AI and Cloud Integration Boosts Market Recovery by Giants
Benefiting from the digital demands brought by AI, recent data released by market research firm Canalys shows that in the second quarter of 2024, global spending on cloud infrastructure services grew by 19% year-on-year, reaching $78.2 billion. Among them, cloud infrastructure service spending in Mainland China reached $9.4 billion (approximately 66.073 billion yuan), a year-on-year increase of 8%.
Alibaba Cloud, Huawei Cloud, and Tencent Cloud continue to dominate the market, with Alibaba Cloud holding a 36% market share. Huawei Cloud has consolidated its position as the second-largest cloud vendor, with a market share of 19% and a stable growth of 13%. Tencent Cloud ranks third with a market share of 16%. Together, the three account for 71% of the market share.
Regarding the reasons for growth, the report analyzes that the current leading cloud vendors are focusing on deeply integrating AI with cloud computing to explore new growth points. The impact of AI on cloud consumption is becoming increasingly significant, gradually becoming a key driver for business expansion. The customer base of AI platforms provided by top cloud vendors is continuously expanding, and it is expected to continue to drive the growth of cloud consumption in the second half of 2024.
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Canalys analyst Zhang Yi said that cloud vendors are currently actively cooperating with channel partners to develop customized AI solutions for specific industry needs. In the second quarter of 2024, revenue generated through channel partners accounted for 26% of China's total cloud computing revenue, and this proportion is expected to further increase. Cooperating with professional partners helps cloud vendors enhance the value of their AI large models while addressing customer concerns about the complexity of AI deployment.
AI has become the biggest driving force. Since the wave of large models started in 2023, cloud vendors have ushered in a continuous growth cycle that has lasted to this day. "Due to the large amount of computing power required for large model deployment, and AI can also drive the optimization of cloud vendors' services, therefore, both cloud vendors and enterprises have ample motivation to invest," Omida's Senior Chief Analyst of Telecommunications Strategy, Yang Guang, told reporters.
Ke Ruiwen, Chairman of China Telecom, also pointed out earlier that from domestic and international practices, AI large models are all generated and innovatively developed based on cloud services, and large models also drive the intelligent upgrade of cloud services themselves. Therefore, the future cloud is a cloud that provides intelligent computing power and AI services. Without AI, there is no future for the cloud.
"Large models have driven the exploration and innovation of generative AI applications on the one hand, and on the other hand, they have also driven the implementation of traditional AI applications - challenges that large models cannot solve well, users usually first deploy traditional AI to deal with," IDC said in its latest research report. According to the agency's estimates, the scale of China's AI public cloud service market in 2023 reached 12.61 billion yuan, a 58.2% increase compared to 2022.
This growth is also corroborated by the latest performance of cloud giants. In the second quarter of 2024, Alibaba Cloud (only considering external revenue), Tencent Cloud, and Baidu Intelligent Cloud's combined revenue was 32.5 billion yuan, a year-on-year increase of 7.5%, which has improved compared to the previous quarter.
CICC's research report believes that in recent quarters, Alibaba Cloud and Tencent Cloud's investment in capital expenditure has continued to accelerate, but they have unanimously downplayed the pursuit of model parameter scale, instead emphasizing the collaborative development of large models and surrounding ecosystems, in order to promote the faster implementation of large models in application scenarios, which has allowed AI's contribution to the revenue of cloud giants to continue to be reflected.Big data business analyst Wang Peng believes that in the era of large models, cloud service providers must possess strong AI technology capabilities to stand out in the fiercely competitive market. This includes not only advanced algorithms and models but also the ability to process and analyze large-scale data. Such technological strength is the foundation for providing efficient and stable AI computing power.
Huaxi Securities analyst Liu Zejing believes that in the future, as AI large models are fully implemented and cloud computing commercialization develops comprehensively, the market size is expected to expand further. Combining artificial intelligence with cloud computing SaaS services to form AI SaaS will further empower cloud computing SaaS with AI capabilities.
Head Concentration Effect
As the market size expands, the head concentration effect in the cloud service market is also strengthening, and this is not only the case in the Chinese market. According to data released by Canalys, in the second quarter of 2024, the top three vendors—Amazon Web Services (AWS), Microsoft Azure, and Google Cloud—grew by 24%, accounting for 63% of total expenditure. Among them, AWS saw a significant acceleration in growth compared to the previous quarter, with a 19% increase in sales in the second quarter. At the same time, Microsoft and Google Cloud continue to maintain strong double-digit growth, increasing by 29% and 30%, respectively.
