Tencent Jumps on the Indonesian Cloud Bandwagon with New Data Centers in the Country

A. Amir

Summary Bullets:            

  • While the competition is increasing, Tencent could capitalize on its early-mover advantage against AWS and Azure and highlight its vertical capabilities.
  • However, there are several competitive gaps it needs to address such as professional services and ecosystem partners.

Tencent is well known in the mass market in ASEAN for its WeChat social media app, JOOX music streaming app, and Shopee e-commerce platform (Tencent is the main beneficiary of Shopee’s parent company with a 39.7% share), each having significantly expanded its subscriber base in the region.  However, very few were aware of the company’s cloud and vertical solutions in the enterprise segment.

Last week, the company launched a new data center in Indonesia, with plans to open another facility in the country in a few months.  The launch is a timely move for Tencent to capture the growing market opportunity despite increasing competition from other cloud players.  To date, Tencent has a total of 61 availability zones across 27 regions, including 20 data centers in 13 locations outside China.  As part of its global expansion plan, it also plans to expand in few other countries, including Malaysia and Thailand later this year.

Why Indonesia?

As the fourth largest country in the world by population and the biggest in ASEAN, Indonesia has over 50 million businesses and this translates into a huge enterprise ICT opportunity.  The low technology adoption and accelerated digital transformation during the pandemic are expected to drive the cloud market to nearly double in the next five years – from USD 3.2 billion in 2019 to USD 6.1 billion in 2024 at a CAGR of 14.1% (source “GlobalData Market Opportunity Forecasts to 2024: ICT in Indonesia”).  As shown in Figure 1 below, a recent study by GlobalData with 158 ASEAN enterprises has also shown that 81% of Indonesian enterprises plan to have over 20% of their workload hosted in the cloud in 2021.  This has attracted major global hyperscalers to invest in the country.  Alibaba Cloud opened its first two data centers in Indonesia in 2018 and 2019, and it plans to open another one this year.  Google launched its data centers in Jakarta last year (for more, please see “Jakarta Data Center Launch Offers Google a Competitive Advantage to Capture the High-Growth Cloud Opportunity in Indonesia,” June 24, 2020), while AWS and Microsoft are expected to open their facilities by the end of the year (for more, please see “AWS Responds to Google and Alibaba’s Indonesia Expansions with a Plan for Its Own Facility,” April 5, 2019).

Figure 1: Planned Workload in Cloud for Enterprises in Indonesia in 2021

Source: GlobalData

What’s Next?

While the competition is increasing, Tencent is ahead of AWS and Azure with its local facilities.  It could capitalize on this advantage through a local data residency proposition.  It could also leverage its strength in its local market to focus on Chinese inbound and outbound MNCs to differentiate against other global hyperscalers (e.g., AWS, Azure, and Google).  Besides, Tencent could not only position itself as a cloud service provider (e.g., IaaS, PaaS), but also leverage its smart industries capabilities to offer vertical solutions such as smart retail, smart healthcare, smart transportation, and smart education.  However, there are several gaps that the company needs to address.  This includes professional services, which are becoming more crucial in the cloud market as the engagement is shifting from technical to business outcomes.  Go-to-market is also critical, as local enterprises often prefer to work with established partners who understand their business and local requirements.  Tencent could consider expanding its partner ecosystem, especially with the local providers to extend its market reach.

For other cloud players, they could counter Tencent with their more established brands in the market through initiatives with Indonesian enterprises across different industries.  Besides, they could also point to their more comprehensive service portfolio, wider ecosystem partners, and stronger global presence with successful references.  As Indonesia is preparing for its 5G deployment and with the growing demand in low-latency applications, other cloud providers could also differentiate against Tencent with their 5G edge computing solutions and telecom practice, such as AWS Wavelengths, Azure Edge Zones/‘Azure for Operators,’ and Google Mobile Edge Cloud (GMEC).

And the biggest winners in this are the end users.  With all major global hyperscalers in the country, enterprises have more options for their cloud deployments.  While Tencent may be new compared to other hyperscalers, Indonesian enterprises – especially those with operations in China and other Southeast Asian countries – should consider Tencent for its proven capabilities in its home market as well as its plan to open new facilities in Thailand and Malaysia.  Enterprises will also have access to a range of tools such as WeCom (CPaaS) and Weixin for customer engagement.

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