Tencent plans to enter Japan’s cloud market

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Chinese internet firm Tencent is planning its entry into Japan’s cloud market to challenge global vendors like Amazon and Microsoft which have a head start in the country, Nikkei Asian Review reported.

Why it matters: Tencent is shifting its focus to the high-growth cloud computing sector amid tightened regulations and a slowing economy that has significantly impacted some of its main businesses, including games.

  • Tencent’s cloud arm is the second-largest public cloud provider, with 11% market share in China. Alibaba holds a dominant share, estimated around 43% in 2018 according to research firm IDC. Overseas operations are thus an important initiative for Tencent.
  • The company will face fierce competition from Amazon and Microsoft in Japan, but it has an edge. It is one of the largest game companies in the region and top video-sharing companies in China already use its cloud services.

Details: The company has is aiming for a client roster of 100 companies within a year. Providing its services to games, video-sharing, and social media companies will be its main focus in Japan, Tencent’s cloud arm said.

  • Tencent aims to expand its partnership with popular social media app Line into cloud services. Line partnered with Tencent last year to provide mobile payment services to retail locations in Japan.

Context: Tencent doubled revenue from its cloud business, making up around 3% or RMB 9.1 billion (around $1.32 billion) of its total revenue last year. It helped offset a tumultuous period in the game industry due to increased regulatory oversight.

In May, Da Zhiqian, vice president of Tencent Cloud, said the cloud business aims to increase overseas revenue by four- to five-fold this year.

  • Japan is one of the most mature markets for cloud services, yet it is still growing. According to IDC, the country’s public cloud market is projected to grow nearly 22.9% annually from 2017 to 2022. The market is forecasted to reach approximately $12.5 billion in 2022.
  • Tencent first launched an overseas cloud business in 2016. The company has said it has the fourth-largest share of the Asia-Pacific market and the sixth-largest share globally.
  • Tencent is not the only Chinese tech giant that made an entry into Japan’s cloud market. Alibaba Cloud opened its second data center in the country in January, driven by the demand for big data and machine learning capabilities. The e-commerce firm said at the time its cloud unit would be offering cloud solutions to a wide range of sectors including e-commerce, games, media, manufacturing, and the internet of things (IoT).