Canalys points out that although more than one-third of the global cloud market share is still held by other cloud manufacturers, the market is gradually shifting towards the top cloud manufacturers, who are occupying an increasing share of the market.
One of the reasons is closely related to the rapid development of AI. Canalys analysis points out that the three top cloud manufacturers increased their capital expenditure on data centers by tens of billions of dollars in the second quarter of this year. They realize that in the AI competition, the risk of falling behind the market due to reduced investment is greater than the risk brought by over-investment. For this reason, top cloud manufacturers are also increasing their efforts to strengthen their AI partner ecosystem and support AI startups.
Zhang Yi points out that by supporting startups, top cloud manufacturers ensure that even smaller companies can contribute to and benefit from the rapid progress of AI technology, ultimately promoting growth, strengthening their ecosystems, and maintaining a competitive advantage in the industry.
This trend has also made it difficult for independent third-party cloud service providers to survive, especially in the Chinese market. Wang Peng said that due to fierce market competition, high input costs, difficulty in customer acquisition, and unclear profit models, independent third-party cloud service providers are generally facing the dilemma of losses. To break through this dilemma, independent third-party cloud service providers need to find effective profit paths and new growth points in the fierce price war.
Faced with this fierce competitive situation, Wang Qinglin, the manager of Ruida Heng Research Institute, previously told reporters that one of the most obvious and short-term effective ways for cloud manufacturers to respond is definitely the "cost-performance ratio" strategy, which will allow most downstream companies to reduce cost expenditures and help obtain higher profit margins. Against this backdrop, she expects that cloud manufacturers with technical advantages, such as Alibaba Cloud, Huawei Cloud, and Tencent Cloud, will continue to expand their advantages, improve their "strengths," provide higher added value for related markets, and gain advantages in overseas market competition.The market landscape is stable with changes
The further concentration of the leading camp, although intensifying the risk of monopoly, brings more vitality to the cloud industry with internal competition among giants and external innovation of AI.
The rise of operator clouds has become an irresistible force in recent years, becoming a new cloud force following the first camp. The mid-term financial report for 2024 shows that Tianyi Cloud's revenue is 55.2 billion yuan, Mobile Cloud's revenue is 50.4 billion yuan, and Unicom Cloud's revenue is 31.7 billion yuan, with a total of 137.3 billion yuan.
IDC China Assistant Research Director Liu Lihui believes that the four major factors of government and enterprise cloud, strategic investment, strengthening self-research, and industry expansion have created the strong momentum of operator clouds. In the past two years, against the background of the continuous strengthening of profit assessment and active contraction by the leading cloud service providers with an Internet background, operator clouds have continuously built and expanded cloud resource pools with strong business foundations and financial strength, accelerating the occupation of territory.
However, with the increasingly fierce competition among cloud suppliers, Wang Qinglin believes that the homogenization competition among operator clouds is also intensifying, and Alibaba Cloud has already occupied the cost-effective market through price adjustments. Various factors have made the advantages of operator clouds no longer obvious.
Zhang Yi said that after a period of fierce competition, the leading cloud manufacturers have realized that they cannot continue to promote the growth of customer spending by simply reducing prices, and they also need to improve the competitiveness of their services. They are now focusing on innovation and cooperation within the partner ecosystem as a differentiated strategy to attract and retain customers.
Faced with long-term trends, the China International Capital Research Report predicts that the opportunities of generative AI will be beneficial to widen the gap between Internet cloud manufacturers and other cloud manufacturers. Internet cloud manufacturers have competitive advantages in high-end computing chip layout, software technology capabilities, and algorithm applications; and the forward-looking large model technology research and development, traffic, and ecological advantages of Internet manufacturers are more likely to catalyze the production of consumer-level benchmark applications, which is beneficial to the leading effect of Internet clouds in industry transformation. While driving enterprises to embrace AI, it also contributes an important engine to the recovery of cloud business growth.
"As the last round of business adjustments on the Internet cloud is basically coming to an end, and the faster penetration of cloud brought by AI-related applications, the leading Internet cloud business is expected to regain growth," China International Capital predicts.