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Tencent’s 0.01 yuan bid for Xiamen cloud contract raises ire

Tencent Cloud won a contract to provide cloud computing to Xiamen for 0.01 yuan, even as the city government earmarked 4.95 million yuan for the one-year contract.

PUBLISHED : Thursday, 30 March, 2017, 8:02am
UPDATED : Thursday, 30 March, 2017, 10:13am

Tencent Holdings, the operator of China’s largest online social network, is creating price distortions in the country’s market for cloud computing, with its recent nominal bid to provide the service to a Chinese city government, said a competitor.

The Shenzhen based company placed a 0.01 yuan nominal bid in a tender called by the government of Xiamen city for cloud computing services, according to tender documents. Xiamen’s government had earmarked a budget of 4.95 million yuan for the one-year contract.

Among the bids received, China Telecom offered 1.7 million yuan, while China Unicom quoted 3.1 million yuan, while a host of private technology companies and phone network operators provided bids in between.

Alibaba Cloud, which runs the cloud computing business at Alibaba Group Holdings, didn’t participate in the tender. Alibaba Group is owner of the South China Morning Post.

“As cloud computing becomes the choice of an increasing number of big companies, we should think about how to provide valuable technology and services to the customers, said Hu Xiaoming, president of Alibaba Cloud, during the company’s Computing Conference 2017 event in Shenzhen. “When everyone wants to contribute to the industry through personal success, [Tencent’s founder] Ma Huateng and his cloud team have destroyed the entire industry with the 0.01 yuan offer. It’s irresponsible to the cloud computing market.”

Hu’s comment reflects the intensifying competition among China’s largest technology companies and phone networks for business in an industry that Bain & Co. projected could reach US$20 billion by 2020, from US$1.5 billion in 2013.

Alibaba Cloud, Microsoft Corp, and Amazon Web Services (AWS) are the biggest providers of cloud computing platforms in China by virtue of their extensive portfolios of infrastructure, platform, and application development services and their strong enterprise strategies, according to Forrester Research’s November 2016 note.

Tencent is Asia’s largest company by market value, with a capitalisation of US$278 billion. It’s one of China’s largest technology companies, with a myriad of internet-related businesses ranging from smartphone games, to social media, ride-sharing and online payments. It even invests in electric vehicles, spending US$1.8 billion this week for a 5 per cent stake in Tesla Inc.

Its aggressiveness is a stark reversal of the 2013 stance expressed by founder Pony Ma, when he decried cloud computing as a form of advanced technology way before its time, which need hundreds or even thousands of years to reach acceptance like water and electricity.

“As a late player to the market, Tencent Cloud needs some model projects to gain the industry’s recognition and look for profitability later,” said Liu Liang, a Forrester analyst.

Tencent, which already runs a huge data centre through its myriad of online businesses from social networking to smartphone games, can provide storage and computing services at much lower costs than phone network operators, Liu said.

Responding to the Post’s request for comment, Tencent said the Xiamen contract was an “individual case that could not represent the overall direction of Tencent Cloud’s business,” the company said in an email, citing its founder Ma.

“As cloud computing business remains at its investment period, it’s impossible to carry out businesses completely free of charge, due to the high costs in the short term,” Tencent said, citing Ma.