Caixin
May 08, 2018 06:11 PM
BUSINESS & TECH

Q&A: U.S. Cloud Startup Plans to Take Soft Touch in China

The California headquarters of Pivotal Software is seen. Photo: Pivotal Software
The California headquarters of Pivotal Software is seen. Photo: Pivotal Software

As big tech names like Google, Facebook and Amazon.com faced roadblocks in their Chinese expansion, a U.S. cloud startup is eyeing the country as one of its key markets for international expansion.

The California-based Pivotal Software was established in 2013 as a joint venture among EMC Corp., VMware Inc. and General Electric Co. In the same year, Pivotal brought its Chinese operation to life, opening offices in Beijing and Shanghai.

In China, where the cloud market is dominated by internet behemoths like Alibaba Group Holding Ltd. and Tencent Holdings Ltd., Pivotal — which debuted on the New York Stock Exchange late last month — has seen a chance to join hands, rather than compete, with these industry giants.

Pivotal’s major clients include China Railway Corp. (CRC), the world’s largest rail operator. It said it helped CRC improve and optimize its notoriously inefficient ticket-booking app.

Like CRC, businesses in the traditional industries, including finance and manufacturing, are increasingly willing to pay for software and related services, just like those in the U.S., said Lei Feng, Pivotal Software’s China chief.

In an interview with Caixin, Feng said the company sees the growing demand from traditional businesses to adapt to the fast-changing internet era, where big data is critical. This has offered cloud providers huge opportunities.

The following is an edited excerpt of the interview.

Caixin: How do you see the demand for cloud services in the Chinese market?

Feng: The development of computing has undergone three stages: bulk computers in the mid-20 century, followed by the emergence of personal computers beginning late last century and now the cloud era.

Unlike in the U.S., where businesses experienced all the three periods and are used to paying for the use of software, China leapfrogged directly into the third stage, at which businesses are not accustomed to being billed for software and related services.

In China, most of the internet startups are consumer-facing, and are not making a huge profit amid cutthroat competition where companies pursue a larger user base.

But the rise of these internet companies and various kinds of platforms has begun to pose challenges to the traditional businesses, spanning from transportation to banking.

These traditional businesses are now gradually learning the value of building their own digital platforms to generate additional revenues by analyzing user data they garnered.

It is a common sentiment that traditional businesses in China will follow in the footsteps of their U.S. peers in paying for software and services.

How unique is your business model?

We realized digital platforms are crucial to traditional companies. Take CRC as an example. The experience of a user booking a train ticket on its 12306 website is as important as taking the train itself.

Pivotal is a company that aims to help those companies launch own digital products that rival those of Google and Facebook, either by providing stand-alone or full suites of solutions.

We would usually invite costumers to our office, where our engineers would train them how to develop software.

This type of business model is attractive to clients. Our software is open source and free, and customers will only have to pay for extra services.

What are your strategies to make inroads into China?

We entered the Chinese market mainly for two reasons — the vast talent pools and the huge market potential.

When our Beijing office was set up in 2013, we could have employed Americans, but we insisted on hiring Chinese engineers as they are more knowledgeable about the local market.

But the market has been dominated by tech titans like Alibaba. How do you plan to differentiate yourself?

The market is indeed mainly dominated by big companies — like Amazon and Microsoft in the U.S. and Alibaba in China, which provides the basic cloud infrastructure.

But instead of seeing them as competitors, the industry is big enough for many players to get a slice of the pie.

For example, we partnered with major cloud providers, including Alibaba and Tencent. And our clients can opt to incorporate their solutions into public or private cloud platforms offered by our partners.

Most of our clients are in the finance sector, and many institutions are gearing up to launch digital services. Another area is transportation, in which almost all the big international car brands, including Ford, Mercedes-Benz and BMW, are our customers.

You have managed to partner with CRC, a company with which many would say is a rather closed entity that outside suppliers have a hard time breaking into. How did you manage to allay the concerns of a state-owned Chinese company?

This has gone back to the business model of Pivotal, which provides open-source coded software. Companies that cooperate with us are always free to choose a third platform, such as Alibaba’s Aliyun and Amazon.com’s AWS, meaning there won’t be any security concerns.

Are you worried about how the trade tensions between the U.S. and China, which has taken a toll on the technology sector, will affect your business?

We have yet to see any business implications due to the friction between the two countries. In fact, the Chinese government welcomes us as an open-source tech company.

Open-source codes are a borderless team work effort, which could be completed by Chinese and their U.S. peers. We believe that technology will finally facilitate business efficiency for both countries.

As for the security issues, let’s leave them to the governments, and we need only to adhere to their respective regulations.

Contact reporter Mo Yelin (yelinmo@caixin.com)

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