Businessmodel of Kingsoft

Customer Segments

Kingsoft serves a range of customers through its three business segments, including general consumers and commercial entities. The Company’s main customers are distributors, including independent software vendors, and internet service operators, as well as individual consumer users of gaming services, internet services, and application software products.

Kingsoft additionally serves a range of advertisers, brand marketers and corporates, providing a suite of advertising and marketing solutions across its operating segments.

Kingsoft’s products and services are targeted at the Asian markets, with Mainland China accounting for the majority of the Company’s annual sales revenue. Kingsoft also serves customers across smaller Asian markets, including Malaysia, where it operates a subsidiary.

For the year ended 31st December 2015, Kingsoft’s five largest customers accounted for 34% of the Company’s total revenue, while the largest single customer accounted for 18% of the total revenue. The Company’s annual report does not name this customer.

Value Propositions

Kingsoft provides value to its customers in the following ways:

• Its technical expertise and technologies, with the Company employing expert, specialist staff across its operating segments and developing new and innovative technologies;
• Its expertise in and experience of the Asian markets, with the Company focusing on its regional markets, allowing it to provide a more tailored service to its customer base;
• The accessibility of its services, with many of the Company’s products and services available online, as well as through mobile applications;
• Its broad portfolio of software and service offerings, spanning antivirus and security software, to gaming services and online marketing solutions; and
• Its pricing and provision of free products and services, with many of its services and software products available at no costs, with other products priced competitively. ### Channels

Kingsoft operates a number of online channels. It hosts a website at www.kingsoft.com, through which it provides information to customers on its various services and products. It also operates Chinese and English-language sales channels through which it sells a range of consumer software products, office software and antivirus products, and operates online gaming portals for web games and more in-depth online multiplayer games.

Kingsoft also operates its own direct sales force, which operates through sales and service offices primarily in China and Hong Kong, primarily serving the Company’s larger corporate and commercial clients. The Company’s in-house sales teams are supported by a network of channel partners, including retail distributors, independent software vendors, and resellers that extend the Company’s sales reach.

Customer Relationships

Many of Kingsoft’s services and products are available to consumers on a self-service basis. Customers are able to purchase and download software and security products, as well as activate free software trials, through the Company’s online stores, and access online gaming services autonomously without interacting with members of the Kingsoft sales team.

More complex services and product offerings, notably those offered to corporate and commercial client, are provided through the Kingsoft sales teams, with customers interacting directly with Company representatives in order to more accurately demonstrate their individual needs. The Company seeks to establish long-term relationships with its commercial clients, often agreeing multi-year contracts.

Kingsoft offers a range of support services through its various websites, providing technical support for its software products and gaming services through its online channels. Customer are able to contact Kingsoft’s support staff by email and over the phone, receiving a personalised response to queries and concerns.

Key Activities

Kingsoft, along with its subsidiaries, provides range of software, internet and online gaming services.

The Company in three business segments: Entertainment Software, comprising the development and provision of online games, mobile games, and casual gaming services; Information Security and Internet Services comprising the Company’s development of information security software, mobile applications, internet browsing solutions, and the provision of online marketing services and Internet value-added services; and Office Software and Others, comprising the development and distribution of office application software, and the provision of cloud storage, cloud computation and dictionary services across various electronic devices.

Key Partners

Kingsoft partners with a range of companies across its three operating segments. These partners can be broadly categorised as follows:

• Supplier Partners, comprising suppliers of package materials for the Company’s software products, suppliers of bandwidth services, and suppliers of resources that help to sustain the Company’s supply chain;
• Channel Partners, comprising distributors, affiliate marketers, resellers, independent software vendors and retailers that extend the reach of the Company’s own in-house sales and marketing force;
• Technology and Integration Partners, comprising technology companies, software developers and original equipment manufacturers that integrate third-party services and technology into Kingsoft’s products; and
• Alliance Partners, comprising high-profile technology companies, with which the Company collaborates on joint-venture projects and shares tools and resources. Kingsoft has recently launched partnerships with Unowhy to expand its education offerings; with Dropbox, making the company its principal cloud storage integration partner; and with Dell regarding distribution of Kingsoft products across Japan and India.

Key Resources

Kingsoft’s key resources are its technologies and intellectual properties, its research and development facilities, its IT infrastructure, its sales and distribution channels, its partnerships, and its personnel.

Kingsoft protects its products and intellectual properties through various patent, copyright and trademark laws. The Company owns a number of patents both domestically and internationally. Searches of records published by the US Patent and Trademark Office identified one patent in which a Kingsoft company was named as an applicant: ‘Method and apparatus for power management on mobile devices and associated mobile devices’.

Cost Structure

Kingsoft incurs costs in relation to the development of its software solutions and products, the maintenance of its IT infrastructure, the management of its sales and distribution channels, the management of its partnerships and alliances, and the retention of its personnel.

Kingsoft incurs substantial research and development costs, which amounted in 2015 to RMB 1.37 billion. Kingsoft employs more than 5,000 employees across its three operating segments, representing costs in the form of salaries and benefits, and operates a network of offices, service centres and facilities across China and parts of Asia, accruing fixed costs in the form of rental and utility fees.

Revenue Streams

Kingsoft generates revenue through the sale of software products and the provision of online gaming and internet services. The Company divides its revenue into several separate streams:

• Provision of gaming services;
• Provision of online marketing services;
• Provision of internet value-added services;
• Sale of software products and related services;
• Royalties; and
• Others. In 2015 Kingsoft generated annual revenue of RMB 5.68 billion, an increase of 69% on the RMB 3.35 billion recorded in 2014. Approximately 24% of this revenue was generated by the Company’s online game business, and 13% of the revenue was generated by the Company’s office software and others business.

The majority of the Company’s revenue, around 63%, was generated through advertising solutions provided through the Company’s mobile internet business Cheetah Mobile.