Lei Jun’s new problem! Jinshan cloud stalled and slipped, how to get out of the fog?
Eleven years ago, Jinshan’s performance declined after listing, and its share price kept falling. Qiu Bojun and Zhang Xuanlong, the founders of Jinshan, thought of Lei Jun who had left for three years. On that day, the three men took a group photo in front of Jinshan Software Building in Beijing. Since then, Qiu and Zhang retired, and Lei Jun took over as chairman of Jinshan.
Lei Jun’s task is to rebuild Jinshan, so that this China veteran software manufacturer can regain its vitality in generate. Mobile Internet is a powerful medicine given by Lei Jun to Jinshan. After some internal integration, Jinshan Cloud, the youngest business in Jinshan, has emerged. Lei Jun decided to let Jinshan take out all resources "All in cloud".
The darling of Jinshan Group, escorted by "Angel" Lei Jun, Jinshan Cloud can be regarded as a dream start. In May 2020, Jinshan Cloud landed on Nasdaq, but it didn’t take long for Jinshan Cloud to start falling. As of September 20th, Jinshan Cloud’s share price was $2.04/share, down 97.5% from the highest point of $74.76/share.
Source: Futu Niu Niu
Jinshanyun’s market position fell in the third place in the industry and failed to keep the bottom line of Lei Jun’s "top three, at least top five". On the evening of September 6, Jinshan Cloud announced its financial report for the second quarter of fiscal year 2022. In the second quarter, Jinshan Cloud’s revenue was 1.906 billion yuan, down 12.3% year-on-year, which was the first quarterly revenue decline in recent years. The net loss was 811 million yuan, up 267.41% year-on-year.
Ten years of polished Jinshan cloud, but the blade has been exhausted. On July 27th, Jinshan Cloud submitted a prospectus for dual listing of Hong Kong stocks. On August 8th, Lei Jun announced that Wang Yulin, who had been in charge of Jinshan Cloud for nearly 10 years, resigned, and Zou Tao, a veteran of Jinshan, was appointed at the critical moment.
Jinshan Cloud, born out of Jinshan, naturally inherited the To B service gene. However, whether Jinshan Cloud can undertake the strategic task of rebuilding Jinshan and expand Lei Jun’s To B map depends on whether Jinshan Cloud can get out of the fog.
Jinshan Cloud reduces unprofitable CDN business.
According to the financial report, Jinshan Cloud’s revenue scale declined in the second quarter, and its performance was lower than expected, mainly because Jinshan Cloud continued to actively reduce CDN services. In addition, due to the epidemic situation in Beijing and Shanghai in the second quarter, Jinshan Cloud slowed down the bidding and project deployment process.
CDN business is the traditional advantage of Jinshan Cloud, which contributes most of the revenue of public cloud business. According to Jinshan Cloud’s US stock prospectus, its CDN business revenues from 2017 to 2019 were 629 million yuan, 1.161 billion yuan and 2.137 billion yuan, respectively, accounting for 52.2%, 54.9% and 61.9% of the revenue of public cloud products, far exceeding the computing and storage sectors in public cloud products.
It is worth noting that the advantages of Jinshan Cloud’s CDN business are more related to the previous price war of domestic cloud vendors. In December 2017, shortly after Jinshan Cloud announced the completion of the D round of $300 million financing, Jinshan Cloud would cut the price of mainstream products in an all-round way. This competition mode has also increased the degree of burning money in Jinshan Cloud, which is based on CDN business.
After listing, Jinshan Cloud slowly changed this situation. Jinshan Cloud revealed in the financial report that due to the general slowdown of the Internet industry in 2021, especially in the second half of 2021, the demand for CDN services in the whole year was lower than expected, resulting in redundant basic resources. In the fourth quarter of 2021, Jinshan Cloud took the initiative to reduce the scale of CDN services.
In the Q2 financial report of Jinshan Cloud, Jinshan Cloud’s public cloud business revenue was 1.289 billion yuan, a year-on-year decrease of 16.9%. Among them, the total billing volume of CDN services decreased by 30% year-on-year, and the total billing volume of computing and storage services increased by 5% year-on-year. However, the business segment of Jinshan Cloud still fell sharply.
Jinshan Cloud’s industry cloud service, which has been deeply cultivated in recent years, has also ended its high growth trend due to the epidemic and other reasons. In the second quarter, it achieved revenue of 617 million yuan, a year-on-year decrease of 0.9% and a slight year-on-year decrease.
