"You say, if those Americans knew that we're earning more after abandoning the Tianzhou terminals than before, would they be so angry they'd die!" Leng Zhiruo said with a giggle.
At first glance, this might sound like the Jiangnan Group's total revenue after abandoning the Tianzhou terminals was actually more than before.
But this interpretation is incorrect. Before abandoning the Tianzhou terminals, the group's net profit from them was less than 2 billion USD annually. Now, out of the 80 billion USD in total revenue, over half, or 40 billion USD, is pure profit for the Jiangnan Group, a staggering 20 times more than before.
In fact, before opening up, the Jiangnan Group's total revenue from Tianzhou terminals wasn't low. In 2009, they sold 150 million units of various Tianzhou terminal models. At an average price of about 400 USD per unit, the total sales revenue was 60 billion USD. Including app revenue, the total revenue also exceeded 80 billion USD, which was even higher than the current figure.
But why was the profit so meager at only 2 billion USD?
Firstly, to compete for market share, the Jiangnan Group was basically losing money on costs. A standard version Tianzhou terminal sold for 299 USD, but including manufacturing costs, taxes, and shipping, the actual cost per unit was around 320 USD. Only the higher-end versions were profitable. However, during this period, global consumers primarily purchased the standard versions, with mid-range versions having very low sales, let alone the high-end ones.
Furthermore, the Jiangnan Group, within a very short timeframe, single-handedly built the entire terminal application ecosystem. At its peak, the Jiangnan Group concurrently recruited over 60,000 programmers to develop various applications for the Tianzhou terminals. This incurred enormous costs, exceeding 5 billion USD in personnel expenses.
Beyond that, there were substantial R&D costs. The Jiangnan Group's research center's terminal development costs were in the tens of billions annually. Especially in recent years, even after the terminal was developed, the costs for continuous upgrades and further research remained high, even higher than before its successful development. Ultimately, over 90 billion USD in revenue for a full year only yielded 2 billion USD in profit, with a deplorably low profit margin.
It's hard to imagine such a profit margin for a company holding a monopoly.
At the same time, due to the massive potential of the terminal market, more and more companies, even with an almost complete monopoly, still aggressively entered the market. Take Apple and Google, for example. While their sales weren't too high, who knows if they might become the strongest competitors to Tianzhou terminals in the future?
Not to mention some players who later tried to employ underhanded tactics. Therefore, even with a monopoly, Boss Huang still felt extremely troubled.
But after the complete liberalization, everything changed. Firstly, in terms of component sales. Because they were selling directly to businesses rather than end-users, there was no need to consider the end-user market's price tolerance. They could simply price components with a 10% profit margin, a sure win.
As for how the terminal companies that purchased these components would ensure their pricing remained competitive at these costs was their own concern.
Another point worth mentioning is that throughout 2010, the total sales volume in the terminal market was 240 million units, yet the Jiangnan Group sold 320 million terminal chips.
Considering that terminal chips can only be used in terminals and not other products, approximately 80 million chips seem to have disappeared from the market, bought by existing users.
Well, the Jiangnan Group is certain that only 240 million units were sold.
Every terminal requires network activation to be used, and each chip has a unique identifier. Once a terminal with a chip is activated, the Jiangnan Group receives corresponding data.
Therefore, the Jiangnan Group is very confident that only 240 million chips were activated. The remaining 80 million chips truly seem to have vanished, never having been activated.
This situation piqued the Jiangnan Group's curiosity, and they dispatched a specialized team to investigate. The investigation results quickly came in. They initially suspected some conspiracy, but the outcome was rather amusing.
It turned out that the competition in 2010 was too fierce, with too many new terminal manufacturers entering the market. Each company was full of confidence, launching with a minimum of 100,000 units.
As a result, a large number of terminals couldn't be sold. For many companies, 90,000 out of their 100,000 units were left in inventory. Over 70% of new entrants faced this situation, so it was perfectly normal for 80 million chips to be stuck in warehouses.
