer base for AI platforms offered by the leading cloud service providers is increasing, which is expected to boost growth in the second half of the year.
China’s leading cloud vendors are ramping up their AI investments to maintain a competitive edge in innovation. They are upgrading their AI models and developing tailored solutions for specific industries. For instance, Huawei Cloud has successfully implemented its foundation model, Pangu, across 30 industries and 400 business scenarios, while Baidu AI Cloud has launched 20 new AI applications.
As their customer bases grow, these investments are yielding returns and intensifying competition. In addition to integrating AI technology, cloud vendors are forming partnerships with third-party AI model developers to expand their ecosystems. Notably, Alibaba Cloud announced its partnership with Moonshot AI, the developer of the Kimi chatbot, to help enhance the chatbot’s reading and interpretation functions.
“After a period of intense competition, the leading cloud providers have come to realise that sustaining growth in customer spending cannot be achieved solely through price reductions,” said Canalys Analyst Yi Zhang. “It also requires enhancing service competitiveness. They are now shifting their focus toward innovation and collaboration within their partner ecosystems as a strategy for differentiation, aiming to attract and retain customers.”
Cloud providers are actively engaging with channel partners to develop tailored AI solutions for specific industry needs. In the second quarter of 2024, revenue generated through indirect channels represented 26% of total Chinese cloud revenue, and this proportion is anticipated to increase further.
“Working with specialist partners helps the cloud providers to enhance the value of their foundational models while addressing customer concerns regarding the complexities of AI deployment,” said Zhang.
Alibaba Cloud maintained its lead in Mainland China, accounting for 36% of the market. Its overall growth was primarily driven by its public cloud business, which achieved double-digit growth in the second quarter of 2024.
The success of AI products has also played a significant role in Alibaba Cloud’s resurgence, and it achieved a record number of paying users, with quarterly growth of 200%, while revenue continued to expand at a triple-digit rate.
This momentum has led Alibaba Cloud to further boost its investments in AI. In July 2024, it launched the XiaoYing AI assistant, which offers a knowledge base and decision-making support, enabling the automatic learning and execution of tasks.
Huawei Cloud solidified its position as the second-largest vendor, increasing its market share to 19% and maintaining stable performance with a 13% growth rate. Huawei Cloud is steadily advancing its efforts in AI. In June 2024, it introduced Pangu 5.0, the latest version of the foundation model, offering multiple parameter configurations to meet the diverse training demands of its clients.
In terms of its partner ecosystem, Huawei Cloud announced the Partner Competency Program, in collaboration with TCL, EY and iSoftStone, aimed at improving partner capabilities in product and scenario-specific technologies. Approximately 4,500 partners have joined the program, collaborating with Huawei Cloud to develop over 500 solutions.
Tencent Cloud ranked third, securing a 16% market share. In June 2024, it introduced a plan to attract more customers to its AI foundation model by offering 100 million free tokens to new enterprise users. It launched multiple versions of its foundation AI model, Hunyuan, including Pro, Standard and Lite, along with complimentary dedicated migration tools and services tailored to meet the diverse needs of its users.
At the Tencent Global Digital Ecosystem Summit in September, it announced a 150% increase in the number of its partners with revenue above CNY1 million yuan (USD142,000). Acknowledging the significance of partner service capabilities in enhancing its channel ecosystem, Tencent Cloud introduced new incentive programs. These programs are designed to reward channel partners for developing partner-centric products and services, as well as providing certification for managed service providers.
