Mr. Ren Gang, partner of Qinglan Capital. He once worked in Hony Capital, a member of Legend Holdings, a leading investment management institution in China, and has 17 years of experience in equity investment and financial audit, focusing on investment in industrial Internet and new technologies. He has repeatedly given wise and pattern explanations to many industrial phenomena from the perspective of investors in media interviews and foreign speeches.
Founded in 2016, Qinglan Capital is an industrial investment fund focusing on technological progress to drive industrial transformation and consumption upgrading opportunities, focusing on investing in new technology companies (cloud, data, artificial intelligence, etc.) and companies with deep integration of technology and industry (industry+technology). Investments include Huichen Information, Honeycomb Internet, New Nuclear Cloud and Maiaimu.
The following is a record of the essence of this live broadcast:
I came to today’s activities with a learning attitude, because the answer to the industrial Internet must come from practice, from companies like HC that focus on doing industrial Internet, and from the industrial Internet exploration of HC friends who are watching the live broadcast in various specific industries and scenarios. As an investor, I have the opportunity to communicate and discuss with many outstanding industrial Internet entrepreneurs, so I take this opportunity to share with you what I have seen and gained in the process of industrial Internet investment, hoping to give you some inspiration.
The Stone of Other Mountains-How did the United States make the industrial Internet?
Industrial Internet includes two parts, industry and Internet. The western industrial revolution began in Britain in the 1760s, and its main symbol was the replacement of manpower by machines. China’s industry, especially industry, started late, and its rapid development is mainly reflected in more than 40 years after the reform and opening up. In the field of Internet, the "ARPANET" was built in the United States in 1969, which opened the Internet era. In 1994, China became the 77th country in the world with a full-featured Internet. In the beginning of industry and Internet, we are all a little later than the western developed countries, so it is meaningful to observe and learn from the western developed countries how to do industrial Internet when we think about how to develop industrial Internet.
What is the English for "Industrial Internet"?
Answer 1: "industrial internet"
First, the industrial Internet is the product of the superposition of the industrial revolution and the network revolution.
Second, the industrial Internet has three core elements: intelligent machine+advanced analysis+staff. GE believes that in the past, machinery and equipment and people were independent worlds. Today, through digital and intelligent technology, the boundary between machines and people can be broken, and people and intelligent equipment can be connected to jointly improve the efficiency of the whole industry and realize industrial upgrading.
Third, even if the industrial internet only improves the efficiency of the whole industry by 1%, it will bring huge social benefits.
The concept of "Industrial Internet" put forward by GE has aroused great repercussions and promoted the development of industrial Internet in China, but it is not exactly the same as the concept of industrial Internet we made in China today.
Answer 2: "2：“Business to Business” (“B2B")
China started the B2B development and investment boom around 2013. Are there any B2B companies in the United States? We have done some research and found that the answer is "yes" and "very early". An article "E-Hubs: The New B2B Market Places" published in Harvard Business Review in 2000 analyzed the booming B2B enterprises in the United States at that time. Most of these B2B enterprises were established in the 1990s, and by 2000 they had begun to take shape.
In this paper, B2B matrix is divided into four quadrants according to two dimensions:
Two dimensions
The first dimension, what is the object of B2B transaction, is divided into two categories:
1) Business materials (such as spare parts, human resources, etc.)
2) Production materials (such as steel, chemical raw materials, plastic raw materials, etc.)
The second dimension, how the enterprise purchases, is divided into two categories:
1) Systematic procurement or continuous procurement usually has a fixed supplier system, and even adopts a long-term single-price locking method;
2) Spot purchase, temporary purchase and flexible purchase, that is, docking the spot market, temporarily purchasing according to the demand, and the price will go with the market.
Four quadrants
The first quadrant, MRO Hubs, refers to the systematic procurement of materials that serve the business of enterprises. The representative companies are Ariba, W.W. Grainger, etc. Ariba is currently one of the most influential procurement software in the world, and Grainger has also grown into a very excellent MRO service provider. On the whole, the companies in this quadrant are developing well, because the proportion of MRO procurement in the overall procurement of enterprises is not high (about 5%-10%), and enterprises are willing to hand it over to a third party in whole or in part; At the same time, this kind of procurement is a continuous business, which gives good business opportunities to third-party service providers. Its core is to transform the original multi-category and multi-supplier decentralized procurement into one-stop procurement service.
The second quadrant Catalog Hubs refers to the systematic procurement of production materials for enterprises. It seems that most companies in this quadrant are not big. Because for an enterprise (especially a manufacturing enterprise), the procurement of production materials may account for 70%-80% of the overall procurement, and this kind of procurement behavior is long-term, and most enterprises want to grasp it in their own hands. Therefore, this quadrant is a service provider facing vertical industries and providing services according to Party A’s requirements, and its development scale is limited.
