Text|Tianfeng. **Bowang Finance.
Innovation is the only way out, eliminate yourself, otherwise the competition will eliminate us. In the author's opinion, only by facing competition and challenges can Kingsoft Office grow into an "evergreen" Internet company.
On January 4, Kingsoft Office issued an announcement on the voluntary disclosure of the 2023 performance forecast. According to the performance forecast, the operating income of Kingsoft Office in 2023 will be 436.8 billion - 479.5 billion, a year-on-year increase of 1245%-23.41%, net profit 123.6 billion - 136.5 billion, a year-on-year increase of 1055% point to 2219%。Looking at the entire software industry, Kingsoft Office's annual report forecast is outstanding.
Judging from the advance announcement released by Kingsoft Office, to a certain extent, it wants to enhance investors' confidence through the growth of financial reports. However, in the context of the continuous ** of A-shares in January, this idea can only backfire, and on January 3, Kingsoft Office released a performance forecast. On the same day, Jinshan Office **12%, and throughout January, Jinshan Office **3225%, as of noon on February 5**, the share price of Kingsoft Office closed at 20345 yuan shares, which has basically erased the market value of Jinshan Office in 2023, fell back to the beginning of 2023.
To some extent, this kind of ** is also because after the tide of artificial intelligence recedes, artificial intelligence applications dominated by large models have not quickly formed strong financial support for traditional Internet and software companies, and eventually lead to the reality that investors vote with their feet.
But the crux of the matter is, how is Kingsoft office operation? Can we face the challenges of artificial intelligence in the future? That's what we're focused on.
The hidden worries of Jinshan office.
Recently, the Internet Society announced the ranking of China's Internet companies in 2023, and the number of Kingsoft Office users entered the top 15 for the first time. From the perspective of the company's business model, Kingsoft Office is more like a software company and an Internet company than an artificial intelligence company. As the leader of domestic office software, Kingsoft Office is the most well-known software is WPS, which is directly benchmarked against Microsoft's office software in the United States.
Compared with Office, the turning point of Kingsoft Office was the release of the free version of WPS2005 in 2005, and at the same time, with the help of the mobile Internet outlet after 2010, Kingsoft Office preemptively released the mobile version to open WPS one-stop office service, which laid the foundation for the growth of Kingsoft Office for ten consecutive years. Now WPS has become the first choice for domestic government and enterprise offices, especially after the first war, under the influence of Sino-US decoupling, the office software of government and enterprise departments has further increased the purchase of WPS.
From the perspective of the company's business model, it basically relies on selling membership to obtain revenue, mainly through subscription services, which have the flexibility of on-demand distribution. First of all, use free to attract users, be accepted by users, and then convert into paying users.
At present, there are more than 200 million users of Kingsoft Office in China, and the user pool of 200 million is the biggest reliance of Kingsoft Office. According to the first half of 2023 annual report, Kingsoft Office's personal subscription service operating revenue was 12500 million, a year-on-year increase of 3322%。Domestic institutional subscription services revenue was 4200 million, a year-on-year increase of 4038%。The total operating income of the two was 16700 million yuan, a year-on-year increase of 35%, accounting for 77% of the company's operating income in the first half of the year.
Although the details of the annual report have not yet been announced, the author speculates that the subscription service alone can provide Kingsoft Office with an annual operating income of 3.5 billion.
Although its business model is stable, it is also facing the problem of declining user growth and declining payment growth, and the first is the problem of reducing contract liabilities.
As we all know, contract liabilities are the "reservoir" of future revenue recognition of software companies, and the rise and fall of the "water level" in the pool will largely determine the company's future revenue and profit.
At the end of the first half of 2023, the balance of contract liabilities of Kingsoft Office was 170.3 billion yuan, compared with 17 at the beginning of the year$3.1 billion decreased. Contract liabilities for the third quarter were 171.1 billion yuan, the previous years of continuous growth has basically stagnated.
Corresponding to the decrease in the growth rate of contract liabilities, the growth rate of the number of office payers in Jinshan has declined. From mid-2021 to mid-2023, the growth rate of cumulative paid individual users of Kingsoft Office is as follows: 36%。
In the face of declining user growth, followed by continuous **, for example, Tencent has continuously ** Kingsoft Office Co., Ltd., which has withdrawn from the ranks of the seven major shareholders. Lei Jun, the actual controller of Kingsoft Office, also accumulated 473%, cashing out nearly 10 billion yuan.
Behind the decline in the growth rate of paying users of Kingsoft Office is that the choice of user groups has gradually increased in the past two years, especially some small and medium-sized enterprises, who have gradually realized the necessity of collaborative office. If you can only choose one of the two in the office suite, then choose Feishu and DingTalk tools under the big manufacturers, which may be more practical, flexible and cost-effective than Kingsoft Office.
