China’s tech titans fight for cloud control

Tencent sees its cloud business as a major growth area as it challenges Alibaba for market supremacy. (Shutterstock)
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Updated 04 July 2020

China’s tech titans fight for cloud control

  • Tencent flexes its muscles in race with arch-rival Alibaba as pandemic opens new business frontiers

HONG KONG: For Chinese cloud services companies, the coronavirus outbreak has become a rainmaker, bringing in new business far and wide as firms shift work online, and authorities develop apps and systems to help contain outbreaks and manage social restrictions.

For Tencent Holdings, in particular, it has also become the perfect time to flex new muscles as it seeks to catch up with Alibaba Group Holding, its arch-rival and the dominant player in the country’s cloud market by far.

Tencent began to display a new level of aggressiveness after positioning its cloud business as a major area of growth in September 2018, and that has only amped up amid the pandemic, employees say.

“The competition with Alibaba is so fierce right now, the sales teams are fighting them for every deal,” said a source in Tencent’s cloud division who was not authorized to speak on the matter and declined to be identified.

This year alone, Tencent has hired more than 3,000 employees for its cloud division. And as China went into lockdown and demand for corporate video bandwidth surged in February, it added 100,000 cloud servers in eight days to support a two-month old product, Tencent Conference — a feat the company says is unprecedented in Chinese cloud computing history.

It has expanded use of cloud servers designed in-house, pledged to speed up construction of a digital industry center in Wuhan to handle cloud and smart city projects in central China and joined a central government initiative to support pandemic-hit small businesses with free cloud services.

The social media and gaming behemoth also announced in May it will invest 500 billion yuan ($70 billion) over five years in technology infrastructure including cloud computing — just weeks after Alibaba said it would invest 200 billion yuan in its cloud infrastructure over three years.

Poshu Yeung, vice president of Tencent’s international business group, notes huge interest in shifting further into the cloud from businesses and for online education.

“We actually see more demands, requests coming in,” he said in an interview in April. “It’s a good wakening call for a lot of businesses.”

During the first quarter, China’s cloud infrastructure services market grew an impressive 67 percent from a year earlier to $3.9 billion, data from research firm Canalys shows.

Alibaba commanded 44.5 percent of the market while Tencent, which started its cloud business in 2013, four years after Alibaba, had just 14 percent. Huawei Technologies also had 14 percent.

“Although Tencent came to the space later than Alibaba, I believe the company is willing to endure a relatively long period of investment cycle for this business, hoping to catch up or one day becoming the No. 1 player in this field,” said Alex Liu, tech analyst at China Renaissance.

Tencent’s cloud division accounted for more than 4.5 percent of its annual revenue last year while Alibaba’s cloud computing division accounted for 8 percent of its overall revenue.

Tencent employees have told Reuters the company is working hard to become more adept in business-to-business sales where products are often designed from the ground up for one client, as well as in government relations.

 Those are areas where Alibaba excels while Tencent’s strength lies more with consumer-centric products and design.

“Tencent has great genes in business-to-consumer, but in business-to-business, we either didn’t have product managers or we just hired folks with a business-to-consumer background so it took a bit of time to convert their thinking,” said a second Tencent source in the company’s cloud business.

Tencent declined to comment on staff observations.

One area where Tencent has gained ground in recent years is government contracts — a relatively small part of the market in revenue terms but one that brings prestige and helps attract private-sector clients.

Underscoring its determination to win tenders, Tencent in 2017 offered to complete a Fujian province government information platform project for 0.01 yuan.

From 2016 to 2017, Alibaba scored 28 cloud-related contracts for government entities, state-owned enterprises, and academic institutions, while Tencent landed just seven, government procurement records show.

But in 2018, they secured 28 each before Alibaba took the lead again last year with 49 compared with Tencent’s 46.


