An analysis said China's cloud market, where Tencent (腾讯) and Alibaba are competing, is quickly shifting from a price war to an "AI application war." The industry predicted that starting this year, cloud companies' battleground will move from usage and price competition to a race to advance AI solutions such as software as a service (SaaS) for enterprises.
According to China Business News on the 23rd, Tencent Cloud said at an event on the 22nd that orders related to AI and software as a service (SaaS) doubled over the past year. It said sales of AI large-model products increased more than 50-fold over two years, and revenue from partners' public cloud (cloud computing services accessible to anyone over the internet) also recorded double-digit growth.
One driver of the sharp growth is the emergence of "DeepSeek," which stunned the world. China's AI startup DeepSeek unveiled an AI model of the same name early last year and drew attention for its dramatically lower expense compared with OpenAI's "ChatGPT." After DeepSeek's release, the use of AI by Chinese corporations gained momentum, boosting demand for large-scale computing resources and rapidly expanding the size of the cloud market.
Liu Weiguang, president of rival Alibaba Cloud Intelligence, told China Business News that "in 2026, the increase in the size of China's AI cloud market will be 10% larger than the entire market size last year," adding, "We will capture 80% of the increase."
In response, cloud companies are shifting from using low prices to attract users to a strategy of advancing AI solutions to lock in users. In China, a price war over large-model services among cloud companies began in 2024, and large-model services from Tencent Cloud, Alibaba Cloud, and Baidu (百度) Cloud were offered at prices hundreds of times cheaper than ChatGPT, virtually for free.
However, the industry judged that the approach of lowering prices merely to increase usage is no longer sustainable. In addition to deteriorating profitability from competitive price cuts, customer churn has become frequent, making it impossible to secure customer loyalty. There were also concerns that if such competition continues, it would devolve into a game of chicken.
Cloud companies are revising their approach to tie down customers by designing various large-model use scenarios. For example, when partnering with AI hardware companies, instead of merely increasing consumption of public cloud computing resources, they are boosting revenue with SaaS products that combine additional features such as voice and video capabilities or platform integration.
Tencent divided the AI competition into the "first half" and the "second half." It said that from the second half of 2024 to the first half of 2025, the focus was on attracting users by securing computing resources such as graphics processing units (GPUs) and cutting prices, while starting in 2026, the battleground will be locking in users through sales of enterprise AI solution products. By industry, Tencent said AI adoption is expanding even in traditional sectors such as manufacturing and quality inspection, energy, and healthcare.
Li Chang, vice president of Tencent Group, said, "Another key factor is that performance gaps among leading large models with global competitiveness are narrowing," adding, "As the performance gaps shrink, competition will ultimately shift to how well we solve on-site (work) problems."