From enablers to subversives, technological empowerment and industry disruption are two distinct paths, but in a particular market environment it becomes a difficult road to separate.
Editor’s note: This article is from WeChat public account “Qingtong Capital” (ID: qtziben), author Qingtong Capital.
Qingfu has always been the focus of Qingtong Capital, and has helped dozens of enterprise projects to complete financing. Recently,Qingtong CapitalInvitationStudent Capital Investment Director Zhang Moe, reviewed The development of IT services in Chinese enterprises in the past five years, and explored the way to break the future. The following is the key to sharing the moment:
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The economic basis of Chinese enterprise IT services
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The development environment of Chinese enterprise IT services
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The Breakthrough of Chinese Enterprise IT Services
With the concept of cloud computing and SaaS popularization and the rise of the market, the enterprise IT service field has been concerned by the early venture capital circle since 2014, and some people call it the first year of development of Chinese enterprise service. In the next five years, we will hear such a “first year” every year. In fact, from the perspective of market evolution and the amount and amount of investment, the development of the Chinese enterprise service sector has really improved significantly since the second half of 2018.
At present, more and more venture capital institutions focus on enterprise IT services, mainly for two reasons: 1 the consumer Internet sector dividends are gradually exhausted, and its development has shifted from an outbreak to a stable one. Drawing on the development rules of the US market, capital expects that the field of enterprise service will bring higher return on investment. 2 The combination of various factors such as rising labor costs, industrial structure upgrading, and international trade situation and geopolitical changes at the present stage of the Chinese economy has led to serious downside challenges in China’s real economy. Enterprises face huge industrial upgrading pressures, which has spawned the development of enterprise IT services.
The development of any market and industry follows the corresponding economic laws. In order to better explore the characteristics of the development of Chinese enterprise IT service market, first of all, with everyoneShare some economic concepts related to the field of enterprise IT services.
One. The economic basis of Chinese enterprise IT services
First concept, value
Value is the most basic concept for any business model and transaction. Only by understanding the value of the underlying goods and services in the transaction process will it be possible to understand the most fundamental basis of the entire business model and transaction.
We usually consider the value of a good and service in two ways: the cost of production and the value of use. Given that the main production factors of IT products and services are the mental work of technicians, it is obviously inappropriate to consider the value of IT products and services with the labor costs of technicians. For IT products and services, we use the value of use as an indicator to measure its value.
What is the value of enterprise IT services? If we carefully consider the use of IT products and services in the enterprise, at least at this stage, most of them will assist the human brain in processing information and forming decisions, resulting in more efficient and accurate work results.
The human brain itself is a very efficient information processing device. In the current era of information growth and data explosion, the human brain faces the challenges of data volume, data velocity, and information complexity. The development path and goal of the entire IT technology is to help people improve the efficiency of information and data processing in response to the above three challenges facing the human brain.
At the same time, IT products and services have a value factor that is easily overlooked by everyone, and is the value of their external scale effect. The value of information and data is magnified by its liquidity and sharing. Therefore, effectively forming external connections can significantly increase the value of IT products and services, and the more easily IT products and services that are more likely to be adopted, the higher the value.
Overall, Use value of IT products and services in the enterprise environment = function* (scale factor + speed factor + complexity factor) * external scale effect / adoption cost.
The second point about the value of IT products and services, a good business model requires a sustainable exchange of equal value.
The sustainability we are talking about mainly refers to twoAspects: 1IT products and services provide users with long-lasting value. 2 IT products and service providers can achieve long-term sustained returns.
The equivalence of value exchange refers to the relationship between the two parties at the time of the transaction and after the transaction. Trader compromise is a common phenomenon in the transaction process, but if a single party damages its current or long-term interests in order to reach a transaction, it will form a non-reciprocal relationship. The basis of a peer-to-peer relationship is that the parties to the transaction can provide each other with a value beyond the long-term functionality. In the enterprise IT service market, the client side usually has a wide range of choices, and functional competition is likely to quickly form a homogenous price competition and form an unequal trading relationship.
