Operators Are Stepping In To End The "Brutal" Era Of CDN Or Usher In Price Surges.

In May 8th, Jinshan cloud, which was founded in 8 years, was listed on the US stock market. On the first day, its share price rose 40%, and its total market value reached about 4 billion 800 million US dollars.

On the second trading day, Jinshan cloud continues to go higher and higher. As of the end of May 11th Eastern time, Jinshan cloud shares reported 25.97 U.S. dollars / share, up 8.93%, the market value of $5 billion 200 million.

In an interview with the economic news reporters in twenty-first Century, Lei Jun, chairman of Jinshan cloud, admitted that now, looking back at it, it really takes a lot of courage to make the decision to do cloud services. Cloud business is a giant game, which requires huge investment over a long period of time, while Jinshan cloud has only 1 billion dollars, which is a clear investment stop loss line.

In fact, despite the psychological preparation, the competition in the cloud computing industry is still far more intense than Lei Jun's imagination. Jinshan cloud first cut into the personal cloud service market, but soon, the price war launched by the giant led Jinshan cloud to opt out, and then turned to public cloud services.

Prospectus shows that Jinshan cloud from 2017 to 2019 revenue were 1 billion 236 million yuan, 2 billion 218 million yuan and 3 billion 956 million yuan. Among them, the public cloud business is Jinshan cloud's main source of revenue, from 2017 to 2019, the business revenue accounted for 97.3%, 95.1%, 87.4% respectively.

The public cloud products of Jinshan cloud mainly include three kinds of services, such as computing, storage and delivery. In 2019, they delivered 2 billion 137 million yuan in revenue, accounting for 61.9% of revenue from public cloud business, accounting for 54% of total revenue of Jinshan cloud.

A senior cloud computing industry told the twenty-first Century business reporter that the delivery business mainly includes content distribution network (CDN), KIE, KSHD and so on. "From the revenue structure of Jinshan cloud, Lei Jun has avoided the price war of personal cloud services, but CDN's price war has certainly not escaped."

Price Fighting

In the process of Internet development, CDN as an important tool to reduce network congestion and improve user access response speed, has become an important part of Internet infrastructure.

According to the white paper on content distribution network (CDN) released by China Communications academy, the income of China's professional CDN market reached 3 billion 800 million yuan in 2014, an increase of 50.6% over the same period last year. The compound growth rate of the past four years is about 49%, and the market scale is at a sharp rise in 2015. The latest data show that in 2019, the size of China's CDN market was close to 25 billion yuan.

In 2014, China's CDN market structure was double and male. The net revenue of the CDN business accounted for about 43% of the total industry, while the blue flood accounts for about 37%, and the two accounted for 80% of the total market size.

But at this time, these professional CDN service providers are already surrounded by danger, because some Internet companies including BAT have started to build CDN themselves, and gradually begin to provide services to the outside world. For example, Tencent used only 15% of its traffic to use external CDN services. The rest were built through CDN support and began to provide business services externally; and Ali cloud CDN has been providing commercial services externally since March 2014.

In 2015, it was a turning point in China's CDN industry, and also the beginning of the nightmare of traditional CDN service providers. In March 2015, cloud computing manufacturers launched the price war of CDN business, and put forward that "CDN market price in 2015 will not exceed 15 thousand /G/ months", and the prevailing market price is around 30 thousand, which is equivalent to 50% reduction in price.

In May of the same year, Ali cloud CDN took the lead in reducing the price by 21.2%. Tencent cloud CDN followed the price cut by 25%. Music as the cloud was directly launching the "free" CDN, and the price war intensified. In fact, the tide of price cut between CDN manufacturers is a favorite thing for the market.

In particular, the blowout of live broadcasting industry in 2016 is also the biggest beneficiary of CDN's price reduction. The industry pointed out that if not CDN prices fell sharply, the high cost of broadband may have blocked many start-up companies outside the live industry.

At the beginning of 2017, a CDN executive said publicly that under the double stimulation of the new CDN initiative and the new demands of the Internet, the CDN industry has been swallowing into a new era of cruelty to the seller and happiness for the buyer.

As we say, throughout the 2017, the main theme of CDN industry was still "seller's cruelty". In November 2017, Ali cloud announced that the overall price reduction of CDN was 25%, and the band price was the lowest in China at that time. Following that, Tencent lowered the price of CDN by 47% and innovated at a low price. In December of the same year, Jinshan cloud announced that the biggest decline of CDN was 50%, and the lowest price of bandwidth was 15.6 yuan /Mbps/ months.

Price war means huge capital investment. Jinshan cloud's prospectus also shows that from 2017 to 2019, its net loss was 714 million yuan, 1 billion 64 million yuan and 1 billion 111 million yuan respectively. Among them, the main reason for the loss is the two cost of IDC and R & D expenses.

Returning to reason

A traditional CDN manufacturer's business leader told reporters that the entry of Internet companies to "cut prices - increase market share - continue to reduce prices - squeeze small and medium-sized manufacturers - continue to lower prices - eliminate small and medium-sized manufacturers - continue to reduce prices - monopolize the market - raise prices - get high profits", which has been proven in many areas of the Internet has been transplanted to the CDN industry.

For a relatively saturated market, price war is indeed a means to quickly cut into the market, and all service providers who join price wars aim to rapidly expand the market scale, because the CDN industry is an industry that emphasizes scale effect, and it needs to rely on scale to realize multiplexing so as to achieve profitability.

After several rounds of price war in 2015, the market structure of CDN was also reshuffled. -2017 According to China's CDN market share in 2018, the market of traditional CDN service providers has been constantly carved up. The first tier is only left with network technology, and Ali cloud, Tencent cloud and Jin Shanyun are catching up.

The person in charge said that for cloud computing vendors, the purpose of acquiring the market has been achieved. If we continue to wage a price war, it will be no good for the development of enterprises and the whole industry.

Hu Haibo, deputy director of the China Institute of industry and planning, also told reporters that the rigid cost of CDN is all bandwidth cost and can not be further compressed. At the same time, the cost of traffic will also increase linearly with the expansion of CDN scale.

This is true, but the CDN service providers in the market are in a state of mutual checks and balances. No one wants to let competitors get the price advantage. So comparing the CDN price of Ali cloud and Tencent cloud, it has been stable since the end of 2018, and there has been no significant reduction in price, but no one dares to raise the price.

This situation may change because of operators' involvement. According to the twenty-first Century economic report reporter, since the end of 2019, China Unicom and China Mobile have issued a civilized ban on the sale of IDC at a low price, and have stipulated the price of broadband sales. For example, China Unicom stipulates that the unit price of static access broadband sales is no less than 100 thousand /G/ years.

Operators are in the upper reaches of the CDN industry, and the rising prices of raw materials will also have an impact on the whole industry chain. According to sources close to operators, in view of the past "price war" to seize the market phenomenon, the operators will strengthen the management and control of the value of government business, and when necessary, they will also take measures to purify the market and ensure healthy competition in the industry.

Hu Haibo has also made a prediction that the future coverage and service capabilities will be the focus of competition for CDN enterprises. If the pressure of cost increases, the price rise of the CDN industry will become a probability event.

A cloud manufacturer told reporters that the broadband price increase of operators will become an important variable in the CDN industry. On the one hand, the whole industry may increase prices together. On the other hand, if the industry does not raise prices, the manufacturers will have to bear the additional cost themselves. At this time, if the funds are not enough, they will not be able to sustain them. "If the market players are less, the price increase of the future industry is also inevitable."