Protocol | Enterprise

To score new clients, cloud providers are focusing on specific industries

The current crop of cloud computing adoptees have different needs than the early adopters, and vendors like Microsoft are adjusting.

Factory machine

Microsoft has introduced new infrastructure and enterprise software services tailored to manufacturing, financial services and nonprofit organizations.

Image: Clayton Cardinalli

Most companies have come to terms with the need to modernize their digital infrastructure. That doesn't mean they want to follow the same path as the earliest cloud adopters.

New arrivals to cloud computing increasingly want packaged solutions to their tech problems. Or at least that's what Microsoft is betting: The company introduced three new "industry cloud" services Wednesday, adding bespoke packages of Microsoft's infrastructure and enterprise software services for manufacturing, financial services and nonprofit organizations.

"This is something that we've heard directly from the customers that we serve as an organization, the need for their digital transformation partners to have deep industry and vertical expertise," said Alysa Taylor, corporate vice president for business applications and global industry at Microsoft. The three new packages join similar ones for retail and health care customers, introduced last year.

Sometimes it's hard to remember that the public cloud still represents a very small percentage of overall IT spending: Cloud services only made up 9.1% of the entire global information technology market in 2020, according to Gartner. Those that have yet to make the move are often motivated by the old adage that if it ain't broke, you shouldn't try to fix it.

At a certain point, however, that adage becomes an albatross as newcomers unrestrained by legacy IT systems are able to move more quickly than incumbents to capitalize on changes in demand for their products or services. Retailers learned that lesson very quickly in the early days of the pandemic, yet they still needed help: Most companies outside the tech industry find it really hard to recruit (and retain) the people who understand how to operate modern IT infrastructure at scale.

That's part of the motivation behind the industry-specific approach to the cloud, which is the natural extension of a tried-and-true product-development strategy in enterprise tech based around vertical markets like retail or manufacturing. Google Cloud introduced a similar approach last year as part of CEO Thomas Kurian's efforts to cater to traditional enterprise tech buyers, and niche cloud players like IBM have also tried to sell cookie-cutter packages of cloud services to customers that need to be coaxed onto the cloud.

"When you talk about digital transformation, it's an iterative process," Taylor said. "It's not one [where] you're going to rip and replace all your back-end systems."

In the new financial services package unveiled Wednesday, Microsoft customers will be able to draw on a new feature called Loan Manager, which promises to speed up the process of evaluating, clearing and closing a loan. The first industry cloud introduced last year — Microsoft Cloud for Healthcare — will be updated later this year with support for new languages and remote patient-monitoring services, according to the company.

Microsoft also plans to open the just-announced Microsoft Cloud for Retail to a public preview next month. Both Microsoft and Google have made retail customers a priority over the last year or so, not just because of the challenges that industry has faced from the pandemic but as a not-so-subtle reminder to the retail industry that AWS finances a pretty big retail company.

The moves are another sign of the maturation of cloud computing, which began as a skunkworks IT provider for developers who wanted to work on side projects without having to ask the CIO for computing resources. That pay-as-you-go model has for several years been transitioning to a more traditional multiyear contract process between cloud providers and their customers as companies buy cloud resources for their entire organization.

And while early cloud customers had a strong interest in mixing and matching individual cloud services to build infrastructure themselves, the companies eyeing cloud services in 2021 are looking for help putting together the basic building blocks needed to run a modern internet business, preferring to focus on building custom touches on top of the cloud industry's heavy lifting.

"If you just look at something like retail, how do you take all of the data that retail has at their disposal, and be able to aggregate that data in a common data framework, to be able to then surface it up to get proactive insights?" Taylor said. "That's very timely and costly for a retailer to build, and so they look to their technology providers to be able to assist while their core competency is serving their customers in a retail capacity."

Clarification: This story was updated Feb. 24, 2021, to clarify which customers would be able to use Loan Manager.

Image: Yuanxin

Yuanxin Technology doesn't hide its ambition. In the first line of its prospectus, the company says its mission is to be the "first choice for patients' healthcare and medication needs in China." But the road to winning the crowded China health tech race is a long one for this Tencent- and Sequoia-backed startup, even with a recent valuation of $4 billion, according to Chinese publication Lieyunwang. Here's everything you need to know about Yuanxin Technology's forthcoming IPO on the Hong Kong Stock Exchange.

What does Yuanxin do?

There are many ways startups can crack open the health care market in China, and Yuanxin has focused on one: prescription drugs. According to its prospectus, sales of prescription drugs outside hospitals account for only 23% of the total healthcare market in China, whereas that number is 70.2% in the United States.

