Text | Insights, author | Cai Fan
In 2013, in Bucharest, Romania, Daniel, a self-taught engineer, stumbled upon a business opportunity for "business automation" while working in the technology outsourcing industry, and made a big gamble in his life.
He restructured the company and plunged into a whole new realm called RPA— which automates corporate business processes through a series of software codes. This company, which became famous as UiPath, created the third largest software industry IPO in the history of the U.S. stock market in the first half of this year, a unicorn in the RRA market, and the first RPA software platform with the highest market value to land on the U.S. stock market.
However, this scenery did not last long. Since May, UiPath's stock price has continued to fall, falling more than 50% from its peak as of December 23.
Its financial performance is not optimistic. On December 9, UiPath released its fiscal 2022 third quarter results. According to the financial report, the net loss in the third quarter was $123 million, far exceeding the market's expected net loss of $62.582 million, and the loss was more than 70% larger than the same period last year.
As the global RPA market leader, why does UiPath continue to lose money? Will its competitive advantage remain?
01 Mountain rain is about to come and the wind is full of buildings
Declining revenue growth and significantly higher costs were the direct causes of UiParth's losses.
For the full year 2021, UiPath revenue was 608 million, up 50.8% year-on-year. In 2022, revenue revenue was 810 million, and the growth rate fell to 33%. UiPath is currently in the financial situation not up to expectations, by the Bank of Montreal, Macquarie and other institutions to reduce the target price.
In a report to investors, UiPath attributed the cause to covid-19. In a sluggish economic environment, UiPath's ability and willingness to pay has declined significantly.
Taking the payment situation of an important customer as an example,
When RAP construction first began, the company paid licensing fees for different product components of UiPath, including 13 bots, 4 Studio licenses, and Orchestrator; by the third year, the number of bots had grown to 104, with 18 developers requiring Studio, and 350 developer licenses, as well as adding Hub and Process Mining components.
During those 3 years, the company's spending on licenses rose from an initial $700,000 to nearly $5 million. However, with the COVID-19 pandemic, some of the company's business was blocked and had to cut related business, which led to a sharp decline in UiPath license fees.
While revenue growth is declining, its costs are still growing. For the full year 2021, UiPath's spending on selling expenses was $280 million. By 2021, selling expenses will reach $520 million, and the selling expense ratio will rise from 41% to 64%.
The high sales cost is not unrelated to the fierce competition. In 2019, UiPath accounted for 27% of the North American market share. Today, according to incomplete statistics, there are dozens of RPA and automation solution providers in the market that have the ability to compete with UiPath.
Giants led by Microsoft are making great strides into the RPA market. In 2019, Microsoft renamed Microsoft Flow to "Power Automate" and added Robotic Process Automation (RPA) capabilities to Power Automate. Microsoft expects to learn more about customer needs in this area through frequent contact with the market. In March this year, Microsoft packaged these features and provided them to WIN10 users for free.
Gartner spoke highly of Microsoft as a strong contender for UiPath. In addition to RPA software providers, UiPath competes with automation lifecycle technology providers such as low-code, IBPMS, iPaaS, process mining, and test automation vendors.
On the seeking alpha website, a group of U.S. stock analysts, represented by Richard Durant, are making empty remarks. They believe that years of losses and fierce competition are overvaluing UiPath. Even if the epidemic is expected to ease, as more and more manufacturers join the RPA field, the decline in UiPath revenue may be difficult to contain.
02 The story of a robot is not fragrant?
"One robot per person" is the most distinctive banner of UiPath.
The concept is that such as communication between various departments of the enterprise, report input and output, data coordination and other work, is a highly repetitive labor, can be completed by robots. The path of popularization is to first grasp the hearts of C-end users through the flexibility tool of "thousands of faces", and then from the bottom up to the department level and the company level.
To achieve this goal, the first problem UiPath faces is how to get ordinary people who know nothing about programming quickly. The idea of UiPath is a black box. This black box includes the underlying code of RPA and the identification of the UI, and by integrating the functions into the package, the user only needs to interact accordingly to let the robot do its job.
At the same time, UiPath has tailored a full set of ecosystems for this black box - UiPath Academy, UiPath GO!, Developer Forum.
UiPath Academy has worked as a market educator to educate more people about the concept of RPA and learn how to use RPA, while contributing to the transition of some users to developer identity;
As the number of developers increases, UiPath has built a dedicated forum for them to share their experiences and answer difficult problems;
UiPath GO！ It is the ideal "Apple Store", which has the RPA components and modules uploaded by UiPath itself and developers, and users can search for downloads according to their needs.
The reasonable user model reduces the threshold of use, and the rich community ecology broadens the application dimension of the product. In UiPath's story, RPA can connect the horizontal systems of the enterprise, so that the ability to collaborate between departments is greatly improved to meet the business requirements of different customers.
There is no doubt that the "one robot per person" model constitutes the underlying ecology of UiPath, and more than 250,000 developers and users participate in the cultivation game of UiPath, a towering tree. On the enterprise side, however, the model is not necessarily tempting.
A typical scenario is a bank. The mainstream business of banks involves the issue of standardization, and ensuring that the process is complete and compliant is the bottom line that business management cannot violate. Therefore, it is especially important that every individual can be regulated, and every walk can be traced back. The models of "one robot per person" and "a thousand faces" lack centralized control and are difficult to favor large customers.