Source: Jinshan Cloud Q2 Financial Report
The effect of Jinshan Cloud on reducing the scale of CDN services is also reflected in the cost. In the second quarter, the revenue cost of Jinshan Cloud was 1.841 billion yuan, down 12.1% from 2.094 billion yuan in the first quarter and down 10.4% from 2.055 billion yuan in the same period in 2021.
Reducing CDN business is Jinshan Cloud’s initiative to change the situation of increasing revenue but not increasing profit, which coincides with Jinshan Cloud’s three propositions of succeeding CEO Zou Tao: first, establish technology-oriented business to continuously improve the company’s scalable core technologies and products; The second is to drive sales with solutions, providing easy-to-access and practical cloud application value for traditional enterprises in China; Third, adhere to neutrality and become one of the most trusted cloud service providers in the industry.
Losses are a necessary stage in the development of cloud computing vendors. Jinshan Cloud can’t escape the process of burning money, but it is also a necessary way to continue to expand its scale to share the cost pressure.
Relying on the ecological support of Jinshan and Xiaomi, Jinshan Cloud was at the head of the industry in the early stage of development. Giants continue to scramble for land, and Jinshan Cloud has retreated to the second-line position in the fierce market competition. According to the revenue in 2021, the top three cloud service providers in China are Alibaba Cloud, Tencent Cloud and Huawei Cloud, with a total market share of 42.7%. Although Jinshan Cloud ranks fourth, the third place is more than twice as much as it, so it has to stand in the second echelon with other manufacturers.
Source: Jinshan Cloud Hong Kong Stock Prospectus
Jinshan Cloud is still maintaining the rhythm of loss when its market position declines. Jinshan Cloud relied on the price war a few years ago and did not go out in the melee of cloud manufacturers, but it also caused huge losses in Jinshan Cloud for years. From 2019 to 2021, Jinshan Cloud’s revenue scale increased from 3.956 billion yuan to 9.061 billion yuan, and its net loss also increased from 1.111 billion yuan to 1.592 billion yuan.
However, Jinshan Cloud’s falling behind has long been traceable. According to the prospectus, from 2019 to 2021, Jinshan Cloud’s revenue grew at a compound annual growth rate of 51.3%. Among them, in 2020 and 2021, the revenue growth rate of Jinshan Cloud was 66.2% and 37.8% respectively. In the first quarter of 2022, Jinshan Cloud’s revenue was 2.173 billion yuan, up only 19.9% year-on-year, and it also declined in the second quarter.
Source: Hunting Cloud Network
Independent cloud vendors relying on Jinshan and Xiaomi ecology
The growth of Jinshan Cloud is inseparable from the support of shareholders Lei Jun, Jinshan and Xiaomi.
According to the prospectus, Jinshan Software, Xiaomi and Lei Jun are the major shareholders of Jinshan Cloud, holding 37.40%, 11.82% and 11.82% respectively.
Source: Jinshan Yungang Stock Prospectus
Jinshan Cloud and its shareholders Jinshan Software Group and Xiaomi have formed a business synergy. Jinshan Cloud provides cloud solutions to Jinshan Software Group, and can also take advantage of Jinshan Software Group’s sales network through cross-selling opportunities. Jinshan’s Xishanju game business also adopts Jinshan Cloud’s services.
Jinshan Cloud provided cloud storage services to Xiaomi in 2013. In addition, Xiaomi is a world-renowned consumer electronics manufacturer, with a large number of terminal equipment users, such a large-scale terminal connection, massive user consumption and behavior data, as well as shopping, content, etc., all of which need a strong cloud computing infrastructure to carry. Jinshan Cloud can cooperate with Xiaomi and its ecosystem participants to develop cloud solutions in emerging industries.
Based on this relationship, in 2019, 2020, 2021 and the first three months of 2022, Jinshan Cloud’s income from Jinshan Software Group accounted for 2.8%, 1.8%, 1.7% and 2.2% of the total income, and the income from Xiaomi accounted for 14.4%, 10.0%, 8.5% and 10.9% of the total income respectively.
Jinshan Cloud has been implementing the strategy of mass customization. According to the prospectus, from 2019 to 2021, the top five customers of Jinshan Cloud contributed 65.7%, 61.5% and 50.5% of revenue to Jinshan Cloud respectively, of which most were Internet companies, and most of them purchased public cloud services.
