Tencent Holdings, one of China’s leading internet giants, has announced a 40% reduction in cloud services prices from June. This move follows similar price cuts from rivals Alibaba Group Holding Ltd and China Mobile, who have both slashed prices by up to 50% and 60% respectively. The fierce competition is due to soft corporate demand and the Chinese economy’s wobbly recovery from COVID-19 restrictions.
Analysts have noted that the companies have expanded aggressively and now have too much capacity, leading to high sales targets despite slowing growth for the market. Tencent’s Chief Strategy Officer, James Mitchell, has said that the impact of the price cuts on Tencent as a whole is not notable, as cloud services only represent a mid single digit percentage of its total revenue.
The price war is likely to force companies to focus on product differentiation, with Baidu being well positioned due to its unique, AI-centric products. Alibaba reports its earnings on Thursday, and investors will be watching closely to see how the price cuts have impacted the company.