VNET Group, Inc. operates as a carrier-neutral and cloud-neutral data center service provider in China (People’s Republic of China, excluding Hong Kong, Macau, and Taiwan (‘China’ or the ‘PRC’)).
The company had one of the largest carrier-neutral data center networks in China with its 50 self-built data centers and 112 partnered data centers with an aggregate capacity of 93,597 cabinets under its management as of December 31, 2023. The company’s data centers are concentrated in tier-1 cities in...
VNET Group, Inc. operates as a carrier-neutral and cloud-neutral data center service provider in China (People’s Republic of China, excluding Hong Kong, Macau, and Taiwan (‘China’ or the ‘PRC’)).
The company had one of the largest carrier-neutral data center networks in China with its 50 self-built data centers and 112 partnered data centers with an aggregate capacity of 93,597 cabinets under its management as of December 31, 2023. The company’s data centers are concentrated in tier-1 cities in China and their surrounding regions, which have favorable supply-demand dynamics, owing to dense internet traffic, scarce resources, and high demand for data center facilities. Most of the company’s data centers and its points of presence (POPs) are connected across China.
The company offers managed hosting services to host its customers’ servers and networking equipment and provide interconnectivity to improve the performance, availability, and security of their internet infrastructure. The company has adopted a ‘dual-core’ strategy to address both retail and wholesale data center market opportunities. The company’s managed retail services provide different levels of services that are scalable to meet its customers’ needs, from a single cabinet up to megawatt-scale deployments. The company’s managed wholesale services provide customers with new data center sites constructed and developed by it based on their specified standards. The scale of the company’s data center footprint and networking assets, as well as its carrier- and cloud-neutrality, position it well to capture the vast opportunities in the rapidly expanding market of internet and cloud computing infrastructure services in China.
In addition, the company is a first mover among China’s carrier-neutral data center service providers in offering cloud services through partnerships to cover public, private, and hybrid cloud scenarios. The company provides customized enterprise virtual private network (VPN) services and solutions, including software-defined wide area network, or SD-WAN, to enterprises across various industries. These value-added services strengthen the company’s capability to provide quality services and meet its customers’ additional demands.
The company is a carrier-neutral internet infrastructure service provider. The company’s infrastructure is interconnected with the networks operated by all China’s telecommunications carriers, major non-carriers, and local internet service providers. The interconnectivity enables each of the company’s data centers to function as a network access point for its customer’s data traffic. In addition, the company’s proprietary smart routing technology allows it to automatically select an optimized route to direct its customers’ data traffic to ensure fast and reliable data transmission.
With a nationwide data center network and comprehensive service offerings, the company has attracted a diversified and loyal customer base. As of December 31, 2023, the company had over 1,500 customers for its managed hosting services and over 7,500 enterprise customers in total.
Service Offerings
Through its quality data center network, the company offers comprehensive hosting and related services, including:
Managed Hosting Services consisting of managed retail services and managed wholesale services. The company’s managed retail services include colocation services that dedicate data center space to house its customers’ servers and networking equipment and provide tailored server administration services; interconnectivity services that allow customers to connect their servers with each other, internet backbones in China and other networks through its Border Gateway Protocol, or BGP, network, or its single-line, dual-line or multiple-line networks; and value-added services, including hybrid IT services, bare metal services, firewall services, server load balancing, data backup and recovery, data center management, server management, and backup server services. To address the wholesale internet data center (IDC) market opportunities, the company established a ‘dual-core’ strategy in 2019 to expand its services to managed wholesale services to China’s internet giants and large-scale cloud computing service providers. The company constructs and delivers data centers based on these customers’ required specifications and standards.
Cloud Services that allow customers to run their applications over the internet using the company’s IT infrastructure rather than having the infrastructure on their own premises.
VPN Services that extend customers’ private networks by setting up secure and dedicated connections through the public internet.
The company’s data centers host the servers of its customers and meet their needs to deploy computing, network, storage, and IT infrastructure. The company’s services are scalable, allowing its customers to purchase space and power and upgrade connectivity and services as their requirements evolve. In addition, the company’s customers benefit from its data centers’ wide range of physical security features, including sensitive smoke detection systems, fire suppression systems, secured access, around-the-clock video camera surveillance, and security breach alarms.