The third quadrant, Yield Managers, refers to the temporary procurement of materials that serve the business of enterprises. Because this kind of purchase is usually small and the demand is unstable, there are not many companies that have developed in this quadrant.
The fourth quadrant Exchanges refers to the temporary procurement of materials for production of enterprises. When purchasing raw materials for production, enterprises will not lock them all with long orders, but will reserve a certain proportion to go to the spot market for temporary procurement when necessary. Therefore, the enterprises in this quadrant have gradually developed into a bilateral bidding spot market model or an exchange model, and provided various derivative value-added services around transactions, and many companies have developed well.
This article was written in 2000. At that time, many of the author’s understandings were still limited, such as not considering whether the customer was a large enterprise or a small enterprise. However, it was remarkable to make such a systematic analysis at that time, and it still has great inspiration and reference value today.
Answer 3: "enterprise software"
"Cloud-based Software" Today, the backbone of American industrial Internet is a software company. The representative companies of traditional Enterprise Software, such as SAP, Oracle and Microsoft, and the new generation of Cloud-based Software companies based on cloud ecology, such as Salesforce, Shopify and Veeva.
The industrial internet in the United States is dominated by software companies and large enterprises, mainly providing tools. For example, GM, Ford and Chrysler in the automotive industry jointly established Covisint (later acquired by Opentext) to provide solutions for the industrial Internet in the automotive industry.
What’s the difference between China and America?
Will China, like the United States, form an industrial Internet model dominated by software companies and large enterprises and mainly providing tools? Personally, I think the answer of industrial Internet in China is not exactly the same as that in the United States, because the industrial environment in China and the United States is different.
First of all, after long-term competition, many industries in the United States have formed a stable pattern of high industrial concentration and large enterprises leading. The mature and unified management model and stable business model are conducive to software enterprises to improve industrial efficiency by means of tool empowerment. However, in most industries in China, the industrial concentration is low, there are many small and medium-sized enterprises with fierce competition, the enterprise management models are also different, and the business models are constantly innovating with each passing day, so new empowerment methods are needed.
Secondly, the United States has long formed a huge paid licensing software market, and enterprises have the habit of paying a large price for software. After entering the cloud era, a new generation of software companies adopt SaaS delivery and charge annual fees, which greatly reduces the IT expenditure cost of enterprises. It can be said that the new generation of cloud software companies in the United States has achieved success on the shoulders of traditional software companies. However, the past paid licensing software market in China was not mature, and enterprises were not willing to pay for the software. After entering the SaaS era, they still faced the challenge of charging.
Finally, many enterprises in the United States are willing to pay for the tools, while those in China are often more willing to pay for the effects.
Industrial Internet with China Characteristics
Due to the above differences, it is necessary to develop the industrial Internet with China characteristics in China.
First, China’s industrial Internet platform should not only provide software tools and IT services, but also integrate industrial factor resources (such as marketing, logistics, finance, etc.) to provide business-oriented value-added services.
Second, it is difficult to make money only by software, and it is necessary to be brave in trying to make money through value-added services in the profit model.
Thirdly, due to the low industrial concentration of many industries in China, there is a chance to become a third-party platform. From this perspective, China has a greater chance of industrial Internet than the United States.
The Development Course of Internet in China
The development of industrial Internet in China is a process of gradually realizing digitalization, intelligence and cooperation of the whole industry.
Retail Digitization Consumer Internet enterprises in China have solved the problem of "brand-retailer-consumer". Today, we can easily carry out online marketing, realize online purchase, online payment, and have a very powerful digital warehousing and logistics network. The core of consumer internet (including new retail) is to solve the problem of digitalization of retail links in the downstream of the industrial chain.
Digitalization of Circulation A number of B2B companies started to develop in 2013, mainly aiming at circulation links, and solved the problem of digitalization of circulation links. It has realized B2B online transaction, online payment, online finance and digital warehousing and logistics services.
Digitalization of Manufacturing In 2015, China proposed "Made in China 2025", and industrial internet and intelligent manufacturing solved the problem of digitalization of manufacturing links. Help manufacturing enterprises to realize digital design, product management and digital production, realize equipment networking and capacity networking, so as to realize more efficient collaborative manufacturing.
Industrial Internet In the past ten years, China has solved the digitalization problem of all links of industrial Internet step by step. However, simply doing the digital transformation of a certain link can’t meet the needs of industrial development more and more. Only when the whole industry, from the upstream to the C end, is fully opened, can the maximum industrial synergy value and strength be truly exerted. Today, the opportunity of industrial Internet in China is to realize digitalization, intelligence and coordination of the whole industrial chain, and to realize industrial reconstruction and even business model reform by using Internet technology and new IT technology.
What is China Industrial Internet?