Second concept, product/service
Products and services accepted by users are the carrier of any corporate value output. In addition to functionality, different products and services have distinctly different attributes. From different application scenario attributes, we can roughly divide the products of enterprise IT services into three categories: tools, processes, and enablers.
1. Tools, are products that solve a specific problem for a user, such as Photoshop. Although the image processing process also involves a certain workflow, it is a specific problem with very clear boundaries in terms of the task itself.
2. Process class, refers to the standardization of some processes in business operations to form a software product. This kind of software can help users to better implement the business process of the enterprise, such as some human resource management software, sales management software and so on.
3.Enable classes, are usually relatively low-level under the entire IT architecture, providing basic capabilities for upper-level business applications. For example, nowadays very popular data in the middle, AI components and so on.
These three categories show very different characteristics in the development lifecycle of products and services that interact with customers. But From the perspective of value evolution, it is a point-cutting process that forms a standardized service and eventually becomes a platform that can be widely used and scaled horizontally.
Why are very successful corporate IT services companies eventually evolving from product service companies to platform-based companies, mainly because platformization brings three distinct high-value economic characteristics:
1. Ecological. Because of the convergence of the platform, on the platform, more and more third parties will build other commercial applications based on the platform, provide a wider range of business functions, and effectively increase the value of the platform itself, thus forming an effective Positive feedback on the ecological environment.
2. Monopoly. Because of the ecological nature of the platform, all applications and data are gradually merging into your platform, becoming a key component that is indispensable and difficult to replace. When the irreplaceable platform begins to produce an exclusive effect, it will gradually form a certain monopoly position in the entire enterprise IT service architecture.
3. Taxation. Because of the monopoly of the platform, the platform forms an ideal state of tax revenue for its partners in the ecology. Basically, all of the highly successful corporate IT services companies will eventually evolve into a platform company with tax revenue.
The third concept, supply and demand relationship
The nature of the products and services themselves and the value they provide are an important factor in the value of the supply in the transaction. Another decisive factor is the supply and demand relationship of value exchange in transactions. In the field of enterprise IT services, the relationship between supply and demand has the following characteristics:
1. Reversed technology adoption. Enterprises have certain pre-costs for the adoption of new technology products and services, which mainly include training costs, and the cost of enterprise transformation and adaptation. These cost factors directly lead to the fact that, apart from a few pioneering head enterprises, the vast majority of enterprises, as users of enterprise IT products and services, are adopting a new model. Either because of the pressure of competition or because of the demand of their own customers, companies have to adopt new technologies.
2. Solve the problem vs. support the contradiction of running. At present, users’ demand for enterprise IT service products is still at the level of problem solving. But in fact, as producers and providers, they hope that the products and services they provide will have a lasting support for the business operations, rather than simply solving a single problem. With the increasing digital transformation of enterprises, this contradiction is gradually being solved.
3. Management requirements vs. execution requirements conflicts. Based on the functional positioning of different products and services, is the user’s demand for the product and service a management requirement or an execution requirement? There is a very clear difference between the two. Management requirements are usually the collection and processing of business information, as well as the monitoring of the operating status of the entire enterprise. The execution requirements are often to meet the needs of people below the middle level, that is, I have to implement a specific business process to solve a specific problem. In management needs and executionHow to form an effective and convenient response between line requirements is one of the core challenges that determine the market acceptance of enterprise IT service products.
4. Contradiction in demand for technology supply vs. product. In the enterprise IT services market, both the supply and demand sides have very different understandings of technology supply and product characteristics. From the perspective of enterprise IT service entrepreneurs, it is necessary to create their own core competitiveness and improve the leading edge of products and technologies. From the user’s point of view, in fact, more is the need for product functionality and reliability. Providers are more inclined to build their own advantages as a startup, and users are more inclined to build the advantages of their existing businesses. The mismatch between the needs of both parties has led corporate IT service entrepreneurs to face great challenges in balancing technology innovation and productization.
The above factors often lead to misjudgment between the supply and demand sides of the specific products and services in the enterprise IT service field, which seriously affects the market size, competition situation and industrial value chain of many startup enterprises. Judging the evolutionary trend.
