An Interview With Kingsoft Cloud’s CEO: The First Half Battle In The Chinese IaaS Public Cloud Market Has Come To An End

摘要: Kingsoft Cloud, as one of the top-tier cloud service providers in China, has maintained a growth rate of over 100 per cent for two consecutive years. How did Kingsoft manage to do so?

(Chinese Version)

Wang Yulin, CEO of Kingsoft Cloud

Wang Yulin, CEO of Kingsoft Cloud

Editor’s Note:

With the rise of cloud computing, an increasing number of enterprises have stopped wondering if they should get involved, but rather “where’s the opportunity?” and “how should I get involved”. Kingsoft Cloud, as one of the top-tier cloud service providers in China, has maintained a growth rate of over 100 per cent for two consecutive years. How did Kingsoft manage to do so? To find out, TMTPost had an exclusive interview with Wang Yulin, CEO of Kingsoft Cloud.

According to latest "China Public Cloud Services Tracker", released by internationally-renowned research firm IDC, as of the end of 2016, Aliyun accounted for 40.67 per cent of China’s public cloud market share, Tencent Cloud accounted for another 7.34 per cent, while Kingsoft Cloud grabbed 6.02 per cent. Likewise, according to CCID Consulting’s “2016-2017 Analysis Report on China's IaaS Market”, Aliyun, Tencent Cloud and Kingsoft Cloud ranked as the top three players in the Chinese public cloud market. Although their specific market share figure differed, both reports suggested that Aliyun, Tencent Cloud and Kingsoft Cloud have already formed the top tier in the Chinese public cloud market.

Subsequently, on the evening of May 23rd, Kingsoft released the Q1 earnings report of 2017 and disclosed, for the first time, separate earnings of its public cloud business, the second Chinese cloud service provider to do so (Aliyun being the first). In Q1 2017, Kingsoft Cloud’s revenue totalled RMB 268.4 million, up by 108 per cent year-on-year. In other words, Kingsoft Cloud has maintained high growth rate for two consecutive years.

Based on IDC’s report, Kingsoft Cloud’s growth rate reached 251.5 per cent and 130 per cent in 2015 and 2016, respectively. How did Kingsoft manage to do so in the fierce Chinese public cloud market?

To find out, TMTPost had an exclusive interview with Wang Yulin, CEO of Kingsoft Cloud. He told TMTPost that the first half battle in the Chinese IaaS public cloud market had come to an end, revealed the secret behind Kingsoft Cloud’s rapid growth and detailed the new challenges in the aspects of technology, market, capital and business model in the era of industry internet.

Kingsoft Cloud’s close relationship with Kingsoft and Xiaomi

When we look back on the development path of Kingsoft Cloud, we may easily notice the trace of Kingsoft and Xiaomi. From the aspect of capital structure, Kingsoft Software Group holds a stake of 52 per cent in Kingsoft Cloud, while Xiaomi is the second biggest shareholder; from the aspect of business operation, while Xiaomi’s core businesses include smartphones, 2C and smart home, Kingsoft itself is an IT service company. Therefore, it may, after all, be a good choice for Lei Jun to let Kingsoft run cloud computing service, a business quite promising for Lei.

Starting from Xiaomi, Kingsoft Cloud’s business has expanded into game, video, government, health and other vertical sectors after several years of development. However, whenever Kingsoft is mentioned, people may still be curious about its relationship with Xiaomi.

"Basically, the two sides are joint venture partners in terms of capital and mutually collaborative in business," Wang Yulin, CEO of Kingsoft Cloud, told TMTPost.

As a start-up, Kingsoft Cloud’s main business started by centering around Xiaomi’s business. Such as data storage. In fact, all the user data of Xiaomi's users is stored on Kingsoft Cloud. By 2014, Kingsoft Cloud has become the largest Chinese cloud storage company.

Starting from 2014, Kingsoft Cloud began to carry out the full line of public cloud services, from game, video cloud to original internet service. Besides internet-based services, Kingsoft Cloud also gradually rolled out services in the government and health sector.

