Five Secrets To Chinese Cloud Company QingCloud’s Success
It took Amazon’s cloud computing subsidiary AWS nine years to become profitable, but merely three years and a half for its Chinese counterparts to post an annual net income of over ten million RMB. How did QingCloud manage to do so? Huang Yunsong, CEO of QingCloud, shared in this article five secret weapons he has to realize QingCloud’s success.
In 2015, Amazon disclosed for the first time the financial status of its cloud computing platform Amazon Web Services (AWS), which posted $265 million of net income for 2015’s first quarter and slight growth year-on-year. The news, which came nine years after AWS was established, came as a huge boost of confidence to the global cloud computing industry. Although AWS already accounted for 28 per cent share of the global market at that time, nobody knew if it still supported on Amazon’s subsidy or it was already self-sufficient.
It seems the same thing has happened here in China.
Just after the Chinese lunar new year, QingCloud announced on February 9th, 2017 that its net income reached over ten million RMB in 2016. Besides, it has already been busy preparing an IPO on the Chinese A-share stock market. With merely four years, QingCloud demonstrated the feasibility of cloud computing and its business potential in China and significantly boosted investors’ confidence of China’s cloud computing industry.
“We wish the domestic capital market could reach the following view after hearing QingCloud’s positive revenue: This is only a starting point. Other startups, whether focused on IaaS, PaaS or SaaS, will become profitable one after another. It is our wish that QingCloud’s little milestone will help Chinese investors and the capital market build a positive attitude towards the domestic cloud computing market,” Huang Yunsong, CEO of QingCloud, told TMTPost.
It is known that cloud computing business, especially public cloud, isn’t a lucrative business. Among the first batch of Chinese cloud computing startups that followed the example of AWS, the majority are in the red. It took AWS as much as ten years to make ends meet and even become profitable, let alone its followers.
According to Huang, it’s not that QingCloud is smarter than AWS by becoming profitable within three years, but that QingCloud could learn from AWS and avoid making the same mistakes AWS had made since it was established five years later than AWS. While AWS is the first generation of IaaS startup and had no predecessor to learn from, QingCloud was established in April 2012. QingCloud launched commercial public cloud service until July 2013, so it is only around three and a half years.
Still, how did QingCloud manage to become profitable only after three years and a half? Huang summarized that QingCloud did so by finding a proper business model, including the right products, the right technology, the right industry and the right solution for clients. It is by being roughly right in all these aspects that QingCloud builds a healthy cash flow and becomes profitable.
Above all, QingCloud finds the right product. QingCloud launched its commercial public cloud service in July 2013 and QingCloud ultra-integration all-in-one hardware two years later, which integrated QingCloud’s virtualization platform, cloud platform management software, SDN network and distributed storage. Through a simple increase of nodes, connections, deployment and expansion of cloud platforms, the launch cycle of enterprise cloud platform is reduced from several months to several days. In fact, many IaaS startups didn’t think of using more profitable private cloud service to subsidize the public cloud business, but Huang Yunsong, who used to work at IBM, led QingCloud to provide private cloud service as early as the end of 2015. QingCloud ultra-integration all-in-one hardware is also a private cloud product that makes it very convenient for QingCloud to provide private cloud service.
Secondly, QingCloud has the right technology. One of the main technologies of QingCloud is the IaaS-based “P2P robot community collaboration”, that is, automated operation and management of the server through the machine intelligence. The technology not only significantly reduces human intervention, but also greatly improves the efficiency and stability of the system. The second major technology is IaaS 2.0, (launched in July 2016). QingCloud upgraded its storage, network and computing technologies in a comprehensive manner and introduced new technologies such as SDS 2.0, SAN 2.0, NAS 2.0. In addition, it added the support for technologies such as Container and Unikernel, etc. The third major technology is PaaS platform research and development, which was put in full use from the second half of 2014. In 2015, QingCloud launched a variety of application-oriented PaaS products, which were widely popular among users. Their success highlighted the current trend to migrate from IaaS to PaaS.
Thirdly, QingCloud finds the right industry. The financial industry is the largest customer base for QingCloud’s public cloud and private cloud business. More specifically, internet finance companies are the biggest source of QingCloud’s public cloud business, while traditional finance companies are the biggest source of QingCloud’s private cloud business. As we all know, the financial enterprises often have a high IT budget and attempt to improve their service and create new Internet business through technology. They are typical large-scale, high-tech enterprises and are suitable to become the major client source of cloud computing startups. However, besides the financial industry, QingCloud is also eyeing on other traditional industries, the current private cloud’s second largest customer base is the traditional industry. As a matter of fact, traditional industries are the second major client source of QingCloud, which also demonstrated the determination of traditional enterprises to turn to cloud platforms in recent years.
Last, QingCloud provides the right solutions for clients. In fact, QingCloud has gradually developed a complete cloud computing product line through the large-scale commercialization of public cloud service. Besides, it continues to launch new products based on users’ needs and tailor public cloud products into private cloud solutions, which creates a positive product cycle. At the same time, private cloud products, which have already been tested through public cloud service, can naturally meet the stringent technical requirements of enterprises. The only thing left for QingCloud to do is customize the solution based on the individual needs of enterprise users, which is, of course, a piece of cake for QingCloud.
It is by being roughly right in all these aspects (product, technology, industry and solution) that QingCloud builds a healthy cash flow and becomes profitable.
However, these four factors only make sure that QingCloud is likely to be profitable. Another factor that further ensures that QingCloud is profitable is a proper corporate management philosophy.
According to Huang, there has always been a misconception among Chinese SaaS entrepreneurs and investors: blindly seeking rapid business growth. While American investors and venture firms often attach higher importance to technology, not revenue, Chinese investors and venture firms often apply their investment mindset in the internet industry to the SaaS industry and blindly seek rapid growth and expansion. However, cloud computing, especially public cloud, can be pretty money-consuming, which makes it difficult for some RMB-based fund to invest in relevant startups in the long term.
Huang pointed out that such way of thinking doesn’t apply to To B business, such as IaaS. Instead, cloud computing startups should be prepared to develop on a gradual basis and let time takes its course.
QingCloud only has 200 employees at present and plans to recruit 241 new employees in 2017.
“We are not in a rush and we never attempt to be a fast company. Only after we find the right business and have the proper financial model will we start to expand,” Huang explained.
In comparison, lots of To B startups will blindly expand its team to improve sales and expand their business scale. However, they often don’t have any clear core competence and end up in the red in their financial reports. Without a healthy business model to support their expansion, they will ultimately face the capital winter.
This is especially important when the concept “unicorn” is so hot here in China. While all venture capital firms are looking for “unicorns” in the To B sector, all To B startups are trying to become “unicorns”. However, when they desperately expand their business scale to become the so-called “unicorns”, they might lose the best opportunity to build a healthy business and financial model. As a matter of fact, when you’ve built a healthy model, “the capital market, clients and investors will have faith in you. It is only till then that it’s the proper time to expand,” Huang explained.
QingCloud demonstrated to the market the feasibility of its business model by a net income of over ten million RMB. We have confidence to believe that QingCloud’s success will encourage more cloud computing startups to copy QingCloud’s business model and become profitable. “We don’t mind if others are copying QingCloud’s model. On the contrary, we strongly support them to copy our model since our model is right and it’s a right decision to copy our path,” Huang said with confidence.
[The article is published and edited with authorization from the author @Wu Ningchuan, please note source and hyperlink when reproduce.]
Translated by Levin Feng (Senior Translator at PAGE TO PAGE), working for TMTpost.
Originally published at www.tmtpost.com on February 16, 2017.