Two. The development environment of Chinese enterprise IT services
The development of an industry is inseparable from the macroeconomic environment. The development of the IT service market of Chinese enterprises is also inseparable from the entire Chinese industrial economic environment that it serves. When we study the development of the world’s advanced markets/enterprises in the field of enterprise IT services, we can clearly feel that there is a huge difference between the Chinese market and other advanced markets, especially the US market. These differences are largely determined by China’s unique macro-industry structure.
First, industrial structure
1. Vertical distribution of the industry. The vertical distribution of the industry refers to which are large enterprises, which are medium-sized enterprises, and which are small and micro enterprises? How these enterprises are distributed in terms of quantity and quantity.
In the United States, the key customer base that supports the rapid development of startups in enterprise IT services is usually SMEs.
A relatively complete and mature market, the vertical distribution of the industry is usually a “pyramid” distribution: large enterprises are in the head, large in volume but small in number; medium-sized enterprises are in the middle; the base is large in size but small in size Small micro enterprise.
And Actually in China, the vertical distribution of the industry is in line with the “pyramid type”, but from the perspective of corporate IT expenditure and purchasing power, it is a vertical “dumbbell type”. “. In other words, the overall IT purchasing power of medium-sized enterprises is relatively small, and the sum of small and micro enterprises has not formed a huge base. The “dumbbell-type” distribution poses a great challenge to the entrepreneurial enterprise in the enterprise IT service field in the choice of customer groups.
2. Industry profit distribution. OneA well-known data: From the analysis of the profitability of China’s main board listed companies in 2018, the absolute number of banking profits accounted for 78% of the profits of all listed companies. In other words, all the companies add up, each profit of 100 yuan, of which 78 yuan of profits from the banking industry. The banking industry plus other financial industries (insurance, securities, etc.) plus state-owned monopoly industries such as energy and power operators account for more than 90% of profits.
Because the supply and demand relationship determines the demand side to adopt new technology products and services, only when the demand side has good profit expectations and sufficient budget, will it consider more adopting new IT product and service. If a company’s operating margins are very thin, it’s hard to imagine a more aggressive approach to adopting new IT products.
This is why today’s corporate IT services startups talk about their core customer base, and more than half are bank customers.
3. Enlargement and diminishing effects of corporate IT spending. In a nutshell, corporate IT spending will become a revenue for corporate IT service providers. The scale and flow of IT spending across the enterprise determines the development model of enterprise IT services. At the same time, in a healthy enterprise IT service market, providers themselves will also be users, such as giant Internet companies such as BAT, which are themselves large purchasers of IT services. In such a market, corporate IT spending has a healthy amplification in the market.
But in the current market environment, the large amount of corporate IT expenditures flowing to low-tech value-added hardware and project labor costs cannot be effectively transmitted to the technology providers in the enterprise IT service field. Go to the corresponding high-tech value-added IT services. The combined amount of IT spending in all enterprises has not contributed to a positive amplification of the entire IT services market. Even in extreme cases, it is actually declining, and the entire market has not formed a benign development.
4. The significance of the dominant industry. The overall development of the Chinese economy over the past 40 years has formed several very strong advantageous industries. They have not only become very large-scale industries in China, but also have considerable scale and technology around the world. Leading. This is inseparable from the fundamental promotion of the demographic dividend and the great development of infrastructure.
These advantageous industries have a strong leading effect on the development of enterprise IT services: 1 These industries have adopted many advanced IT technologies in their own development process, and accumulated a large number of technical and personnel reserves in practice. 2 The advanced nature of these industries’ own development, and also corresponding enterprises for refining and promoting the advanced technology and best business practices of the industry in the future.The IT service company has laid a good foundation.
Second, labor turmoil
1. Labor supply and employment orientation. As the proportion of China’s births declines year by year, the total labor supply has continued to decline since 2007 and 2008, resulting in a rapid increase in labor costs. This is the truth.
The employment orientation problem is another core change that is more subtle than the labor cost problem and has a more direct impact. There is data showing that the post-95 workforce has a very strong demand for working time and autonomy. Even in the low-end labor market, more and more young people are willing to take a low-paying take-away, and are not willing to go to a traditional factory. The main reason here is that the delivery of the take-away is somewhat more autonomous than the feeling of working in the factory.
