Author | Li Xiaodong

Many people may have noticed that the landscape of cloud computing in China has changed.

This change did not happen overnight. Compared to earlier years when cloud computing was considered exclusive to internet companies for handling massive amounts of data and traffic, vendors have continuously improved their technology stack as technology has advanced and application scenarios have broadened. From the initial IaaS to PaaS and SaaS, cloud computing has gradually penetrated various industries and begun to explore how to deepen its value proposition.

In the past two years, the overall growth rate of the domestic cloud market has slowed down, with IDC predicting a compound annual growth rate of around 20% over the next five years. A notable example is that starting in 2022, Alibaba Cloud's revenue growth rate declined to single digits, primarily due to a slowdown in cloud demand from the internet industry, especially amidst the push for cost reduction and efficiency enhancement.

Meanwhile, during this period, Tencent Cloud's market share was surpassed by Huawei Cloud and this trend has continued. Its strategic focus shifted from scale to profitability, and a government and enterprise business line was established. As the major internet companies retrenched, state-owned cloud providers represented by telecom operators emerged strongly, rapidly rising through the government affairs market.

All these signs suggest that the underlying logic of the market is shifting towards government and enterprise customers.

After all, the average order value for government projects is much higher than that of any sub-industry. More importantly, this market is continuously expanding. As early as 2018, the China Academy of Information and Communications Technology predicted that the government cloud segment alone would account for more than 40% of the overall market in the future. During special periods, the surge in demand for remote work and online services has accelerated the digital transformation of government and enterprise customers. Against the backdrop of an overall market slowdown, these customers have become the focus of attention for players in the industry.

Horizontally speaking, there are indeed some differences in the main directions of cloud computing development between China and abroad. While China's cloud computing market has expanded from large enterprises to small and medium-sized enterprises, as well as from the internet industry to traditional industries, the foreign markets are dominated by AWS, Azure, and Google Cloud, which have long held the majority of the market share. The market landscape is relatively stable, and they continue to serve large enterprise customers, who have stable business demands and strong payment capabilities.

The reality has made vendors more pragmatic. Cloud computing is no longer a game that can be scaled up solely by burning money. Even with innovative technologies and applications, they still need time to be validated by the market. Vendors have recognized that pursuing customer segments with high business values, high renewal rates, strong financial capabilities, and high repurchase intentions is their top priority at present.

Following this logic, if every industry summit last year inevitably discussed government and enterprise customers, it makes sense that this year's primary focus is on the financial industry.

According to media statistics, the financial industry has the most digital projects besides the government sector. In terms of both time and depth, the digitalization of the financial industry has consistently led the way.

However, the financial market has now become a new gold mine for cloud vendors. What are the reasons behind this?

On the surface, the industry's demand for technology is far from saturated, and the role of cloud computing in enhancing the value of the financial industry will be further amplified. As financial information technology innovation becomes a policy hotspot, cloud vendors like JD Cloud have significantly elevated the strategic position of their business units and established a dedicated information technology innovation cloud product matrix.

In fact, although the digitalization of the financial industry started early, there are many variables involved. In the early stages, financial digitalization was more focused on upgrading products and services for customers, promoting so-called "inclusive finance." For example, many commercial banks leveraged cloud computing, mobile internet, and big data to launch mobile banking, digitizing processes such as applications, approvals, and inquiries to reach a wider range of customers.

Whether it's banking, securities trading, or insurance services, they all involve massive amounts of data processing and storage. Cloud computing, through virtualization technology, enables centralized management and sharing of resources. It also has the ability to dynamically adjust resource allocation based on business needs through elastic scaling.

It's worth noting that online business operations are just the initial stage of digital transformation. The application of cloud computing in the financial industry goes beyond improving service efficiency and data management capabilities. More importantly, it leaves room for development in driving financial innovation and digital transformation, strengthening risk control, enhancing customer experience, and expanding the boundaries of financial services.

As basic operational capabilities improve, the business models and competitive landscape of the financial industry have changed, such as the rise of consumer finance companies, cross-industry integration between the financial industry and other sectors, and the comprehensive development of mainstream institutions to provide more comprehensive financial services. Leveraging advanced technologies, the industry can also more accurately analyze customer needs, predict market trends, and accordingly provide more personalized product services.

Against this backdrop, digitization is not only driving the transformation and upgrading of the financial industry but also complicating its business landscape.

From the successful bidding results of mainstream cloud vendors like Alibaba Cloud and Tencent Cloud in the past, we can roughly see that digitization is spreading from mainstream financial institutions like banks, insurance companies, and securities firms to other financial institutions like trusts, funds, consumer finance companies, and exchanges, occupying a significant volume.

Based on past experiences, due to financial institutions' heavy reliance on and investment in cloud computing solutions, while business and solution requirements vary among different institutions, they also exhibit significant commonalities. In providing efficient, stable, secure, and flexible cloud services, cloud vendors often achieve higher profitability and revenue.

Two years ago, to survive and thrive, Tencent Cloud transformed into an "integration-ready" player. When serving financial customers, it built its own databases while partnering with other companies to manage related database administrators. Today, Tencent Cloud has a significant share of financial orders, and its integration strategy has become increasingly evident. Apart from revenue growth, the partnership ecosystem has also expanded, leading to a snowball effect.

For cloud vendors, the closer they are to the application layer of specific businesses, the higher their profits tend to be. Conversely, the closer they are to the underlying infrastructure, the lower their profits. This pattern can be observed in foreign companies like AWS and Salesforce, but it does not seem to apply universally in the domestic market, where many Chinese enterprises prefer to build their IT infrastructure in-house. Even when using cloud services, these enterprises tend to build and manage various application services on top of the cloud-provided infrastructure.

However, the situation is improving in the financial industry. Compared to providing basic cloud services like virtual machines, cloud storage, databases, or low-profit projects with high technical maturity and standardization levels like network security, data centers, and operations and maintenance, financial institutions are now seeking tailored solutions for specific business needs.

For instance, in areas like risk management, credit approval, and investment analysis, cloud vendors can develop highly customized applications, often commanding premium prices. Through cloud services, financial institutions can outsource certain business processes like customer service, transaction processing, and backend operations to professional service providers. In cutting-edge fintech areas like blockchain, digital currencies, and smart contracts, cloud service providers can offer innovative solutions to financial institutions.

In simple terms, the business scenarios in the financial industry are quite complex, encompassing banks, securities, insurance, and other sectors, each with unique business processes and rules. As digitalization deepens, the focus of transformation extends beyond external services to internal business processes as well. Most institutions lack sufficient in-house digital R&D capabilities, presenting ample business opportunities for cloud vendors.

More importantly, the financial industry is not an isolated sector; it can also exert a radiating effect on other physical industries.

A typical example is JD Cloud's recent efforts in digital and intelligent supply chain management, which it believes can drive growth in the financial industry. The idea is to introduce more "life-giving water" of financial services into its industrial cloud, thereby attracting financial institutions to connect with more industries while also alleviating JD Cloud's own challenge of having a relatively small footprint in its industrial cloud.

There is also a consensus within and outside the industry that, due to the large volume of capital flows and highly sensitive data involved in the financial industry, higher standards are required for technological security and stability. Vendors that can meet these high standards not only demonstrate industry-leading technological capabilities, experience, and compliance and security practices but also signal their potential to expand into other industries.

In other words, by serving financial customers well, cloud vendors can not only gain a competitive edge in the financial industry but also lay the foundation for cross-industry services and technology dividend spillovers.