Tencent Cloud's pivot reflects a broader industry shift.

On April 9, Tencent Cloud's official website released a price adjustment announcement, provisionally concluding China's decade-long cloud computing price war.

The announcement stated that starting May 9, Tencent Cloud would uniformly raise the list prices of three product categories by 5%: AI computing power-related products, Container Service TKE-Native Nodes, and Elastic MapReduce (EMR).

This marks the second product price adjustment by Tencent Cloud in less than a month. On March 11, Tencent Cloud had already revised the billing rules for its Hunyuan large model series, increasing the input price of the TencentHY2.0Instruct model from 0.0008 yuan/1,000 tokens to 0.004505 yuan/1,000 tokens—a surge of over 460%.

The back-to-back price hikes, particularly the sharp increase in large model services, have sparked industry discussions that extend far beyond the adjustments themselves. Since the inception of China's cloud computing market, price reductions have been the industry's defining theme, with countless price wars shaping the domestic cloud market's development over the past decade.

This time, Tencent Cloud is leading the charge to break this decade-old industry norm.

The decision was made by Tang Daosheng and the Cloud and Smart Industries Group (CSIG), which he has led for over seven years. This choice comes after Tencent Cloud achieved full-year scaled profitability in its first complete fiscal year and is poised to become a pivotal turning point for its future development.

01

Seven Years of Frantic Growth: The Dilemma of Scale and Losses in the Price War

On September 30, 2018, Tencent launched its third major organizational restructuring, establishing the Cloud and Smart Industries Group (CSIG) with Tang Daosheng as CEO. This move was widely interpreted as Tencent's full commitment to ToB business—a departure from its traditional ToC focus on social and entertainment, which had never been elevated to core strategic height at the group level.

From its inception, CSIG carried the dual expectations of the group.

On one hand, signs of diminishing returns in mobile internet traffic were evident, and Tencent needed to find a second growth engine in industrial internet beyond consumer internet. On the other hand, facing Alibaba Cloud, which had dominated the market for nine years and held the largest share, Tencent Cloud needed to rapidly catch up and establish its voice in the cloud computing market.

At the time, China's cloud computing market was still in a critical phase of user education. Most traditional enterprises remained skeptical about "moving servers to the cloud." The earliest adopters were internet entrepreneurs, who were highly cost-sensitive and had strong demand for elastic scaling.

This directly determined that pricing became the most direct and effective weapon for all cloud providers to capture market share from the outset.

The domestic cloud price war began in 2014 and has continued with little interruption over the past decade. Alibaba Cloud initiated several large-scale price reductions annually, with single reductions exceeding 50% at their peak. Tencent Cloud consistently followed suit, even offering lower prices to compete aggressively.

In 2015, Tencent Cloud introduced a new customer package offering a "1-core, 1GB cloud server for 99 yuan/year," driving cloud server prices below 100 yuan and triggering industry-wide price cuts. Even in April 2025, when Alibaba Cloud reignited a new round of price wars with slogans like "up to 60% reduction," Tencent Cloud, Huawei Cloud, JD Cloud, and others swiftly followed, plunging the industry into another price frenzy.

Over a decade of price wars has driven China's cloud computing prices to the lowest globally. Industry statistics show that from 2014 to 2024, the unit computing power price of domestic general-purpose cloud servers dropped by over 90%, while storage service prices fell by over 80%.

While sustained price reductions rapidly completed market education—raising China's cloud adoption rate from below 5% to over 40%—they also trapped the industry in a cycle of "scale without profitability": market size expanded, but most cloud providers remained unprofitable year after year.

Tencent Cloud was no exception.

Leveraging Tencent's natural advantages in gaming, audio-video, and social, Tencent Cloud quickly secured most domestic gaming and video platform clients, briefly securing its position as the second-largest domestic cloud provider. However, this market share growth was largely driven by low pricing:

To win major clients, Tencent Cloud often offered bids far below cost and even committed to long-term price freezes. This strategy rapidly scaled Tencent Cloud but also made it a persistent "cost center" for Tencent Group.