From a positive perspective, the new generation of labor prefers autonomy and creative work, to some extent in line with the overall trend of China’s industrial upgrading. From a negative perspective, the manufacturing industry, especially the high-tech jobs that need to be accumulated for many years, will be very lacking in qualified labor supply.
2. Workforce replacement. Under the premise of rapid development of technology and frequent replacement, if we observe 85 and 95 as the main body of knowledge work, and after the upcoming 00, their technological growth environment is significantly different. After the 85th, it basically grew up in the PC era, and after 95, it corresponds to the mobile Internet era, and after 00, it is a generation that grows under the instant service.
There are very large differences in patterns and usage habits for information acquisition, information categories, information processing, and collaboration with other people and objects in the physical and virtual worlds. There are many accumulations of cognitive aspects, and their adoption of tools and platforms will be very different from existing products and services.
3. Job hopping cycle and index. The problem of employee turnover that entrepreneurs often complain about is very real. According to statistics, for the high-tech industry practitioners in first- and second-tier cities, the average working time of each employee in China is about 2.8 years, while the United States It is 5 years. Of course, we can’t simply understand this data as Chinese people prefer to change jobs, but because the vitality of China’s economic activities is higher, it will inevitably lead to faster labor mobility.
But from the perspective of entrepreneurship and investment, there are two potential impacts on job hopping: 1 The intensity of job hopping has a certain correlation with the increase in labor costs. The main reason for people to quit is to obtain higher salary. This is negative for the labor costs of startups. 2 The job-hopping effect can be divided into two perspectives: the positive side is to promote the spread of new technologies and new products.The negative side is that for companies, the cost of employee training and the long-term planning of the team have become a big challenge. Especially for startups, employees with extremely rich experience will become more and more difficult to obtain, and long-term technology development plans will face greater uncertainty.
Third, good money, bad money, pricing power
Technology update speeds up, complexity continues to increase, creating a number of technology-focused entrepreneurial opportunities. However, people often overlook that the acceleration of technology development has brought a serious challenge to start-ups, which has greatly increased the cost of market education for new technologies. If the user does not have enough knowledge of new technologies, new products and services, and he or a third party does not have the ability to effectively evaluate them, the overall market development will be greatly affected.
1. Bad money drives out good money. In the textbook of American economics, there is an example. In the US used car market, if consumers can’t effectively evaluate the quality of the car, the price becomes the only measurable specific data indicator for consumers. Consumers will use the price factor as the primary factor in determining the transaction, then the used car seller will sell the car more and more cheaply, and the quality of the car will become worse and worse.
This is a market phenomenon in which bad money drives out good money caused by consumer perception. In the Chinese enterprise IT service market, there are also innuendos. If the user’s own IT level is limited, the price factor is abnormally magnified, then this market is easy to form a phenomenon in which bad money drives out good money. Whoever sells the cheapest, who has the best relationship with customers, who will take a bigger advantage in this market competition. This phenomenon will directly affect the investment of enterprise IT service enterprises in new technology research and development and the pursuit of product quality and service quality.
2. Budget and pricing. Basically all software and high-tech products have a feature that is high fixed cost and low marginal cost. Before the product goes on the market, it needs a high pre-investment to make R&D investment. After the product matures and opens the market, the copying cost is actually very low.
At the same time, because of the rapid development of technology itself, rapid evolution, new technologies and new products with higher performance and more powerful functions are also emerging. High-tech products have clear prices and continue to be rigid and down-streaming properties. Strictly speaking, this Is a market with deflation properties. For a product with low marginal cost and deflationary attributes, the supplier is a very weak party in pricing power.
From the perspective of the demand side, solve the corresponding problems and realize the corresponding functions. There are corresponding value accounting methods and budgets within specific enterprises. The demand side’s budget determines the price of the product and service in the transaction. From the perspective of the supply side, the corresponding products and services have universal value and revenue expectations for their own development, and the pricing of products and services should be guaranteed.The size and development of the overall market.
