NetEase to shut down public cloud service

NetEase is discontinuing one of its public cloud services as competition in China’s cloud computing market intensifies.

The Hangzhou-based internet and gaming company informed corporate clients on Friday that the service will go offline on April 7 due to a “business strategy adjustment.” Clients with unused credits can request refunds, according to a message seen by the South China Morning Post.

A customer service representative confirmed the decision, advising customers to migrate to other cloud platforms before the shutdown. The service’s domain, 163yun.com, now redirects visitors to Shufan, NetEase’s big data solutions business.

A NetEase spokesperson said the service was used by a small number of clients in mainland China. “We have arranged a dedicated team to communicate with existing users to mitigate the impact on them,” the spokesperson added.

Pressure from competition and AI growth

NetEase’s decision to close its cloud service comes as China’s public cloud market experiences rapid growth driven by artificial intelligence (AI). According to analysts, the company has struggled to keep up with the pace of AI-related advancements.

Ivan Lam, senior analyst at consultancy Counterpoint, noted that AI has created new momentum in China’s public cloud market. A report from IDC China in October stated that the domestic market grew by 8% in the first half of 2024, driven by increasing demand for AI-related services.

However, AI cloud services require significant investment. Alibaba recently announced a $52 billion investment in cloud computing and AI infrastructure over the next three years, the largest project of its kind by a private Chinese company. ByteDance has also made substantial investments to strengthen its AI capabilities.

Li Chengdong, founder and chief analyst at Beijing-based consultancy Dolphin, said NetEase lacks the competitive edge of its rivals. While Alibaba and ByteDance have launched successful general-purpose AI models—Alibaba’s Qwen and ByteDance’s Doubao—NetEase’s Fuxi AI models remain focused on specific industrial applications like robotics and video game development.

Strategic shift toward core business

The closure represents NetEase’s strategic shift toward strengthening its core industries, particularly video gaming. The firm has been a key player in China’s gaming industry, and this adjustment suggests a move to consolidate resources and focus on markets where it has a competitive advantage.

Competition in China’s AI cloud market is expected to grow as providers increase investments in computing infrastructure and customised solutions. Lam said major players will likely continue to expand their cloud capabilities to meet rising AI demand.

(Photo by Unsplash)

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