The company’s data centers are fully-redundant and feature resilient power supplies, energy efficient design, connection with multiple network providers and 24/7 on-site support provided by its skilled engineers. As a result, the company is able to provide service-level agreement for 99.9% uptime for power for its self-built data centers. As a carrier-neutral data center service provider, the company provides high interconnectivity to its customers with its access to multiple carriers and service providers and the availability of multiple-provider bandwidth. By securing multiple suppliers for connectivity and using redundant hardware, the company is able to guarantee 99.9% internet connectivity uptime for its self-built data centers.
Managed Hosting Services
The company provides managed retail services and managed wholesale services to implement its ‘dual-core’ strategy that it developed in 2019.
Managed Retail Services: The company’s managed retail services include colocation services, interconnectivity services, and value-added services.
Colocation Services allow customers to lease partial or entire cabinets for their servers. The company’s customers have full control over their server(s) housed in its data centers. Depending on customer needs, the company provides different levels of tailored server administration services, including operating system support and assistance with updates, server monitoring, server backup and restoration, server security evaluation, firewall services, and disaster recovery. The company’s customers’ servers are housed in its data centers providing redundant power supplies and heating, ventilating and air conditioning systems.
The company’s colocation services relieve customers from the daily pressures of IT infrastructure maintenance so that they can focus on their core businesses. Customers have the option to either place their servers and equipment in standard cabinets dedicated for their exclusive use, or in cabinets shared with other customers. They can customize their cabinet space for their servers, network connections, and other equipment. Customers can elect to buy the hardware that they place within their cabinets from their chosen suppliers. In addition, customers can lease power-enabled blank space, where they can place their own cabinets in the company’s data centers or use its services to build their customized cabinet space.
Interconnectivity Services are provided by the company in the following ways:
Border Gateway Protocol (BGP) Network Services: The company provides network services that use BGP routing protocol and policies, which allow the internet to become a decentralized system and thereby reduces traffic congestion and data transmission time;
Single-line Network Services: Some of the company’s customers choose to connect their servers only to one telecommunication carrier in China. Based on their selections, the company provides them with network connection to the major telecommunication carriers, including China Telecom, China Unicom, and China Mobile; and
Multiple-line Network Services: As a carrier-neutral service provider, the company’s data centers are connected to all carrier and non-carrier networks in China. Customers then may choose to connect their servers to two or multiple networks, which provides more cost-effective internet access and ensures better business continuity. The company’s interconnectivity services connect its customers with each other, connect its data centers with telecommunication carriers’ backbone network and other networks. The company provides cross-connection services to its customers. Upon the request of the customers, the company utilizes single or multi-mode fibers to create links between the customers directly and exclusively.
Value-Added Services are provided by the company in the following ways:
Hybrid IT Services: The company’s hybrid IT services provide customers with a complete package of infrastructure service offerings, conveniently bundled to expedite the customer’s process to launch their applications and products to the extent possible. In conjunction with the company’s infrastructure-as-a-service, or IaaS, and platform-as-a-service, or PaaS, hybrid IT services combine colocation, servers, connectivity, storage, and customer services to save IT infrastructure deployment time, and provide a complete, reliable, and secured environment for customer’s IT demands. As more customers move their IT resources to the cloud, the company’s cloud-neutral platform will enable its hybrid IT services to provide elastic cloud services, as well as their inter-linked connections;
Private Cloud, Hybrid Cloud and Cloud Native Services: The company provides private cloud, hybrid cloud and multi-cloud managed services to address enterprises’ needs in aspects of data sovereignty, cost of ownership, and customization through its proprietary technologies and technical integration with selected partners, such as VMWare, Redhat and ZStack. Through BJ TenxCloud, one of its subsidiaries, the company also provides digitalization solutions to customers based on its in-house developed cloud native platform. Customers can fully exploit elasticity and flexibility of the company’s cloud solutions and modernize their applications and infrastructure, to achieve more efficient software development and production; and
Other Value-Added Services: To complement its hosting services and enhance its customers’ experiences, the company also provides other value- added services, including bare metal services, firewall services, server load balancing, data backup and recovery, data center management, server management, and standby server services. In addition, the company also provides customers with traffic charts and analysis, gateway monitoring for servers, domain name system setup, defense mechanism against distributed denial of service (DDOS) attacks, basic setting of switches and routers, and virus protections.