Yuanxin started with physical stores. Since 2015, it has opened 217 pharmacies immediately outside Chinese hospitals. "A pharmacy has to be on the main road where a patient exits the hospital. It needs to be highly accessible," Yuanxin founder He Tao told Chinese media in August. Then, patients are encouraged to refill their prescriptions on Yuanxin's online platforms and to follow up with telehealth services instead of returning to a hospital.

From there, Yuanxin has built a large product portfolio that offers online doctor visits, pharmacies and private insurance plans. It also works with enterprise clients, designing office automation and prescription management systems for hospitals and selling digital ads for big pharma.

Yuanxin's Financials

Yuanxin's annual revenues have been steadily growing from $127 million in 2018 to $365 million in 2019 and $561 million in 2020. In each of those three years, over 97% of revenue came from "out-of-hospital comprehensive patient services," which include the company's physical pharmacies and telehealth services. More specifically, approximately 83% of its retail sales derived from prescription drugs.

But the company hasn't made a profit. Yuanxin's annual losses grew from $17 million in 2018 to $26 million in 2019 and $48 million in 2020. The losses are moderate considering the ever-growing revenues, but cast doubt on whether the company can become profitable any time soon. Apart from the cost of drug supplies, the biggest spend is marketing and sales.

What's next for Yuanxin

There are still abundant opportunities in the prescription drug market. In 2020, China's National Medical Products Administration started to explore lifting the ban on selling prescription drugs online. Although it's unclear when the change will take place, it looks like more purely-online platforms will be able to write prescriptions in the future. With its established market presence, Yuanxin is likely one of the players that can benefit greatly from such a policy change.

The enterprise and health insurance businesses of Yuanxin are still fairly small (accounting for less than 3% of annual revenue), but this is where the company sees an opportunity for future growth. Yuanxin is particularly hoping to power its growth with data and artificial intelligence. It boasts a database of 14 million prescriptions accumulated over years, and the company says the data can be used in many ways: designing private insurance plans, training doctors and offering chronic disease management services. The company says it currently employs 509 people on its R&D team, including 437 software engineers and 22 data engineers and scientists.

What Could Go Wrong?

The COVID-19 pandemic has helped sell the story of digital health care, but Yuanxin isn't the only company benefiting from this opportunity. 2020 has seen a slew of Chinese health tech companies rise. They either completed their IPO process before Yuanxin (like JD, Alibaba and Ping An's healthcare subsidiaries) or are close to it (WeDoctor and DXY). In this crowded sector, Yuanxin faces competition from both companies with Big Tech parent companies behind them and startups that have their own specialized advantages.

Like each of its competitors, Yuanxin needs to be careful with how it processes patient data — some of the most sensitive personal data online. Recent Chinese legislation around personal data has made it clear that it will be increasingly difficult to monetize user data. In the prospectus, Yuanxin elaborately explained how it anonymizes data and prevents data from being leaked or hacked, but it also admitted that it cannot foresee what future policies will be introduced.

Who Gets Rich

  • Yuanxin's founder and CEO He Tao and SVP He Weizhuang own 29.82% of the company's shares through a jointly controlled company. (It's unclear whether He Tao and He Weizhuang are related.)
  • Tencent owns 19.55% of the shares.
  • Sequoia owns 16.21% of the shares.
  • Other major investors include Qiming, Starquest Capital and Kunling, which respectively own 7.12%, 6.51% and 5.32% of the shares.

What People Are Saying

  • "The demands of patients, hospitals, insurance companies, pharmacies and pharmaceutical companies are all different. How to meet each individual demand and find a core profit model is the key to Yuanxin Technology's future growth." — Xu Yuchen, insurance industry analyst and member of China Association of Actuaries, in Chinese publication Lanjinger.
  • "The window of opportunity caused by the pandemic, as well as the high valuations of those companies that have gone public, brings hope to other medical services companies…[But] the window of opportunity is closing and the potential of Internet healthcare is yet to be explored with new ideas. Therefore, traditional, asset-heavy healthcare companies need to take this opportunity and go public as soon as possible." —Wang Hang, founder and CEO of online healthcare platform Haodf, in state media China.com.

Zeyi Yang
Zeyi Yang is a reporter with Protocol | China. Previously, he worked as a reporting fellow for the digital magazine Rest of World, covering the intersection of technology and culture in China and neighboring countries. He has also contributed to the South China Morning Post, Nikkei Asia, Columbia Journalism Review, among other publications. In his spare time, Zeyi co-founded a Mandarin podcast that tells LGBTQ stories in China. He has been playing Pokemon for 14 years and has a weird favorite pick.

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