IaaS is a lousy business, says Chinese web giant Tencent: PaaS and SaaS is how we’ll make money in the cloud

Tencent has told investors that big cloud buyers are turning the screws on infrastructure-as-a-service pricing, and so it will pursue PaaS and SaaS instead.

“Our belief is that when you're in the cloud business, it is inevitable that if you're renting infrastructure to very big companies, then those big companies will use their negotiating power to protect their own economics,” chief strategy officer James Mitchell said on the Chinese web giant's Q1 2021 earnings call this week.

“And as a result, the path to long-term economic returns in cloud is not to get big fast, or infrastructure, but actually it's to cultivate Platform as a Service and Software as a Service,” he said.

Tencent has already made substantial investments in a cloudy CRM called Qidian, a video communications platform called “Meeting” that has attracted over one hundred million customers in under two years, a version of its WeChat service for business, and an online productivity suite.

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Mitchell said those offerings helped Tencent cloud to outgrow China’s cloud market and emerge as its second-largest cloud by revenue. Sadly, Tencent doesn’t reveal cloud revenue, instead offering a line item for “fintech and business services” and news that revenue from that segment grew 47 per cent year on year to reach $6bn for the quarter. The company said the growth was “mainly due to resumed project deployment and rising demand from enterprise software and online video customers.”

Tencent will try to satisfy that demand with a new “Enterprise App Connector” that offers single sign-on for multiple SaaS products. The biz hopes both developers and enterprise customers appreciate the offering’s potential to drive SaaS adoption.

Tencent’s overall results involved typically large numbers. Revenue hit $20.6bn, up 25 per cent year on year. Profit was $5.3bn, 20 per cent higher than for Q1 2020. Tencent also claimed to have more servers than any other Chinese cloud operator, a statement that probably reflects the enormous fleet it runs to support its online gaming services. ®