In a sense, Kingsoft was born with a silver spoon. Lei Jun, chairman of Kingsoft Software, came up with the “All in Cloud” concept and invested $1 billion in the cloud computing service sector. As one of the core business of Kingsoft Software, Kingsoft Software’s other subsidiaries, including Cheetah Mobile, Xishanju Game Studio and WPS, etc. would all provide strong support for Kingsoft Cloud.

From the aspect of business operation, cloud services of Cheetah Mobile, Xishanju Game Studio, WPS and even startups inside Xiaomi’s ecosystem are all mainly provided by Kingsoft Cloud. Since public cloud has already become a major trend, internet companies would all put away their information infrastructure on cloud. Kingsoft Cloud, Kingsoft Group's other subsidiaries, and members of Xiaomi’s ecosystem all adopt independent settlement modes.

From the aspect of enterprise services, both Kingsoft Group and members of Xiaomi’s ecosystem won’t use solely Kingsoft Cloud’ service. To ensure high safety standards and low risks, they have to have a second or third cloud service provider. After all, it’s a more appropriate choice whether taken into consideration service quality and fair price.

Kingsoft Cloud’s income was disclosed for the first time

Based on Kingsoft Software’s 2017 Q1 earnings report, its revenue totaled RMB 1.213 billion, an increase of 82 per cent year-on-year. It is worth noticing that Kingsoft included Kingsoft Cloud’s 2017 Q1 income in the report (RMB 268.4 million up by 108 per cent year-on-year).

According to Wang, this not only has to do with Hong Kong Exchanges and Clearing’s requirement (timely disclosing income of rapidly-growing and major business), but also demonstrates Kingsoft Software’s confidence over Kingsoft Cloud’s future.

Wang ascribed Kingsoft Cloud’s achievement to three factors: 1) focusing primarily on cloud service and consistently carrying out “All in Cloud” strategy brought about by Lei Jun; 2) being clear-minded in choosing industries, especially promising ones such as game, video and AI; 3) possessing a competitive and potent team.

To maintain the advantage, cloud service providers have to center around core technology and always be driven by users’ needs. It is based on strong technology and service capability that a cloud service provider can achieve competitive advantage.

When Kingsoft Cloud first started, it already focused its attention primarily on the game and video sector. Today, Kingsoft Cloud has already become the biggest game cloud and video cloud service provider in China. Up till now, Kingsoft Cloud has accumulated over 1,600 game clients and provided cloud services for over 1,000 games, among which 40 per cent are quite popular.

With the boom of video streaming and short video platforms, the need for video cloud service rises substantially. As one of the key Chinese video cloud service providers, Kingsoft Cloud took on the challenge of streaming major events, including the military parade to mark the 70th anniversary of the end of World War Two, the Two Sessions and G20 Summit, provided reliable video cloud service for its clients and stood the test.

In addition, Kingsoft Cloud developed “Dami Cloud Host” to target entrepreneurs and developers. Featuring high quality-price ratio and easy-to-use functions, the product was widely spread among developers, entrepreneurs, small and mid-sized enterprises.

Speaking of competitive advantage, Wang believed that:

“First, it has to do with the pursuit of perfection. It turns out that this methodology applies not only to Xiaomi’s 2C business, but also to 2B business. Whether it’s individual users or enterprises, users’ needs are always the first driving force. As long as you find out users’ needs and meet them well with proper products, your reputation and business will grow hand in hand.

Second, one’s got to go with the flow. As long as one’s found the right direction and strived for perfection, everything will naturally be fine. While Aliyun is at an advantage in terms of scale, technology and capital, Kingsoft Cloud focuses more on vertical segments. This is what makes us differentiated.”

Speaking of Kingsoft Cloud’s future potentials and driving force, Wang told TMTPost that:

“The first future driving force for Kingsoft Cloud is the growth trend of the entire industry. We’ve chosen an industry whose potential is far beyond people’s imagination and will last a long time. Only insiders can sense the trend and feel awed. It is expected that market scale of the American public cloud market is to reach $100 billion by 2019 and will continue to grow at a high speed.

The second driving force is the synergistic effect of Lei Jun’s enterprises, represented by Xiaomi, Cheetah Mobile, and Xishanju Game Studio, over IoT and AI industry. More importantly, we have to be aware of the rapid growth of pan-entertainment sectors, including video, game and AI.

