On November 13, 2019, Tencent (00700) presented an official questionnaire for the first year of the transformation of the industrial Internet.
According to the financial report for the third quarter of 2019 announced on the same day, Tencent Cloud's service revenue for Q3 2019 was 4.7 billion yuan (equivalent units below), an increase of 80% over the previous year, exceeding 50% of the total revenue of 2018 (9.1 billion yuan).
According to this figure, Tencent Cloud has become the fastest growing cloud service provider among leading cloud computing companies, and is closing the gap with its competitors. According to the 2019 Q3 financial reports disclosed by various companies, Alibaba Cloud, Microsoft Azure, and Amazon AWS grew 80%, 59%, and 35% respectively in the cloud business growth rate in the third quarter of 2019.
Currently, Tencent Cloud's revenue for the first half of the year is unknown. It is only known that the revenue growth rate for the second quarter was 88% — this growth rate is also far ahead of its peers. Using 2019 Q2 and Q3 data, adding up the growth rate of Tencent Cloud over the past three years, the Zhitong Finance app predicts that Tencent Cloud's growth rate for the full year of 2019 may be between 80-100%, with total annual revenue of 163.8-18.2 billion yuan.
According to the data, the growth rate of the global cloud computing market in 2016-2018 was 15%, 18.5%, and 21%, respectively. Gartner, a global information technology research and consulting firm, predicts that the size of the global public cloud services market in 2019 is expected to grow 17.5% from US$182.4 billion in 2018 to US$214.3 billion.
However, the growth rate of Tencent Cloud far exceeds the market level. Tencent Cloud, a latecomer to the market, based on gaming cloud, video cloud, financial cloud, etc., has maintained rapid growth since 2016 — which was also the first year of implementation of its overseas strategy — Tencent Cloud's revenue grew 200% in 2016, doubled in 2017, and grew by another 104% in 2018 — surpassing Google in the Asia-Pacific market. In particular, according to 2018 data, its growth rate is the fastest among the top 10 manufacturers.
In 2017, Deutsche Bank expects Tencent Cloud's revenue to reach 29 billion yuan in 2020. However, with the rocket development over the past two years and major adjustments to Tencent's management framework in 2018 930, Tencent Cloud has become an important cornerstone of Penguin's transformation to the Internet in the next 20 years, and will be supported by the largest amount of resources within the company.
So, who knows if Tencent Cloud's revenue in 2020 will exceed 29 billion dollars?
Closing the gap with Ali
In the cloud computing market, Tencent Cloud is still a small player.
If we calculate overall revenue, Amazon's AWS cloud computing revenue reached 25.4 billion US dollars in 2018, reaching the top of the world championship; Microsoft Azure followed, with this figure of 13.5 billion US dollars, Google Cloud ranked third with a revenue of 6.8 billion US dollars, and Alibaba Cloud ranked fourth with a revenue scale of 3.1 billion US dollars. As a comparison, Tencent, which is in the top 6 global camp, has cloud revenue of 9.1 billion yuan, which is a big gap from the previous top three and even Ali.
However, growth of more than three digits over the past three years, combined with rapid growth in Q2 and Q3 in 2019, made Tencent more like the Chinese economy after the 1992 Southern Tour. In addition to Q3, research firm Canalys said that Tencent Cloud's Q2 growth rate reached 88%, which is 58% higher than the growth rate of China's cloud computing market.
As a result, the second-largest cloud service provider in China is narrowing the gap with Alibaba Cloud, the largest domestic service provider, and the gap in revenue scale between the two sides has been reduced to less than 2 times. According to Alibaba's financial report released on November 1, Alibaba Cloud's 2019 Q3 revenue was 9.291 billion yuan, 1.98 times Tencent Cloud's revenue for a single quarter.
The year before, Tencent's 2018 Q3 earnings report first announced that cloud business revenue was “over 6 billion yuan in the first three quarters”. Alibaba Cloud's revenue for the same period was 14.75 billion yuan, 2.46 times that of Tencent Cloud; for the whole of 2018, Alibaba Cloud's revenue was 2.35 times that of Tencent Cloud.
In just one year, the growth rate of Alibaba Cloud has continuously caught up with Alibaba Cloud. What kind of secrets does Tencent Cloud contain?
Gaming is its most important cloud service business. Currently, more than half of domestic game manufacturers choose Tencent Cloud services. However, whether overseas games such as “PlayerUnknown's Battlegrounds” enter China, or domestic games such as “King's Glory” go overseas, Tencent Cloud has become the first choice for domestic and foreign manufacturers to go to the cloud.
The 2019Q3 financial report revealed more performance details other than games: Tencent Cloud obtained an operating contract for the smart education cloud platform in Luohu District of Shenzhen, which is the largest software-only project in the vertical field of education in China; Tencent Cloud's smart industry solutions are also growing rapidly, especially smart retail projects. Tencent released the “Thousand Sails Plan” for the SaaS ecosystem. By integrating Tencent's internal resources such as cloud services and enterprise WeChat, Tencent collaborated with external SaaS companies to cultivate SaaS solutions in more vertical fields.
What is particularly emphasized is that the reason why Tencent Cloud has been able to grow rapidly is inseparable from its efforts in the two major fields of municipal projects and financial projects.
