Chinas cloud infrastructure services market grows 67% in Q1, despite COVID-19 disruption

Despite the disruption caused by COVID-19, spending on cloud infrastructure services reached US$3.9 billion in the first quarter of 2020, according to Canalys.

The analyst firm's latest estimates show that China's cloud infrastructure services market grew by 67% year on year in Q1 2020. China remained the world's second-largest market, accounting for 12.5% of global spending.

This compares with 10.0% in Q1 2019, highlighting the accelerating adoption of cloud services in China as part of its digital transformation initiatives.

The top four cloud service providers collectively accounted for 81.0% of total spending in Q1 2020. Alibaba Cloud continued to dominate the market with a 44.5% share. Huawei Cloud and Tencent Cloud were the leading challengers, with market shares of 14.1% and 13.9%, respectively. Baidu AI Cloud ranked fourth, increasing its share to 8.6% after another strong quarter.

Canalys expects the ongoing shift to cloud services to accelerate as the economy regains momentum following the COVID-19 shutdowns. New digital transformation opportunities are emerging, supported by Chinese government economic stimulus measures.

"Access to on-demand compute resources proved to be vital during the quarter as the coronavirus crisis escalated," says Matthew Ball, chief analyst at Canalys.

"Many businesses were able to maintain operations through remote working and access to data and applications, while students continued to learn via collaboration platforms," he adds.

"This demonstrated the growing importance of cloud services and the central role they have played in enabling digital transformation. However, some large, complex projects requiring extensive consultation were disrupted by workplace shutdowns, which also affected negotiations and tendering processes.

"New opportunities in cloud migration and cloud-native services are emerging as organisations assess their responses to the crisis, optimise their business continuity plans for future emergencies, and develop new processes and services. Additional funding through government-led 'new infrastructure' stimulus measures in areas such as connectivity, healthcare, education, transport and urban development will also drive cloud adoption over the next 12 months."

China's stimulus measures differ from those in the rest of the world by focusing investment on 5G, AI, cloud computing, electric vehicles, IoT and robotics to restructure the economy and drive innovation-led growth. These opportunities will further intensify competition among leading cloud service providers, prompting them to announce major investment plans and technological advancements to strengthen their capabilities in these areas, Ball says.

Alibaba Cloud announced plans to invest CNY 200 billion (US$28 billion) over the next three years to enhance its cloud software and hardware capabilities. It benefited from a surge in users collaborating on its DingTalk platform during lockdown, which peaked at an average of 155 million daily users. Following the reopening of offices and schools, the platform continued to have more than 100 million users.

Huawei Cloud has strengthened its position by establishing DevOps and industry-focused platforms and securing major government contracts. It reported increased adoption among internet and video content providers, as well as rapid growth in its Cloud Phone and ModelArts solutions.

Tencent Cloud unveiled plans to invest CNY 500 billion (US$70 billion) over the next five years to expand its capabilities in AI, blockchain, cloud computing and cyber security. Usage of Tencent Meeting also surged during lockdown.

Baidu AI Cloud is expected to benefit from the economic stimulus measures. It has emerged as a key cloud service provider in China, focusing on enabling digital transformation through AI. It maintained its momentum in Q1 2020 and continued to outpace the market, securing projects involving facial recognition and its recently launched AI PaaS.

Source: China's cloud infrastructure services market grows 67% in Q1 despite COVID-19 disruption

By Shannon Williams