The three-year bloody CDN price war has ended, but traditional vendors have been crippled

In the cloud computing market in 2017, the bloody CDN price war became a hot topic. People witnessed Internet companies bombarding traditional service providers with low prices, talking about how the former were rich and powerful, and how the latter survived in the cracks.

Of course, just like the Internet industry, burning money will not be endless. After reaping a large number of users, it is natural to wait for an opportunity to stop.

At Tencent's "Cloud + Future" Summit in May this year, Qiu Yuepeng, President of Tencent Cloud, announced that access to AI functions will be free and CDN products will be reduced by 20% in price to promote the digital transformation of traditional industries and the popularization of artificial intelligence and cloud services.

According to last year's logic, if one party announced a price cut, its competitors would follow suit. However, at the Alibaba Cloud Yunqi Conference a month later, Alibaba Cloud lowered the prices of many cloud service products such as object storage, table storage, and EOS cloud servers, but did not take any action in such an important sector as CDN.

Of course, we cannot categorically determine that other manufacturers will not follow suit. However, looking back at the first half of the year, only Tencent Cloud announced a price cut. Compared with the market in previous years, the market has obviously calmed down a lot.

Since March 2015, when Alibaba Cloud announced a 21% price cut for CDN, the price war officially began. Cloud service providers including BAT, Qiniu Cloud, Kingsoft Cloud and even Microsoft Azure have joined this protracted battle. Alibaba and Tencent have taken turns to cut prices, attracting much attention to this originally highly opaque industry.

Now, the quietness in the first half of the year seems to prove that after several years of fierce price wars, the CDN market has been reshuffled, the price war may come to an end, and the industry will gradually return to healthy competition.

As an important participant in this battle, Qiu Yuepeng, president of Tencent Cloud, also responded to the topic of "price war" in an interview earlier, saying that the cheaper the product, the better, and we should talk more about value with customers. At the 2018 Asia Pacific CDN Summit, executives from Kingsoft Cloud also predicted that the price of CDN will return to the normal competitive range in 2018.

Of course, the traditional CDN vendors who most wanted to end this war finally breathed a sigh of relief. In the past few years, they were very passive throughout the whole process. After being disrupted by Internet vendors, they kept saying that price wars could not shake the market structure! Wangsu executive Li Dong once said in an interview, "Profitability is the prerequisite for winning the CDN protracted war. Endless burning of money is unlikely to reach the top."

However, the truth is that wealthy Internet companies have indeed shaken up this market structure.

According to statistics from an IDC consulting report***, ChinaNetCenter's CDN market share in 2016 was 43.5%, up nearly 3 percentage points from 2015; ChinaCache's market share in the same period was 11.2%, while Alibaba Cloud and Tencent Cloud's market shares were only 8.7% and 4.1%, respectively.

Data shows that under the impact of Alibaba Cloud's ongoing price war, the market structure of the second-tier CDN market has indeed changed, and the fate of traditional CDN vendors has been rewritten.

Dilian Technology is a long-established company dedicated to providing Internet platform services. Since its establishment in 2005, Dilian's CDN services have been continuously expanding and extending, and have become the company's key business. Over the years, Dilian has invested heavily in CDN in terms of manpower, material resources, and financial resources. It has also won many awards in the CDN industry and even planned to establish a subsidiary in Hong Kong.

However, since 2016, the company's performance has declined sharply. According to the financial report, Dilian lost 59.2849 million yuan in 2016, and the loss amount reached 87.6937 million yuan in 2017, with the loss increasing by 47.92% and the net profit decreasing by 47.92% year-on-year. The main reason is that the CDN price war caused a sharp decline in gross profit. In addition, the company's financial director, deputy general manager and others also left one after another.

Small service providers are having a hard time surviving, and as the leader in the domestic CDN market and the only profitable company, Wangsu is also having a hard time under the impact of the price war. In 2017, the company's operating profit was about 830 million yuan, a year-on-year decrease of 34%. In fiscal year 2014, net profit increased by 104%!

In addition to the impact on performance, major changes have occurred within the company. On July 16, Wangsu Technology issued an announcement stating that due to the expiration of the agreement on concerted action, the company's largest shareholder Chen Baozhen and the second largest shareholder Liu Chengyan terminated their concerted action relationship, which also means that the company currently has no controlling shareholder or actual controller. Prior to this, the company's executives and investment institutions had already begun to intensively reduce their holdings, including the well-known QFII Bill Gates Foundation.

Today, Wangsu Technology is being abandoned by investors due to its uncertain business prospects. Since August 2016, its stock price has continued to fall, and its market value has fallen by nearly 60% from its high point in August 2016.

It is worth mentioning that at the beginning of this year, there were rumors that Tencent would invest 3 billion in Wangsu, which caused heated discussions in the industry. Although the rumor was refuted, in the eyes of outsiders, if traditional manufacturers want to successfully transform, joining forces with Internet giants may be the only way out.

After this battle, the high-profit bubble of this industry has been completely punctured, and traditional enterprises that have tasted the sweetness of it in the early stage have to look for opportunities for transformation:

• Dilian has begun to change its operational thinking. In April this year, it joined hands with Cloud Network and Youpai Cloud to try to increase the utilization rate of cloud network resources and jointly reduce the resource procurement costs of the three parties.
• NetEase has also turned its attention to overseas markets. Last year, it spent a huge amount of money to purchase two foreign CDN companies, hoping to use overseas business to offset the impact on the domestic market.
• The losers are already seeking survival, and as the victorious party, cloud service providers should also consider how to make profits after seizing this market.