The third driving force is Kingsoft Cloud’s own business strategy. For example, what business direction will we choose? What products do we want to make? Whether our team is capable enough? Whether we can execute our plans? Whether we are hard-working enough?”

The first half battle in the Chinese IaaS public cloud market has come to an end

As a matter of fact, there are already multiple super and great powers in the Chinese public cloud market, from global players such as AWS, Azure, Google and IBM Cloud, to Chinese players such as Aliyun, Tencent Cloud and Kingsoft Cloud (top-tier) and UCloud, QingCloud, Baidu Cloud and Qiniu Cloud (second-tier).

In this background, what’s the major difference between Chinese and international (mainly American) cloud service providers?

According to Wang, public cloud IaaS, as basic IT structure provider, is like basic energy such as water and electricity. In this case, it’s unlikely SOEs will dominate the market. Instead, the market will be rather diversified. Therefore, three large-sized companies and four to five small and mid-sized companies will co-exist. After all, no client will choose only one cloud service provider for safety’s sake.

Besides, while American companies turn to cloud service for the sake of technological upgrading and cost, many Chinese companies do so because they have to. How come?

On the one hand, American companies can meet their clients’ needs with their own IT and service capability, so they turn to cloud service to achieve technology upgrading or to save cost. Chinese companies often lack proper IT and service capability, so they won't be able to provide basic service without cloud service.

On the other hand, Chinese cloud service providers entered the industry rather late. Although they have to face harder obstacles, they also have more opportunity. Therefore, Chinese cloud service providers often develop pretty fast, and there are more cloud service providers in China than in the US.

In comparison, the market structure of the American cloud computing market has almost been settled. Since 2007, Amazon has provided cloud computing service for almost a decade. According to Synergy Research Group’s statistics, Amazon accounted for 45 per cent market share in the American cloud service market. Other service providers such as Microsoft, Google, IBM all have their own place in the market. However, it is probable that there won’t be new entrants into the market in the future

Although Alibaba Cloud also accounted for 40 per cent of market share, the Chinese cloud computing market is full of variables. Without giant IT companies, China’s cloud computing companies are almost all backed by internet companies.

“We believe that the first half of the Chinese public cloud IaaS market battle has come to an end,” Wang told TMTPost. How come?

First of all, the market has developed for seven to eight years. While Aliyunhas been established for eight years, other major players have also developed for around five years or so. Although Tencent Cloud and Kingsoft Cloud managed to catch up with Aliyun, it could still be quite challenging for other companies to catch up. The time left is simply not enough.

Secondly, almost all cloud service providers, abroad and at home, started from providing cloud services for internet companies. The first batch of clients are almost all internet developers, startups and internet companies.

Thirdly, the cloud service market started from internet and grew mature thanks to internet. The penetration rate of public cloud service in the Chinese internet industry has reached almost 100 per cent. As major Chinese public cloud service providers continue to improve their technology and product quality, the threshold is getting increasingly high for late entrants.

In a word, major players have already entered the Chinese public cloud market and formed a steady market structure. With no dominant player in the market, different players will manage to maintain their position through differentiated development.

There’s no boundary to Kingsoft Cloud’s future development

At present, Kingsoft Cloud’s business scale has surpassed game, video, government, health, finance internet and the emerging AI sector. Besides, Kingsoft has already developed its plan for its future development in the game, video and AI sector.

“Above all, we need to get more enterprises turn to cloud service based on our basic IaaS capability. The more clients we have, the more needs they have, and the more thoroughly we can exploit the potential of the market. As a result, we will be able to provide better service for our clients and add more value to them.

In the game sector, we shall help improve our clients’ operation and data mining capability, improve their efficiency and as a result improve the quality and conversion rate of their games;

In the video sector, we shall base on our basic cloud video service and continue to promote the commercial usage of H.26 codec, so that our clients can save more cost and earn much more;

In the AI sector, we shall help clients design more application scenarios and collaborate with them in providing more end-to-end services in various scenarios.”