However, large customers do not necessarily choose Jinshan Cloud firmly. In recent years, enterprises have begun to pursue cloudy deployment, that is, they have chosen a number of cloud vendors to provide services. As far as Xiaomi himself is concerned, at least two clouds can support the smooth operation of his business. Jinshan Cloud, as Xiaomi’s own product, is naturally the first choice, but in addition to Jinshan Cloud, Xiaomi also chose Microsoft Azure, the second cloud vendor.
For the same reason, other big customers of Jinshan Cloud also have the possibility of "changing their minds". ByteDance used to be Jinshan Cloud’s biggest customer. However, as ByteDance started to operate its own cloud services, its services using Jinshan Cloud will gradually decrease. What’s more, Jinshan Cloud has a strong competitor in the cloud service market.
Wang Yulin left, and Zou Tao was on the verge of death.
Lei Jun can be regarded as one of the earliest entrepreneurs who pay attention to cloud computing in China. Jinshan Cloud has been established for 10 years, and Lei Jun once compared Jinshan Cloud to the future of Jinshan.
However, Lei Jun’s current task is on Xiaomi Automobile. After the establishment of Jinshan Cloud, apart from investment and business collaboration between Jinshan Cloud and Xiaomi, Lei Jun does not dominate the daily operation of Jinshan Cloud. According to media reports, employees inside Jinshan Cloud believe that although Lei Jun talks about All in cloud computing, he actually doesn’t pay much attention to Jinshan Cloud and doesn’t pay enough attention to it.
On August 8th, Lei Jun, as the chairman of Jinshan Cloud, published an open letter to all colleagues of Jinshan Cloud, announcing that Wang Yulin, CEO of Jinshan Cloud, had submitted his resignation report for personal health reasons, and Zou Tao, director and vice chairman of the company, was appointed as the acting CEO.
Wang Yulin joined Jinshan Cloud in January 2013 and worked for nearly 10 years. He witnessed the development of Jinshan Cloud and the listing of US stocks. He is a man of the hour in China’s cloud computing market, but he also left a lagging Jinshan Cloud for Lei Jun, making Lei Jun’s once brave words an embarrassing flag.
So, Zou Tao’s succession, then some of the crisis. It is understood that Zou Tao joined Jinshan in 1998, when Lei Jun just became the general manager of Jinshan. Zou Tao is the former senior vice president of Jinshan Software and CEO of Xishanju Games. The most memorable career in Jinshan is Sword Net 3. In 2004, Jinshan planned to make a martial arts RPG game and invested a lot of resources. Five years later, Jianwang 3 was released in the expectation of everyone. Unexpectedly, for the first time, the response of Jianwang 3 was flat, just as Lei Jun said, "it was a mess".
That time was the critical moment of Jinshan Game. Zou Tao stood up to support Jianwang 3 and changed the game from 2009 to 2011, and Jianwang 300 was turned into steel. Since 2012, Jianwang 3 has doubled its income for many years in a row, becoming Jinshan’s largest source of income and profit.
This time is the critical moment of Jinshan Cloud. As an old Jinshan person, Zou Tao has more sense of mission. However, in the face of the transition moment, the three value propositions mentioned by Zou Tao need to be verified. Wang Yulin believes that cloud computing is a long-distance running business, and it is not certain who can overtake it. Is there any chance for Jinshan Cloud to rise again before it hits the bottom?
At this stage, Jinshan Cloud’s breakthrough lies in opening up more markets, but what lies ahead is the crazy division of territory by industry giants in various fields. Zou Tao, CEO of Jinshan Cloud, revealed in the Q2 earnings conference call that in the face of the giants, Jinshan Cloud may continue to deepen its cultivation in some original fields and make its own differentiation, such as medical care and finance, before it has the opportunity to replicate its successful experience to other industries.
In the past ten years, Jinshan Cloud has provided the underlying cloud services for Xiaomi and Jinshan, but Lei Jun doesn’t want Jinshan Cloud to be just a "tool person" for Xiaomi and Jinshan. To establish the setting of independent cloud vendors, Jinshan Cloud should open up a pure cloud service model in the cloud computing market, which may be the future of Jinshan that Lei Jun wants to build.