If you use a paragraph:
Industrial Internet: The Internet and information technology are used to realize the digital and intelligent connection of industrial elements, and the industrial chain and value chain are transformed and reconstructed with the help of Internet thinking, which will bring about the improvement of industrial efficiency and the change of industrial organization mode and even business model.
If you use nine words:
Industrial internet: redoing industry with the help of internet
The core of industrial internet is how to do a good job in industry, and the internet is the tool and method we use.
Application of Internet Characteristics in Industrial Internet
What is the most essential feature of the Internet? Bits and connections.
Connection-spatial dimension
The scope of traditional connection is limited to our surroundings, limited to our business partners, upstream and downstream, and it is a narrow connection. Internet allows us to connect to the whole world, from connecting acquaintances to connecting strangers, from narrow connection to wide connection. Therefore, the Internet brings us a brand-new connection.
Connection-time dimension
The traditional way of communication first relied on letters, and later there were telephone and fax. These connection methods were inefficient and the speed of information feedback was slow. Internet connection, through optical cable transmission, transmits information at the speed of light. In the time dimension, the connection speed can be seconds and milliseconds, which will bring many different applications.
bit
Bits represent binary bits, indicating that the Internet is naturally digital, and all objects are described and transmitted digitally. The advantage of this is that in the dimension of intelligent decision-making, we can turn the original empirical decision-making into faster and smarter digital decision-making.
What are the specific applications? There are two main categories:
The first category is the application of aggregation classes.
Aggregate demand brings together buyers with the same demand and asks upstream companies for a good price together. From the spatial dimension, the Internet can expand the scope of aggregation; In the time dimension, improve the efficiency of aggregation. Moreover, due to the wide connection of the Internet, the aggregation of a large number of customers can be realized, and the needs of each customer are complex and diversified. These needs are divided and reclassified and aggregated, and distributed to different supply capacities to meet the needs of customers. Polymerization of supply can not only aggregate the supply of goods, but also aggregate production capacity. For example, the inventory can be shared through the industrial Internet platform, and a consortium can be established to reduce the inventory level of the whole industry. Another example is to share production capacity through the industrial internet platform, organize scattered idle production capacity, and reorganize it by means of division of labor and cooperation. Aggregation services aggregate logistics, finance, marketing and other service resources around customers or scenes, and realize the multi-profit model of industrial Internet platform.
The second category is the application of intelligent classes.
Intelligent matching of supply and demand makes digital characterization of buyers and sellers, and makes better intelligent matching by using algorithms, which is more efficient and reflects the advantages of both parties. Predicting demand intelligently, C2M pull-type economic model used to be initiated by most industries from the supply side. For example, clothing industry: product planning and design (six months or even one year in advance)-raw material preparation (at least six months in advance)-manufacturers start production one after another-prepare enough channels and store inventory (three months in advance), so there is a large amount of inventory in the whole industrial chain. This year, the outbreak of COVID-19 epidemic, consumers do not go out, the demand for spring clothes decreased, which dealt a great blow to traditional clothing enterprises. The Internet can provide rapid information feedback between upstream and downstream, especially when the manufacturing process also realizes digital agile response, C2M pull economy becomes more and more realistic. In the future, many industries will change from the original push mode initiated by the supply side to the pull mode initiated by the demand side, which is a great opportunity. New credit system and financial model based on trusted data In the era of industrial internet, the behavior of the whole industrial chain can be recorded by trusted data, thus developing a new credit system and financial model. Whether the loan can be made in the future depends not entirely on the ability of asset mortgage and the nature of the enterprise. Many private enterprises, even small and medium-sized private enterprises, can also get credit and financial support because their business is true and verifiable.
Schematic form of industrial internet platform
Simply put, aggregate demand at one end and supply at the other, and aggregate industrial resources and service capabilities at the same time. Every industrial Internet company will choose its own business form and business model according to its own business orientation and specialty, and form its own industrial Internet. However, no matter how to do it, in the end, the industrial Internet needs the ability of the Internet and information technology to realize the digitalization, intelligence and co-assimilation of the industry.
"Three Steps" of Industrial Internet Platform
The first step is to find the strong needs, give play to their own advantages, make a single breakthrough, and aggregate enough supply and demand sides (aggregate both sides at the same time, or focus on one side).
The second step is to aggregate more industrial factors and realize diversified profits by providing value-added services.
The third step is to build a moat (network effect, scale effect, brand effect, etc.)
Several "Pits" of Industrial Internet Platform
Finally, I would like to share some pits I saw when I invested in industrial Internet, which are mainly divided into three categories for your reference.
The first kind of pseudo-demand about demand and ability
Self-High: behind closed doors, not in-depth study of the industry, imagined demand.
Pseudo-ability: Overestimated the role of technology and Internet, but actually did not bring significant promotion effect and competitive advantage.