From the perspective of the user structure of Kingsoft Office and several large manufacturers, the main customer groups of Feishu and Tencent Docs are in private enterprises, start-ups or TMT industries, while Kingsoft Office has always had customer groups of individual users and government, enterprises and state-owned enterprises.
With the development of artificial intelligence in the future, Internet manufacturers have inherent advantages in the collaboration of office software, so what are the responses of Kingsoft Office in this regard, and can it get out of the previous comfort zone?
Can the AI wave keep up?
Since the birth of WPS, Kingsoft Office has not broken through the influence of Office in China, and the emergence of ChatGPT seems to provide a new development opportunity for Kingsoft Office, but from the current point of view, Microsoft is once again ahead of the curve.
In November 2022, ChatGPT was released, which quickly set off a wave of AI office software. In March 2023, Microsoft released Microsoft 365 Copilot, an AI assistant that is fully connected to GPT-4. In April 2023, Kingsoft Office also released a generative AI application with large language model capabilities, codenamed WPS AI.
Zhang Qingyuan, CEO of Kingsoft Office, once said to the outside world that because the needs of customers are multi-level, it is very difficult to develop Office software, and there are thousands of API interfaces for WPS. But after the big model comes out, the complexity of the software will no longer be a problem, and the user only needs to have a simple conversation with the software to call different functions, and this change is revolutionary.
Specifically, users can abbreviate, expand or even continue to write with natural language instructions in WPS text software through WPS AI, so that WPS presentations can automatically generate outlines and PPT interfaces, or let WPS** applications complete a series of data processing according to natural language instructions, instead of complex and fixed formulas that need to be memorized. Microsoft's Copilot does a similar job.
At present, Microsoft Copilot and WPS AI, which are equipped with ChatGPT, are being developed at home and abroad, but the cores of the two are different.
GPT-4 is still ahead of many large models in China in many dimensions such as accuracy, especially Microsoft and ChatGPT itself have a great relationship, and Microsoft invested $1 billion in OpenAI as early as 2019, and bought out the exclusive license of GPT-3 basic technology, and then Microsoft also became the exclusive cloud ** business of OpenAI, and OpenAI will give priority to licensing most of the technology to Microsoft products. This kind of in-depth cooperation is Microsoft's biggest reliance on further changes in office software in the future.
In contrast, WPS AI's domestic large model is in cooperation with Wenxin, Minimax and Zhipu AI. Among them, Minimax is mainly oriented to B services, and such a large model of a large manufacturer has advantages in the general ability to include translation, editing articles or writing poems.
But the key is that Kingsoft Office's way of using a large model is fundamentally different from Microsoft, and the birth of ChatGPT is inseparable from Microsoft's long-term support to a certain extent, and the two are cooperative and symbiotic relationships, but for Kingsoft Office, the relationship between it and the large model is more of a dependency relationship.
For example, DingTalk was established in 2014, and in 2016, ByteDance developed Feishu, which began to be commercialized in 2022 and 2019 respectively, and they also released their own AI office assistants at almost the same time - Feishu's My AI and DingTalk's slash.
Therefore, for the current WPS AI, if it wants to compete with Microsoft's Copilot in the future, it needs to win DingTalk and Feishu in the domestic market first, and this requires strong R&D investment to do so.
In 2019, it was disclosed in the prospectus before Kingsoft Office landed on the Science and Technology Innovation Board, in 20Of the 500 million yuan to be raised, there are 6400 million yuan for the development of artificial intelligence, AI natural language and other directions, from 2020 to the first three quarters of 2023, Kingsoft Office has invested 4.2 billion yuan in research and development, accounting for 33% of the current operating income of 12.7 billion yuan, which is not low in relative proportion.
However, this kind of investment is not at the same level as Microsoft's R&D expenses of tens of billions of dollars, and even domestic and ByteDance's investment in artificial intelligence.
And according to the proportion and composition of its R&D personnel, it basically does not have an advantage in Internet companies, especially as a domestic office software leader with a market value of 100 billion yuan, but only 4 doctors are in charge, which makes investors doubt whether it can win the AI war in the future.
Therefore, for Kingsoft Office, actively embracing innovation is the only way out for future enterprise development, and the development of the times determines that under the two systems of China and the United States, only the winner of both sides of office software can finally usher in the ultimate competition. Although Kingsoft Office does not have an advantage, if it can deeply cultivate the Chinese market, have a deep understanding of user needs, and further increase R&D investment, it may be able to help Kingsoft Office win the future AI "war".