How this Chinese cloud startup escaped death by BAT

Hugh Lv, president of Qiniu. Photo credit: Qiniu.

Hugh Lv, president of Shanghai cloud services startup Qiniu, and I are talking about toothpaste.

“You can’t compete with people who are selling toothbrushes and toothpaste,” Hugh tells me. “That’s very hard.”

We’re discussing China’s cloud service industry, specifically the flurry of activity from Chinese tech giants. Last September, Tencent announced its plans to invest US$1.57 billion into cloud computing over the next five years. A month earlier, Alibaba made a similar announcement, investing US$1 billion into its cloud computing unit Alibaba Cloud. With Alibaba Cloud moving aggressively across the continent, it seems like the days of third party cloud startups like Qiniu are numbered.

However, the way Hugh sees it, China’s BAT (Baidu, Alibaba, Tencent) giants primarily compete on the lowest level of cloud services known as ‘IaaS’ or infrastructure-as-a-service, where the cloud is reduced to its most fundamental and tangible layer: data centers, storage, data partitioning, and more. Like toothbrushes and toothpaste, IaaS products are fairly standardized and compete on a few simple and hard metrics. That’s why Qiniu doesn’t mess with IaaS.

“In IaaS, I help you with the foundation and give you a pile of bricks, and the rest is up to you” explains Hugh. “But in PaaS, I will discuss what kind of house you want to build [and] help you build it.”

PaaS or platform-as-a-service is the layer above IaaS, where cloud service companies offer businesses specific technical building blocks for apps, like live streaming capabilities or video transcoding. It requires closer collaboration with clients than IaaS, at times comparable to consulting.

According to Hugh, PaaS startups can not only survive but thrive alongside BAT giants, which have the tendency to crush or pull nearby startups into their orbit.

“It’s hard to avoid competition with [China’s] tech giants,” says Xu Shiwei, the founder and CEO of Qiniu. “But we’re pretty confident. No matter what happens, BAT will not put too much effort at this layer.”

Qiniu has been under the shadow of China’s tech giants before. When the startup was founded in 2011, it offered cloud storage services, similar to Dropbox. Soon, Shiwei and Hugh realized that China’s cloud storage space was too one-dimensional for Qiniu to operate in. Baidu, Qihoo360, and other large Chinese internet companies were flooding the market with cheap cloud storage.

After three months, Qiniu pivoted to PaaS services directed at developers. Five years later, Qiniu is still alive and kicking, with a US$100 million series D round of funding under their belt from January.

“It’s the golden era for the PaaS model,” says Shiwei.

Leveraging China’s boom-and-bust tech cycle

The cloud service industry might be the most low-key industry in the tech world. Everyone knows the cloud is important – it supports all the magic that consumers delight over, like sharing photos on Facebook or binge-watching Stranger Things on Netflix – but almost nobody outside of the industry talks about it.

Qiniu is a great example. The five-year old startup offers multimedia-focused public PaaS services to over 500,000 companies and developers, from drone startup DJI to Ele.me, an O2O food delivery unicorn worth US$2.34 billion. Their technology powers video sharing on Meipai; the live streaming on Panda TV. Stacked together, Qiniu’s clients service millions of users in China, but most people would be hard-pressed to recognize Qiniu’s cow logo.