In 2020, UiPath competitor Blue Prism has more than 1,800 customers, most of which are made up of Fortune 500 companies. Blue Prism focuses on the "central control" route, for example, when integrating information for a bank in Manchester, it grafts an intermediate platform between the business and IT departments, enabling companies to deploy and control robots at the overall level, rather than individual employees deciding which processes need to be automated.
In addition, industry insiders also reflected that due to the lack of control of the central system, although a robot solves the cumbersome mechanical part of the daily work for employees, it also leads to individuals spending their spare time on "touching fish" and "private affairs", and the work efficiency of the department has not actually improved.
Aware of the limitations of the "one robot per man" model, UiPath is gradually changing. In early 2020, UiPath had 43 customers with an ARR of $1 million or more. By 2021, it already has 89 ARR customers of $1 million or more. These payments from large teams and businesses are becoming more and more important in UiPath revenue, rising from 25% to 35%.
This shows that UiPath is gradually moving closer to the "central control" model in recent years.
According to its official website, the latest UiPath platform has a central control function. The Orchestrator Automation Cloud enables the configuration, deployment, monitoring, measurement and tracking of robots. AI Center is able to manage and scale AI for a faster return on investment. The Data Service can use Test Manager as a hub to manage strong bots and automate application testing.
Behind this, UiPath has spent a huge amount of research and development investment. In 2021, up to 130 million yuan of R&D investment will be spent on the development of ecological peacebuilding stations. In 2021, UiPath invested 210 million yuan in research and development expenses in nine months, an increase of more than 60%.
03 The hard-to-attack Chinese market
The reason is that China's RPA market began with a "hard model".
The first is the demand side. In the European and American markets, the 2018 Deloitte Global RPA Survey showed that 53% of companies have started using some form of RPA robot. They recouped their investment in less than 12 months, with an average return of 20%.
However, the cost of Chinese labor is much lower than that of European and American countries. According to the Ministry of Human Resources and Human Resources in 2021, China's minimum wage is $316 per month, far lower than the $1256.70 in the United States in the same period. This makes RPA products for many downstream enterprises, cost-effective, is dispensable non-essential.
On the supply side, RPA fell into the "Red Sea" of competition early.
In addition to native RPA vendors such as Yisaiqi and Jin Zhiwei, as well as foreign-funded enterprises such as UiPath and Blue Prism, a number of AI vendors led by Daguan have also entered the pie, and traditional software companies and Internet companies have also entered the game, including Microsoft, SAP, Inspur, Yonyou, Kingdee, Salesforce, Huawei, Ali, etc.
According to the statistics of enterprise business card data, in 2020, there were 22 financing events in the whole year, with a total financing amount of 1.6 billion yuan, and in the first half of this year, RPA financing 11 cases, with a total amount of 580 million yuan,
The melee of enterprises and the influx of capital have made the unit price of RPA a sharp decline in the past two years. Liu Chungang, CEO of Yunkuo Technology, once said in an interview with Tiger Sniff that many RPA manufacturers will frequently provoke price wars and win customers by price.
Under such a complex market background, the surviving RPA vendors have the secret of being more suitable for the local environment.
For example, Jin Zhiwei combined its own advantages to focus on RPA in the financial field, and developed products such as one-click opening and closing robots. Its business model is not like traditional RPA companies relying on consulting companies, software integrators, etc. for consulting, landing and operation and maintenance, but the whole process is responsible for itself. In just a few years, Jin Zhiwei has served nearly 300 customers in the financial industry, and the annual repurchase rate of customers has reached 60%. In the six major banks, 5 are its customers, and the head advantage is obvious.
Compared with foreign investors, more advantageous prices, more appropriate after-sales service, and more assured data security, domestic RAP manufacturers near the water building platform first to get the month. Therefore, domestic RPA companies have not been inferior even if they compete with first-line manufacturers such as UiPath. For example, China Southern Power Grid and China Mobile chose Laiye Technology UiBot; Jin Zhiwei won the bid for a state-owned bank after having two major customers, China Construction Bank and Industrial and Commercial Bank of China.
04 Conclusion
In an ideal world, RPA is the "needle-and-thread" role in the enterprise. On the one hand, it can take the mass line to achieve the effect of "one robot per person" and "a thousand faces", on the other hand, RPA can use "central control" to connect various departments and deeply bind with enterprise business processes.
This is a grand vision, and the leading company UiPath is proving the difficulty of practicing it with its continuously expanding losses.
In the "hell difficult" Chinese market, on the one hand, there is a wide range of demand still to be tapped, according to the RPA China research report, the RPA market size in 2022 reached 3.29 billion yuan, 2023 will become a new growth breakthrough time point in China's RPA market, it is expected that by 2024 the market size will reach 8.18 billion yuan.
But on the other hand, market characteristics such as high price sensitivity, low degree of digitization, and high customization demand have each become a severe test for RPA manufacturers.
In the Chinese market, it does not matter whether it is the "next UiPath", what matters is who can be down-to-earth and conquer the difficult mountains in front of us. Perhaps in the near future, the winning domestic manufacturers will be in short contact with UiPath in the international market and become its most powerful rival.