SHENZHEN, China/SHANGHAI (Reuters) – Tech giant Tencent Holdings Ltd plans to leverage its strengths in video games and social media to grab market share in China’s burgeoning cloud computing sector from incumbent Alibaba, the head of its cloud unit told Reuters.
Tencent is best-known for its WeChat messaging app and a suite of popular games but is aiming to expand into business services as consumer internet growth slows and companies shift number-crunching from their own computers to the cloud.
“I think we can start from where we have advantages,” said Senior Executive Vice President Dowson Tong in his first interview with international media since he took charge of Tencent’s Cloud and Smart Industries Group.
Restructuring last year included the creation of the stand-alone unit from Tencent’s small, six-year-old cloud operation.
“Our focus will be to capitalise on the advantages that Tencent has with the global video games eco-system, and help more customers – some of whom are Chinese businesses going overseas, some of whom are local game developers in foreign markets,” Tong said at Tencent’s headquarters in the southern Chinese city of Shenzhen.
Tong listed gaming strengths such as audio and video communication as well as server management capabilities.
Giving increased focus on serving businesses – locally dubbed 2B – from its mainstay consumer-oriented, or 2C, operations could be lucrative, but the transition is often difficult to get right due to existing competition and the need to adjust to unfamiliar customer requirements, analysts said.
“This segment will drag down the margin of Tencent,” said Morningstar analyst Chelsey Tam. Still, she said, “compared to 2C, 2B has a very low penetration in China and strong growth potential.”
Tencent said it has chalked up some recent wins with contracts from the Bank of Communications Co Ltd as well as local governments.
However, Alibaba Group Holding Ltd continues to dominate with 43% of China’s cloud market, according to data from market researcher Canalys. That is more than the combined share of Tencent, Amazon.com Inc and Baidu Inc, the next three largest players.
Tong said industries Tencent is targeting include mobility, fitness and finance. He said the firm is also expanding its cloud business internationally and seeking partners in South Korea and Southeast Asia to offer cloud-based games.
Tencent has also started helping customers of Alphabet Inc’s Google Cloud, which is not available in China, with services that offer “seamless connections” between clouds, though Tong said there was no formal or exclusive arrangement.
Tong declined to comment on growth targets for his business unit, whose financial results form part of Tencent’s FinTech and Business Services category. That segment generated 22.9 billion yuan ($3.23 billion) in revenue in the second quarter of 2019, up 37% from the same period a year earlier and accounting for just over 25% of the firm’s quarterly total, showed Tencent’s latest earnings report.
Tong said mistakes would be made and patience needed as Tencent increases its attention on serving businesses, given that many of its internal procedures were designed for the consumer business. Consumer-oriented companies have traditionally struggled to compete in corporate computing.
“Many of the things we are doing will take a relatively longer time,” Tong said. “It’s not like we’re selling a small product that needs quick decisions. This business needs a longer runway.”
($1 = 7.0865 Chinese yuan renminbi)
Reporting by Pei Li in Shenzhen and Brenda Goh in Shanghai; Editing by Christopher CushingOur Standards:The Thomson Reuters Trust Principles.