Upon seeing this news, everyone at the Jiangnan Group laughed even harder. After all, these extra 80 million chips represented actual revenue earned by the Jiangnan Group!
Of course, most of these new terminal companies wouldn't survive this wave and were essentially wiped out.
Are these companies pitiable?
Not at all.
Firstly, company employees receive salaries. You get paid for the work you do, and the closure of a company has little impact on your personal income. So, the employees suffer no loss.
Will the company executives suffer any losses?
This depends on the source of the business's funding. If the executives used their own capital, then they would indeed suffer significant losses.
However, for companies like those in the terminal sector, requiring at least 1 million USD to start, entrepreneurs who genuinely use their own funds for startups are a minority. The vast majority try to solicit funds from investors. Therefore, the ones who truly incur huge losses are likely the investment institutions.
Will investment institutions lose so much that they cry?
Of course not. Investment institutions aren't investing their own money but the money from scattered investors who entrusted their funds to them. They are also employees, happily collecting their fixed salaries each month. Why would they cry?
In the end, it's likely the investors who will cry, meaning the general public shareholders.
So, shareholders are the great benefactors of the entire market.
To get back to the point, after completely opening up the terminal market, the previously loss-making hardware costs turned into profits. Moreover, the profits were huge, with the Jiangnan Group's annual profit exceeding 10 billion USD.
However, many might not realize that the open market actually helped the Jiangnan Group save significant R&D costs.
Firstly, if the Jiangnan Group continued to develop and operate Tianzhou terminals independently, all development and R&D work would have to be completed by the Jiangnan Group itself, creating immense cost pressure.
But after completely opening up the entire system, the primary developers shifted from the Jiangnan Group to other terminal companies.
After all, the technology licenses and unique features provided by the Jiangnan Group were open to everyone. If others could also have the same unique features, then they wouldn't be unique anymore. What remained was a price war, the most foolish form of competition.
Therefore, finding ways to give one's terminal unique features became the correct approach to competition. Consequently, many terminal companies began R&D efforts, developing unique and innovative features.
For example, the full-screen display mentioned earlier was an idea spontaneously generated by Xiaomi, with some inspiration from predecessors. The Jiangnan Group roughly estimated that over a hundred of its licensees invested millions in R&D funds to develop various unique terminal components and performance features.
So, while these features were developed by the respective companies, the underlying technology was based on the Tianzhou terminal platform.
And according to certain clauses in the original licensing agreements, although technologies developed by other companies on the Tianzhou terminal platform belonged to those companies, the Jiangnan Group concurrently enjoyed exclusive, royalty-free licensing and usage rights for these technologies.
In simple terms, as soon as these companies developed these technologies, the Jiangnan Group automatically gained the right to use them and could reasonably and legally incorporate them into its own products.
After all, the Jiangnan Group was the first to offer its technology royalty-free, and in return, these companies offered their technology back for free. This was a very reasonable, legal, and fair transaction; even God couldn't object. Thus, these companies effectively became the Jiangnan Group's free technology development partners.
Beyond hardware technology, software development followed the same pattern.
The licensing agreements also included strict provisions. All technical improvements, modifications, or bug fixes made by each company to the Zixiao terminal system had to be reported to the Jiangnan Group immediately. The Jiangnan Group would then incorporate these improvements into the Zixiao system's database and release a new version of the Zixiao system monthly, available for free use by all terminal companies, thus forming a super platform for shared, free, and mutually beneficial development.
This is precisely how Android operated in later years, and it's why Android transformed from a laggy, garbage system into a silky-smooth OS comparable to Apple's iOS in just a few years. These improvements were the result of continuous modifications to various Android system programs by major mobile phone manufacturers.
Originally, the Jiangnan Group would have had to spend considerable manpower to improve these aspects itself. Now, these tasks were being handled by the various companies, effectively saving the Jiangnan Group a large sum of expenses.