“Besides the internet industry, we shall also gradually enter other industries along with the spread of internet. It is estimated that the Chinese major industries will all be supported by cloud computing in five years. From this aspect, there’s no limit to Kingsoft Cloud’s development. All we need to do is get familiar with the know-how of different industries,” Wang explained.

On the one hand, more people need to get involved. Since the Chinese IT industry is less developed than the internet industry, relatively speaking, more talents need to participate in cloud service business and play a role in this trend.

On the other hand, traditional IT companies are transforming themselves. For example, Kingdee has started to provide SaaS service. While we provide IaaS service for Kingdee’s Cloud Hub, Cloud Hub can bring convenience to more small and mid-sized enterprises as it continued to grow.

Business model matters more than technology?

While Some analysts point out that the future development cloud computing may no longer be driven by technology, but rather the business model, Wang thought it was still too early to jump to this conclusion. After all, cloud computing itself is driven by technology. Although technology may, in the short term, no longer be the most important standard for some companies when they choose cloud computing companies (since business model might matter more among top-tier cloud computing service providers that are all potent in technology), this might not be the case in the long run.

“On the one hand, we are still far from the peak of technological innovation and there remains huge room for the technological breakthrough. For example, in the case of cloud computing, there remains huge room for improvement in aspects such as computing performance, network performance, cost, video technology and AI technology, etc.

On the other hand, people no longer attach high importance to technology because major cloud service providers are all potent in technology. Therefore, their competition is more about business model than about technology.”

As a matter of fact, whether AWS or Aliyun, Tencent Cloud and Kingsoft Cloud, have all accelerated their pace to develop AI capability. On May 16th, Kingsoft Cloud and Intel entered into a thorough cooperation agreement and decided the two sides would continue to explore CPU customization, the application of Intelligent Ethernet Cards in virtual scenarios, the application of OPTANE storage medium in cloud computing and cloud storage sector and the application of FPGA in AI training and prediction.

Wang Yulin, CEO of Kingsoft Cloud (the person to the right of the photo) and Raejeanne Skillern, vice president of Intel Data Center Business Division, general manager of Cloud Computing Department, signed the Memorandum of Understanding on behalf of both sides.

Wang Yulin, CEO of Kingsoft Cloud (the person to the right of the photo) and Raejeanne Skillern, vice president of Intel Data Center Business Division, general manager of Cloud Computing Department, signed the Memorandum of Understanding on behalf of both sides.

Kingsoft’s secret in the era of industry internet

Nevertheless, a different operation principle has started to appear in the industry internet sector compared with the 2C sector. Efficient methods in the consumer internet sector, such as free usage, subsidy, traffic and entry proved to be inefficient in the industry internet sector.

However, Wang didn’t entirely agree with such opinion. The core value of internet lies in centering around users’ needs. The shift from PC internet to mobile internet actually resulted from the shift of users’ needs. To succeed, internet companies have to be able to identify users’ needs and develop proper products to satisfy such needs. This is the core behind various kinds of methods.

Some internet companies adopted methods such as free usage and subsidy because they identified users’ needs for such things and timely satisfied such needs. However, they are simply methods, not the core. As a matter of fact, if a company ignored the core and blindly adopted these methods, its efforts might turn out in vain.

In the era of industry internet, the core is still to be able to identify users’ needs. Besides, a company has to be able to seize the right timing, timely execute plans and make full use of the capital forces. In fact, these requirements apply to any industry.

“For Kingsoft Cloud, our top priority is to identify users’ needs. What do our clients need most in the era of industry internet? Lower cost, or better quality? As long as we properly identify users’ needs, we can adopt methods such as VCs and lose money in the short term. However, they may prove to be worthwhile for our development in the long run. The only difference is that clients of the industry internet are enterprises that are more rational when choosing services than individual consumers,” Wang explained.

In addition, enterprise clients won’t be blindly attracted by fancy marketing or huge subsidy, and they won’t grow as fast as individual consumers. In this case, we have to identify enterprises’ real needs and find out what attracts them most.

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[The article is published and edited with authorization from the author @Xu Xiao'an please note source and hyperlink when reproduce.]

Translated by Levin Feng (Senior Translator at PAGE TO PAGE), working for TMTpost.

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