The mismatch between the value perceptions of both parties, coupled with the lack of awareness of the sustainable value of enterprise IT services by the demand side, led to the vast majority of Chinese IT service companies themselves have no pricing power.
Fourth, industrial upgrading and industrial independence
The industry upgrade cycle that is taking place in China and the industry independence under the international environment have created a soil with significant opportunities for the subsequent development of IT services in China.
1. Industry development under extreme competition. The ultimate competition is an obvious feature of the Chinese economy over the past 40 years. The rapid development of the market and the relatively extensive competitive environment have led all competing companies to push themselves to a limit and squeeze profits and improve efficiency to compete.
In such a market, common IT products and services are hardly as effective as the US market. This often increases the difficulty for enterprise IT service companies to enter the market and grow rapidly. However, in the positive direction, the industries generated under extreme competition usually have clear advantages and can often be upgraded into products and services with reference.
2. Industry integrators. The vertical distribution of China’s industry and the legal regulations related to industrial development are relatively more friendly to industry integrators. Although in a relatively mature market environment, it is prone to a more abundant and diversified market form. However, under the current relatively rough and rapid development of industrial upgrading, many large-scale vertical areas may produce high-speed and efficient industry integrators, with industrial upgrading, forming an industry giant.
Under the current market development, the emergence of industry giants has a relatively positive effect on the development of Chinese enterprises’ IT services:1In the development process of the industry giants, IT new technology products and Services to improve efficiency help them complete the process of industry integration. 2 The enterprise IT practice within the industry giant has significant leadership and demonstration effects for the entire industry and even across industries. 3 Industry giants have developed to a certain stage, usually from the users of new technologies and new products to the exporters. In this process, the industry giants will usually integrate appropriate technology product manufacturers in the market to improve their technical product reserves.
3. Industry independence under the new international situation. From the perspective of economics, industrial division of labor and internationalization is the lowest and most benign development process of industrial development. However, in the past two years, the international trade and the geopolitical situation have turned sharply, making the domestic industry independence happening rapidly, and gradually formed a security-controlledSelf-improved industrial system.
In this process, in different industries, especially those with high geopolitical relevance and high security and controllability, some of the IT technologies that are not easily seen under normal circumstances The opportunity for rapid development.
Three. The way to break the IT services of Chinese enterprises
Since 2014, there have been many entrepreneurial companies in the field of IT services in domestic enterprises. Most of these companies refer to product routes and business models that have been validated abroad, but they have encountered more or less, early or late developments in a series of common challenges, such as technology productization. The positioning is deviated, the target customer group is misjudged, the project income ratio is too high, the sales growth rate is slow, and the sales ceiling (2-3 billion) is much lower than expected.
After these common challenges, many are caused by the particularity of the Chinese enterprise IT service market. This also explains the limitations of simply imitating foreign precedents from another perspective. Then, in the specific development situation in China, what are the broken ways in the enterprise IT service field and our unique opportunities? Here are a few ideas to give you a reference, for your reference:
First, the customer group sinks
Scale is an inevitable challenge in any business development process. Although the small and beautiful strategy is established in the economic model and business model, in the environment of domestic supervision and relatively rough competition, small and beautiful success may face greater challenges than large-scale development.
The scale development of an enterprise is a systematic project. From industry identification, customer selection, product positioning, organizational structure, and operational optimization, it requires clear and systematic thinking.
In the context of technology-enabled data-driven, industry-based digitalization, companies are also experiencing a flattened organizational structure, agile business operations, and the evolution of supply and demand chains. The shape of the enterprise itself and the distributed systems in computer science are more and more similar. We try to jump out of a simple business model perspective, based on the principles of distributed systems, to provide some thoughts on the scale of enterprise development:
1. Clarify the extensibility of the unit economy. In addition to our usual output-oriented customers, geography and products are the basic unit of unit economy, like organizational units (functional groups), R&D target units (product lines), and even supporting functional units. (Information System) These loss-oriented should be the core unit economic unit of enterprise scale development. In the course of development, what are the specific extensibility of these unit economies in the scope of development?
2. The balance between ultimate and availability. is analogous to the consistency of distributed systems,