In CSIG's early years under Tang Daosheng, balancing scale and cost control remained a constant challenge. Tencent's business evaluations focused not just on scale but also on "sustainable, healthy growth" and "building muscle while reducing fat." During the cloud business's investment phase, the group provided CSIG with sufficient resources and time, tolerating temporary losses—but never indefinitely.

In his 2023 year-end internal speech, Pony Ma explicitly called for scaling back non-core businesses, avoiding blind expansion, and focusing on businesses that create real value. This set the stage for CSIG's strategic pivot.

The turning point came in 2025. Tencent's 2025 annual financial report revealed a transformative shift in CSIG: financial technology and enterprise services generated 229.435 billion yuan in revenue, up 8% year-on-year, with gross margin improving from 47% in 2024 to 51%. Enterprise services revenue grew nearly 20% year-on-year, and Tencent Cloud achieved full-year scaled profitability.

This marked a milestone in Tencent Cloud's history. From CSIG's establishment in 2018 to its scaled profitability in 2025, Tang Daosheng took seven years. This milestone directly triggered a reversal in Tencent Cloud's pricing strategy—shifting from "volume at any cost" to "quality for value" and prioritizing profitability.

Pony Ma's statement during the 2025 earnings call was clear: Tencent's ToB business must "pursue high-quality growth, improve profitability, and create long-term value for shareholders."

02

Behind the Price Hikes: A Reconstructed Industry Logic

Many attribute Tencent Cloud's consecutive price increases to rising upstream hardware costs. Objectively, cost pressures from AI computing are real.

Traditional general-purpose computing relies on x86 servers, where mature supply chains and economies of scale drive down procurement costs as volumes grow. However, AI computing centers on GPUs, high-bandwidth memory, and high-speed storage—hardware with highly concentrated supply chains and global shortages, leading to sustained price increases.

TrendForce's quarterly DRAM market report showed that as of March 2026, spot prices for DDR5 series memory had surged by 200%–250% year-on-year. These upstream cost increases inevitably flow down to cloud service pricing.

But cost is not the core driver of this pricing shift. The fundamental change lies in the cloud computing market's reconstructed underlying logic.

First, the competitive landscape has been Thoroughly Refactoring (completely reshaped). IDC's "China Public Cloud Service Market Tracker, H1 2025" revealed that China's public cloud IaaS market reached 120.669 billion yuan in H1 2025, up nearly 20% year-on-year—a post-pandemic high.

In terms of market share, Alibaba Cloud led at 26.8%, followed by Huawei Cloud (12.9%), China Telecom Cloud (12.3%), China Mobile Cloud (9.4%), and Tencent Cloud (7.9%). The combined share of the three major operator clouds (34.6%) surpassed Alibaba Cloud, forming a new market force.

The rise of operator clouds has disrupted the price war equilibrium among internet cloud providers. With nationwide bandwidth and data center resources, deep government and enterprise client relationships, and extremely low financing costs, operator clouds can undercut internet cloud providers while remaining profitable.

For Tencent Cloud, competing on price against operator clouds is no longer viable. Rather than doubling down on a losing battle, it must pivot to higher-value, differentiated offerings.

A more critical shift stems from AI's disruption of traditional pricing logic. Cloud services were previously priced based on CPU, memory, and storage usage—selling standardized infrastructure resources where price became the key competitive factor.

Now, the core pricing unit has shifted to AI model tokens, selling intelligent services and the actual value delivered to clients' businesses. This change renders the old low-price resource-selling model obsolete.

Tencent Cloud's March price adjustment for its Hunyuan large models reflected this new logic: model service pricing now depends on the value delivered to clients, not underlying computing costs.

Globally, Tencent Cloud's pricing shift aligns with mature cloud markets. AWS, the global cloud pioneer, has never engaged in decade-long price wars like China's market. Since launching S3 in 2006, AWS has followed a "value-based pricing" model—offering tiered services with prices based on client needs, ensuring clients pay for value, not just resource usage.

