BEIJING, May 17 (TMTPost) – Tencent Cloud announced on Tuesday that it would cut prices for multiple core cloud products, with up to 40% off for some product lines, starting from June 1.

“We are constantly enhancing the price-to-performance ratio of our core products through technological innovation and supply chain integration. We will be passing on the benefits of our technical advancements to our users through price adjustments,” stated Qiu Yuepeng, President of Tencent Cloud.

Alibaba Cloud started the price competition in the domestic cloud service market by unveiling significant price reductions of 15% to 50% across their core products on April 26. As an added incentive, they also introduced a three-month free trial for developers, granting them access to a diverse range of 50 cloud products.

According to a report from market research agency IDC, Alibaba Cloud secured the leading position in the domestic public cloud market (infrastructure tier and platform tier) during the second half of 2022, commanding a substantial market share of 31.9%. In contrast, Tencent Cloud occupied the fourth position with a market share of 9.9%, trailing behind Huawei Cloud and Tianyi Cloud. The report also highlighted the detrimental impact of the pandemic on enterprise users’ investments in the public cloud. Businesses have been prolonging their decision-making and construction cycles for new requirements, which has to some extent hindered the growth of the domestic public cloud market.

A price war between two of the four leading cloud providers has emerged, compelling other players in the cloud market to devise countermeasures. Dai Kun, Vice President of the market research agency Forrester, believes that other providers will likely follow suit, albeit with variations in the timing and extent of their price reductions.

According to Dai, China’s economy is currently on a recovery trajectory, with limited endogenous momentum and insufficient demand. Internet cloud service providers are encountering market dynamics influenced by generative AI and carrier clouds. In this context, implementing price adjustments for core products may prove beneficial for enterprises by expediting the digital innovation process.

In the fourth quarter of 2020, Alibaba Cloud had positive Adjusted EBITA (earnings before taxes, interest, depreciation, and amortization) of 24 million yuan, which was the first time to be profitable since its inception in 2009. Up to now, it has continued the profitable trajectory for two consecutive years. However, the revenue growth slowed to a record low of 3%.

Tencent has not disclosed the profitability of Tencent Cloud in its earnings report. However, in 2022, Tencent Cloud strategically shifted its business focus from a revenue-driven approach to a profit-oriented strategy. This shift involved cost reduction measures and streamlining integration efforts to enhance margins.

Dai acknowledges that a price war in the cloud computing market may raise concerns about the potential impact on the providers’ profitability. However, he emphasizes that pricing strategies often follow a cyclical pattern, and customers’ long-term requirements, particularly in the current macroeconomic environment, prioritize price-to-performance considerations. According to him, cloud providers must continuously enhance their adaptability to seize new market opportunities and meet challenges. “Embracing change proactively is crucial for turning losses into profits and sustained growth in the industry,” he said.