NetEase bows out of China’s cloud wars, refocuses on gaming as AI battle heats up

NetEase is closing one of its public cloud services, showing a change in its strategy as the cloud computing market in China gets tougher. The company told its business clients that it will stop this service on April 7. This decision is part of rethinking its business goals. Customers who have not used their credits can ask for their money back, and a team is helping them move to other platforms.

This closure is happening as China’s public cloud sector grows quickly, mainly because more people are using artificial intelligence (AI). Competing in AI cloud services requires a lot of money.

Big companies like Alibaba and ByteDance are expanding their cloud services aggressively. Alibaba said it will invest $52 billion in AI and cloud computing. ByteDance is also boosting its AI capabilities to meet high demand.

Experts say that NetEase had difficulty competing with these bigger companies. Ivan Lam, a senior analyst at Counterpoint, noted that AI is giving new energy to China’s cloud market, which grew by 8% in the first half of 2024.

While Alibaba and ByteDance developed general-purpose AI models like Qwen and Doubao, NetEase focused its Fuxi AI models on specific uses like gaming and robotics. This focus might have made it harder for NetEase to compete where big AI investments are needed.

NetEase is shutting down its public cloud service to focus more on gaming, its main area of expertise. Gaming is something that NetEase excels at, and this decision allows the company to use its resources more efficiently. By doing so, they can concentrate on areas where they already lead, instead of spending a lot to compete with large tech companies in AI cloud services.

In China, as competition becomes more intense, cloud service providers are expected to keep expanding their AI infrastructure. Smaller companies might need to either grow larger or shift their focus to stay competitive. NetEase’s decision to exit the AI cloud race highlights the increasing divide between companies heavily investing in AI and those prioritizing their core strengths.