This logic has sustained AWS's high profitability. AWS's Q4 2025 earnings showed 29.3 billion USD in revenue, up 17% year-on-year, with an operating margin of 39.4%. Microsoft's Q2 FY2026 earnings reported intelligent cloud revenue of 29.878 billion USD, up 26% year-on-year, with an operating margin of 42%. Even Google Cloud achieved a 17.8% operating margin in Q1 2025. In contrast, domestic cloud providers have long been trapped in "cost-based pricing," assuming scale would drive down costs and profitability. Instead, scale expanded while profit margins vanished due to price wars.

Tang Daosheng's choice essentially leads Tencent Cloud out of this decade-long misconception (misconception).

03

The Second Half: From Price Competition to Value Creation

This choice also brings immediate challenges.

First is the pressure to adjust client composition. For years, Tencent Cloud relied heavily on the internet sector—gaming, video, and social clients contributed over half its revenue. These clients are highly price-sensitive and have strong bargaining power, easily switching providers for lower prices.

To retain clients, cloud providers often resorted to sustained price cuts and extra concessions, locking in low gross profit margin (gross margins). After price hikes, preventing internet client attrition becomes critical.

Meanwhile, traditional sectors like government, finance, advanced manufacturing, and retail—which Tencent Cloud aims to target—are already fiercely competitive. In government and enterprise markets, Huawei Cloud and operator clouds hold strong early-mover advantages, with deep government and SOE partnerships that Tencent Cloud cannot quickly surpass.

In the general enterprise market, Alibaba Cloud has a more mature ecosystem and stronger client base. Tencent Cloud must find differentiated paths to break through, avoiding homogeneous competition.

Tang Daosheng's differentiator lies in Tencent's two-decade-plus C-end capabilities and ecosystem—a core advantage no competitor can replicate. WeChat's private domain ecosystem, Tencent's deep understanding of C-end user needs, its technical accumulate (accumulation) in audio-video, big data, and AI, along with mature payment and risk control capabilities, can be transformed into high-value solutions for traditional industries.

For example, in retail, Tencent Cloud can leverage WeChat's private domain to offer end-to-end digital solutions spanning customer acquisition, conversion, repurchase, and membership management. In finance, it can provide compliant, secure fintech solutions to banks and insurers using WeChat Pay and Tenpay's risk control expertise. In manufacturing, it can deliver full-process digital transformation services through industrial internet and AI quality inspection technologies.

Notably, Tencent Cloud's price adjustment is not an isolated event.

Last month, Alibaba Cloud announced price hikes for over 10 core products, including AI computing power and CPFS intelligent computing storage, with increases ranging from 5% to 34% for computing cards and 30% for intelligent computing storage. On the same day, Baidu Intelligent Cloud raised prices for AI computing-related products by 5%–30% and parallel file storage by 30%.

In overseas markets, AWS and Google Cloud also adjusted AI-related instance prices in Q1 2026, breaking years of unilateral price reductions.

These industry-wide price hikes formally end China's decade-long cloud computing price war. The second half of the industry will focus on "who delivers higher value," "who has healthier profits," and "who serves higher-quality clients"—not just scale or low prices.

For clients, price hikes mean short-term cost increases but long-term benefits. A healthy, reasonably profitable cloud market can provide more stable, high-quality, and valuable services. During past price wars, many cloud providers cut costs at the expense of service quality, leading to frequent outages and data losses—ultimately harming clients. Only with reasonable profit margins can cloud providers invest in R&D, service optimization, and security to deliver true long-term value.

Tang Daosheng's choice marks CSIG's most critical strategic pivot after seven years. From competing in the price war red ocean in 2018 to achieving scaled profitability in 2025 and breaking free from price war dependency in 2026, Tang Daosheng has finally steered Tencent Cloud into its second half.

It has taken more than a decade for China's cloud computing market to complete the journey that took overseas markets several decades, evolving from reckless expansion to the current state of maturity and rationality. The shift of Tencent Cloud also represents the shift of the entire industry.

This article is originally published by Xinmou.

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