Capacity first, then demand: When the industrial supply exceeds demand, we should not integrate demand first, but build capacity first.
The second category is about how to make a platform.
Not responsible for the result: I think that it is ok to charge after the platform provides services. The life and death of the platform ecological participants has nothing to do with me, and even the psychology of cutting leeks.
Grab the benefits: grab the cheese of ecological partners, instead of sharing the incremental value created by the platform ecology or the saved stock value.
The third category is the burning money theory of the Internet.
Internet burning money theory: Drawing lessons from consumer Internet, we try to destroy competitors by burning money for free, and then achieve success by monopoly.
Q&A;
Q: What impact do you think the current epidemic will have on the development of industrial Internet in China?
A: First, the epidemic has greatly increased the opportunities for enterprises in China to go online and touch the Internet. It is an opportunity to popularize the industrial Internet, which is a great benefit for every practitioner of the industrial Internet. Second, the more the crisis, the more willing we are to make changes, and the more willing we are to sail together on a big ship and hold a group to keep warm. There must be enterprises that can seize this opportunity to do it, and some enterprises will be eliminated. Third, it urges us to re-examine the industrial direction. The epidemic may bring about the process of global supply chain de-globalization, and at the same time, people will pay more attention to business sustainability management (BCM), which will give birth to new opportunities and new models. On the whole, the advantages of this epidemic are definitely greater than the disadvantages for the industrial Internet, and it will generate many unimaginable opportunities.
Q: What do you think is the most valuable experience for the development of industrial Internet in the United States?
A: First, we attach importance to technology, especially the digital technology of IT and Internet. This is what we need to learn from, and apply IT technology and digital technology in more business processes and scenarios. The second is ecological thinking. China enterprises are very different from American enterprises in business culture: many American enterprises will set their own business boundaries, organize industrial ecology and give full play to their own advantages; China enterprises are usually used to doing everything by themselves. The development of industrial internet in the United States has attached great importance to ecological construction from the beginning, which is of great reference significance.
Q: From the perspective of investors, what elements do you value more when investing in industrial Internet companies?
A: Different investors have different preferences. I’ll just talk about my personal opinion. First of all, the most important thing is people. Because the essence of investment is to invest people, what kind of team to choose often determines the final result to a great extent. Our fund is called Qinglan Capital, which is taken from "shine on you is bluer than blue", because we believe that innovation is based on precipitation, an industry veteran with a deep understanding of the industry and extensive resources, and it is the basis for innovation of industrial Internet enterprises. However, it is not enough to have only the old guns in the industry, but also to have the ability and determination to use the Internet to make changes. Therefore, I think the ideal state is that there are people in the team who understand the industry and are capable of the Internet, and a combined team is more likely to succeed. The second is to choose the direction and entry point of the industry. The characteristics of each industry are different. Not all industries and scenarios can bring about major changes because of the industrial Internet. Therefore, it is very important to choose the track. Some tracks may have great opportunities and big companies, and some tracks are difficult to do. Different tracks determine different ceilings. The third is the company’s strategic ability and strategic execution ability. If you want to think clearly, you must be able to do it.
Q: To be an industrial Internet company, what internal strengths and competitiveness do you need to focus on at the strategic and operational levels?
A: The answer is different for different industries. Long-chain industries, such as clothing, home, etc., need to get through the whole chain by IT method, and technical ability is very important. In some industries, the first thing to be solved is the problem of aggregating industrial resources. Technology almost doesn’t matter. First, both the supply and demand sides are pulled to the platform, and there is a quantity, and then something is done based on this quantity. Is it a good model to serve big customers? It depends on what the purpose is. If serving big customers is just to become a service provider, it may not have great value. However, if the demand is accumulated by serving large customers, it will be more favorable in supply-side negotiations, which will have greater significance. To do industrial internet entrepreneurship, you don’t need to think too much about what models and key capabilities investors favor. On the contrary, we need to think about what model and core competitiveness are more conducive to getting things done from the perspective of business.
Q: What do you think is the biggest opportunity for HC? What’s the biggest problem?
A: HC seized some important opportunities in history, did the right thing at the right time and seized the opportunity. Now that the times have changed, the opportunity and environment have also changed. What HC chooses to do, what not to do, and what posture to do is very important in itself. Therefore, the choice of strategic direction is a particularly worth discussing. Once the strategic direction is chosen, it needs to be supported by matching resources. On the one hand, it is the resources of capital, industry and, more importantly, people. Talents with determination and ability are the fundamental elements for the development of an enterprise. Finally, the grasp of rhythm. Although we are now facing a good opportunity for industrial development, the formation of business needs steps and rhythm. What is the rhythm of business planning in the next three to five years, and what is the core goal of each year? Clarify the core goal, and it is easier to gather key resources to achieve the core goal, so that we can gradually realize our ultimate ideal step by step.
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