In early June of this year, Tencent Cloud participated in the consortium's bid for the “Smart Greenway” project in Chengdu. The price of the order reached 870 million yuan. At the beginning of July, Tencent Cloud won the bid for the Changsha City Super Brain Project. According to information published by the Changsha Government Procurement Network, the winning bid price was as high as 520 million yuan.
In the financial industry, Tencent has also obtained key contracts with insurance companies, banks, and securities companies, including China People's Insurance Group, China Construction Bank, Bank of Communications, and Haitong Securities. According to information from the Zhitong Finance app, Tencent Cloud currently has over 6,000 financial customers and more than 150 bank customers. According to public information, 3 of the top four state-owned banks have cooperated with Tencent Cloud. ”
“C2B is an important gripper for the industrial Internet, and it is also Tencent's unique advantage.” On October 29, at the Tencent Global Digital Ecology Conference · Chengdu Summit, Tang Daosheng, senior executive vice president of Tencent and president of the Cloud and Smart Industry Group, said. Over the past year, Tencent strengthened Tencent Cloud's platform capabilities, concentrated the company's technical capabilities in the fields of security, AI, LBS, blockchain, etc., integrated medical, travel, education and other industrial platforms to help public service agencies and traditional enterprises achieve transformation and upgrading. At the same time, Tencent also leverages To-C's capabilities and experience to help B-side partners better serve users through connectors such as public accounts, mini-programs, payments, and corporate WeChat. Tencent hopes to make good use of Tencent's C2B capabilities and become a good “digital assistant.” Facing the industrial Internet, this is also an important “road map” for Tencent.
Over the past year, Tencent has been deeply involved in vertical industries and sorted out standardized solutions in the fields of smart cities, smart retail, healthcare, education, and travel.
According to the latest “China Public Cloud Service Market (First Half of 2019) Tracking” report released by IDC, the overall market size of China's public cloud services (IaaS/PaaS/SaaS) reached US$5.42 billion in the first half of 2019. Looking at the IaaS market, Ali, Tencent, China Telecom, AWS, and Huawei rank in the top five, accounting for 75.3% of the overall market share.
Leung Heung-yee, head of Hong Kong Telecom and Internet research at Lyons Securities, believes that in the future, the market share gap between the two companies will be further reduced, and Tencent Cloud can become Alibaba's market competitor.
The journey of globalization
In Silicon Valley, where Google is headquartered, Tencent has also begun to launch its overseas data centers serving the US.
Following the launch of the first data center in Silicon Valley in 2017, Tencent Cloud added two more data centers in Silicon Valley and Virginia in March 2018, forming a three-center layout on the east and west coasts of the United States. Coupled with Tencent Cloud, which is headquartered in Shenzhen, the “Silicon Valley of China,” the two well-known global innovation centers at both ends of the Pacific Ocean completed a handshake. Currently, Tencent Cloud has more than 200 IaaS, PaaS, and SaaS products, and more than 90 industry solutions.
As of April 2019, Tencent Cloud's infrastructure covered 25 regions on five continents, operated 53 availability zones, reached the EB level of data storage, and deployed more than 1,300+ acceleration nodes around the world. In May 2019, the number of servers deployed by Tencent around the world exceeded 1 million, and the peak bandwidth reached 100T.
In addition to being one step ahead in technology, what is most surprising about Tencent is its speed of growth and experience in rapidly and successfully replicating domestic experience internationally. On July 26, Tencent Cloud announced its entry into the Japanese market and reached cooperation agreements with Japanese game company Pitaya and Japanese IT company e-Business. Behind this, Japan is the third largest game market in the world after China and the US.
Da Zhiqian, vice president of Tencent Cloud, said that Tencent Cloud's goal is to increase overseas revenue by 4-5 times over the same period last year in 2019.
At the Tencent Global Digital Ecology Conference held in Kunming at the end of May, Tencent announced for the first time 6 core competencies and global solutions for 12 major industries to help domestic enterprises go overseas.
Overseas markets are the world of AWS and Microsoft Cloud, and Tencent Cloud's market share is only relatively small. In terms of overseas business choices, Tencent Cloud will give priority to industries where Tencent Cloud “has a moat” to break the situation, including fields such as games, short videos, education, and e-commerce. This is a priority circuit for Tencent to go overseas.
Gaming is still the first choice, and cloud gaming has become the newest driving force. Google, Microsoft, Apple, and Amazon are all trying to develop “Netflix” in the game field and compete for the game's streaming subscription business. From CMATRIS, to Tencent Instant Play, to START, Tencent Cloud is redefining cloud gaming and getting more revenue returns in the cloud gaming sector.
Gartner predicts that the global public cloud services market in 2019 will grow 17.3% from US$175.8 billion in 2018 to reach US$206.2 billion. By comparison, the market growth rate in 2018 was 21%, and in 2017 it was $145.3 billion.
In 2019, the market penetration rate of cloud computing will exceed 10% for the first time, reaching 11.3%. Research shows that once the penetration rate of a technology exceeds 10%, it will enter a stage of accelerated growth, and the market will also usher in more variables.
Goldman Sachs expects that IBM will most likely disappear from the top 5 cloud service providers in 2019, and that it will probably be replaced by another cloud service provider from China, Tencent Cloud.