Economic meltdown threatens Europe’s war on plastic waste

Plastic recycling at the Extruplas plant in Portugal. Europe produces 26 million tons of plastic waste each year. (Reuters)
Updated 08 August 2020

Economic meltdown threatens Europe’s war on plastic waste

  • Lower oil prices mean lower virgin plastic prices — and that spells trouble for the recycling industry

OUREM, Portugal: Giving a new life to plastic trash gets Carlos Bento out of bed every morning. But the coronavirus pandemic has seen revenues drop up to 40 percent at Micronipol, the large recycling facility he runs in central Portugal, and it faces an uncertain future.

Micronipol produces recycled polyethylene, the base for plastic bags and bottles. The product is piling up at its warehouses as clients, facing their own economic struggles, shelve their recycling goals. They are opting for cheaper alternatives: non-recycled plastics made from hydrocarbons.
As lockdowns were put in place worldwide, a drop in demand for oil pushed prices to historic lows, making virgin plastics — already becoming cheaper than the recycled equivalent — even more affordable.
“If we are no longer competitive and if we lose cash we have two options: Either someone has to subsidise us so we can keep working or we have to shut down,” said Bento, as he stood near a pile of colorful recycled plastic bales.
Lower virgin plastic prices could spell disaster for the future of European recyclers like Micronipol.
In Europe, virgin polyethylene terephthalate (PET) was over 7 percent, or €60 ($71) per ton, cheaper than the recycled equivalent last month, data from S&P Global Platts showed.
Industry group Plastic Recyclers Europe said firms in most EU member states have signalled their recycling facilities have reduced their operations or closed their lines for at least a few months.
“Without well-functioning and profitable plastics recycling there is no alternative, no environmentally sound option for plastic waste management,” said Antonino Furfari, the group’s managing director. “This waste will be incinerated or dumped.”
Piotr Barczak, senior policy officer for waste at the European Environment Bureau, called for a tax on all virgin plastics to eliminate the price gap.
The impact of the pandemic on recyclers is especially concerning at a time when consumption of plastics is expected to double to 600 million tons per year in the coming two decades, according to a report by Zero Waste Europe NGO. And as countries struggle to cope with the economic impact of the health crisis, fears abound that environmental policies are being left behind.

HIGHLIGHTS

● Virgin plastic cheaper than recycled alternative.
● European plastic recyclers struggling to stay afloat.
● Taxing virgin plastic could help industry survive.

EU Environment Commissioner Virginijus Sinkevicius told Reuters in a written interview that while the Commission had received relatively few requests for extensions or exemptions from EU environmental rules due to the pandemic, the crisis had a “significant impact” on countries’ administrative capacities.
The EU is to ban a range of single-use plastic items by 2021, a huge ambition which could now be under threat as more and more consumers and restaurants become more dependent on disposable plastic products due to contagion fears.
Portugal’s Environment Secretary of State Ines dos Santos Costa said her government’s ambition to cut disposable plastic products “still stands,” but the pandemic has transformed models of production and consumption worldwide.
Not far from Portugal’s capital Lisbon, recycling sorting facility Amarsul has raised concerns about the vast amounts of plastic gloves and masks it has been receiving.
“If the habit of using disposables continues, we may take a step back we will have to fix later,” said CEO Sandra Silva, adding that a recycling-based economic model “cannot stop because there is a pandemic.”
Europe generates 26 million tons of plastic waste annually, but less than 30 percent of that is collected for recycling. Experts say existing targets to improve plastic recycling could be in danger of not being met.
Sandra Castro, head of Extruplas firm that makes wooden-like outdoor furniture from plastics it recycles, is hoping the current situation is no more than a temporary bump in the road.
“We need the industry to be able to provide a solution to the waste we produce,” Castro said.
But for Sirpa Pietikainen, Finnish member of the European Parliament, the only way to tackle plastic pollution, which some scientists say is fueling climate change through greenhouse gas emissions, is to produce less waste.
“If you thought the coronavirus crisis was bad for the economy, climate change will be 100 times worse — and then you will not only talk about losing GDP points, you will talk about access to medication, water and food,” she said.
“We really need to act now.”