China's biggest startups ditch Oracle, IBM for home-made technology

Hong Kong

FOR years, companies like Oracle and International Business Machines (IBM) invested heavily to build new markets in China for their industry-leading databases.

Now, boosted in part by escalating trade tensions with the US, one Chinese upstart is stepping in, winning over tech giants, startups and financial institutions to its enterprise software.

Beijing-based PingCAP already counts more than 300 Chinese customers. Many, including food delivery giant Meituan, its bike-sharing service Mobike, video streaming site iQIYI Inc and smartphone maker Xiaomi Corp are migrating away from Oracle and IBM's services towards PingCAP's, encapsulating a nation's resurgent desire to "Buy China".

PingCAP's ascendancy comes as the US cuts Huawei Technologies Co off from key technology, sending chills through the country's largest entities while raising questions about the security of foreign-made products.

That's a key concern as Chinese companies modernise systems in every industry from finance and manufacturing to healthcare by connecting them to the Internet.

"A lot of firms that used to resort to Oracle or IBM thought replacing them was a distant milestone, they never thought it would happen tomorrow," said Huang Dongxu, PingCAP's co-founder and chief technology officer. "But now, they are looking at Plan B very seriously."

China has long tried to replace foreign with home-grown technology, particularly in sensitive hardware - it imports more semiconductors than oil. That imperative has given birth to global names like Huawei and Oppo and even carried over into software in recent years, as Alibaba Group Holding Ltd and Tencent Holdings Ltd expand into cloud services. That effort has gained urgency since Washington and Beijing began to square off over technology.

"China has always wanted to use domestic tech and in areas like cloud, it has been very successful," said Julia Pan, a Shanghai-based analyst with UOB Kay Hian. "While it wants to use Chinese chips, its technology is just not there, but when it's mature enough, they very likely will replace overseas chips with domestic ones."

Now, a coterie of up-and-coming startups are encouraging Chinese firms to go local. Customers use PingCAP to manage databases and improve efficiency, allowing them to store and locate data on everything from online banking transactions to the location of food delivery personnel.

Backed by Matrix Partners China and Morningside Venture Capital, PingCAP is competing in a sector traditionally dominated by companies such as Oracle and IBM. The market is expected to grow an average 8 per cent annually to US$63 billion globally in the seven years through 2022.

The startup is one of the newest members of a cohort of open-source database providers such as PostgreSQL and SQLite that are upending the market. Researcher Gartner forecasts that 70 per cent of new, in-house applications worldwide will be developed on open-source database management systems by 2022.

PingCAP - mashing the term for verifying a web connection, ping, and the CAP computing theorem - was founded by three programmers whose former employer, a mobile-app company, was acquired by Alibaba.

Inspired by Google's Cloud Spanner, which pioneered the distributed database model, the trio - Mr Huang, Liu Qi and Cui Qiu - began creating an open-source database management system that would allow companies to infinitely expand their data storage by simply linking more servers to existing ones.

"Think of traditional database mangers like a fixed glass container, every time you run out of storage, you have to get a bigger one," said Mr Huang. "What our system does is that you can link as many cups together as you want."

Their idea caught on with investors and venture fund hot shots including Matrix agreed to invest about 10 million yuan (S$2 million) in 2015. To date, the company has raised more than US$71 million and has about 190 employees.

PingCAP is working in a space where competition is fierce - its database TiDB currently ranks only 121 among global peers, according to database rank compiler DB-Engines, which uses mostly mentions on social media and discussion forums as key metrics.

Other open-source database managers such as PostgreSQL ranks 4th and its direct competitor CockroachDB, which also focuses on distributed database systems, leads PingCAP by 30 spots.

The Chinese startup also operates in a market where it's difficult to make money - PingCAP only has a couple dozen paying customers in China and makes about 10 million yuan in revenue a year. Its best shot is to create successes that can be later replicated on a larger scale, said Owen Chen, an analyst with Gartner.

"Work with the 10 per cent early adopters free of charge, and make money off the 90 per cent followers later," he said. That's why Mr Huang is working with big names like the Bank of Beijing and Mobike, so it can create templates for each sector.

"Only one thing is certain, data will continue exploding," said Richard Liu, a founding partner at Morningside Venture Capital. "We have the patience to wait before they figure out the best revenue model."

PingCAP has one thing going for it - Chinese customers are increasingly willing to experiment with technology. Data supplied by some 2,000 companies - more than 300 in-production users and 1,500 which are testing its system - will provide PingCAP with what Matrix partner Kevin Xiong says is akin to a supply of ammunition. "You need bullets to train someone to become a stellar marksman, and PingCAP right now has a lot of bullets," said Mr Xiong, who invested in the company.

Earlier this year, PingCAP was ready to embark on an expansion into the US and said it was already in discussions for getting some prominent tech startups to use its software. Now, the prospects of winning over American clients are clouded. BLOOMBERG