Tencent bets on overseas cloud computing growth amid gaming slowdown

Tencent faced a number of headwinds in 2022, including a Covid-induced slowdown in China’s economy and a tougher gaming market.

Bobby Yip | Reuters

Tencent said it will launch new cloud computing products aimed at overseas markets while it seeks new avenues for growth amid a slowdown in its core online video games business.

On Thursday, Tencent will hold a launch event for cloud products specifically targeting markets outside of China, including a range of cloud-based audio and video products.

The move marks a realization that Tencent must find new sources of growth overseas as the Chinese economy slows. Alongside ongoing pressure from Covid outbreaks, Chinese tech companies are also facing a tighter regulatory environment at home.

Tencent, in particular, has been hurt by tighter regulation of online gaming. Last year, Beijing introduced rules that reduced the time that people under the age of 18 could play online games to a maximum of three hours a week. Regulators also froze gaming approvals for several months, meaning companies like Tencent and rival NetEase couldn’t launch and monetize new titles.

While there are signs that the crackdown on gaming may now be over, Tencent has felt the effects. Domestic online game revenue fell 7% year over year in the third quarter.

Tencent’s second-largest revenue driver is online games, so a slowdown in this segment will weigh on overall growth.

Headquartered in Shenzhen, the company sees cloud computing as an area that could fill the gap. Tencent’s fintech and business services arm, which includes its cloud computing arm, grew 4% year over year in the third quarter.

Chinese tech giants are not only looking for new business areas to grow, they are also looking for new revenue streams abroad. Ecommerce Business Alibaba For example, Tencent has used its AliExpress and Lazada brands to expand overseas, while Tencent has had great success with its online games.

Tencent is now using cloud computing. The products released on Wednesday focus on audio and visual products such as live streaming for e-commerce or online meetings.

The products are aimed at companies that want such services but do not necessarily want to maintain the infrastructure, such as servers, or build these features themselves.

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Tencent’s strategy could focus on attracting global firms with a presence in China, as well as Chinese companies expanding overseas. Companies like BMW are already using some of Tencent’s cloud products.

As the Chinese company expands overseas, it will enter a very competitive cloud computing market dominated by US giants Amazon and Microsoft. Tencent’s international foray into cloud computing is relatively late compared to that of competitor Alibaba, which has expanded outside of China in recent years. Today, Alibaba is among the top five cloud computing companies in the world.

Tencent’s focus on audio and video products plays to its strengths as one of the world’s largest gaming companies and owner of WeChat, China’s most popular messaging app with over 1 billion users.

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