Managed Wholesale Services: The company’s managed wholesale services started in 2019 and provide internet giants and large-scale cloud computing service providers with data center sites constructed and developed by the company. Based on the specific requirements of its customers, the company sources properties for data center sites by acquiring or leasing green-field sites or existing industrial buildings from third parties, and then design and, through cooperation with developers, contractors, and suppliers, build the data center facilities with advanced design and high technical specifications. The company’s core competency and capabilities, acquired from decades of industry experience in the retail segment, are also applicable and critical when it expands its business into the wholesale segment and develop wholesale data centers. As of December 31, 2023, the total capacity commitment from the company’s wholesale customers was 476 megawatts.
Planning: The company engages with its clients from the site selection and planning stage and choose the sites for wholesale data centers at the strategic locations which fits into its clients’ IT infrastructure deployment and provides great access to power and connectivity. Backed by multi-year experience and strong presence in key markets, the company is able to conduct in-depth analysis and select the most suitable location based on clients’ requirements by acquiring or leasing green-field sites or existing industrial buildings from third parties. The company’s team works closely with local government authorities to obtain necessary permits and approvals and with electric utilities to obtain sufficient power supply. The company also actively cooperates with telecommunication carriers to ensure multi-carrier connectivity to its wholesale data centers.
Design: Leveraging the company’s technological know-how from its internal design teams and a comprehensive data center product portfolio, developing and accumulating through the designs and construction of retail data centers, the company is dedicated to ensuring that each of its wholesale data centers meets the specific requirements of its clients and achieves industry leading energy efficiency and operating performance. The company’s technology strengths, such as advanced cooling technology and power management technology, are integrated due to close collaboration among its internal design team, research and development team and external design institutes.
Construction: The company’s well-established relationships with high quality contractors and suppliers, combined with its specialized construction team consisting of experienced professionals, help it to ensure fast delivery in data center construction. As opposed to retail data centers, typically the wholesale data centers are built to suit and customized to fulfill the company’s clients’ different technical requirements. Furthermore, the company’s clients require it to deliver wholesale data centers in large volumes within a prescribed construction period.
Cloud Services
The company started providing public cloud services in 2013 through its cooperation with Microsoft. Under its cooperation arrangement with Microsoft, the company provides Microsoft’s cloud services, including Azure, Microsoft 365 (formerly Office 365), Dynamics 365 and Power Platform, to customers in mainland China by entering into service agreements with such end customers.
The company provides IaaS, PaaS, and software-as-a-service, or SaaS, to its enterprise and individual end customers on the public cloud. Microsoft Azure provides the company’s customers with a one-stop shop to purchase a portion of the pooled computing resources, control the applications uploaded to the virtual servers and/or access to the applications run by various operators on the cloud infrastructure, and pay on an on-demand basis. Through Microsoft 365 services, the company provides its customers with not only the complete Microsoft 365 applications, but also business-class email, file sharing and HD video conferencing, all working together and connected in the public cloud so that customers can have access to everything they need to run their business from anywhere.
The total customer billing amounts are divided between Microsoft (Microsoft (China) Co., Ltd.) and the company and it retains a portion of the total customer billing amounts based on the agreed-upon metrics. All sales amounts from the company’s services to customers are deposited into an escrow account which are jointly administered by Microsoft and the company, and it settles the payments to Microsoft on a monthly basis. In addition, the company is entitled to receive incentive payments from Microsoft upon the completion of certain sales or services conditions. The company’s agreement with Microsoft has a term of ten years till 2027.
VPN Services
The company offers VPN services, primarily through Dermot Holdings Limited and its subsidiaries, or Dermot Entities, which it acquired in August 2014 and holds the brand of DYXnet. The company offers customers best-in-class, enterprise-grade network services in numerous cities throughout Greater China and the wider Asia-Pacific region. The company provides enterprise network solutions, including Multiprotocol Label Switching (MPLS) and Software-Defined WAN (SD- WAN), internet access and network security solutions, and fully managed network enabling connectivity with 222 POPs across Asia, of which 108 POPs are for VPN services. The company has further expanded its product portfolio to include Cloud and SaaS solutions, and the fast deployment on connecting public cloud around the Globe with high-speed network connections. In 2022, the company launched the Secure Access Service Edge (SASE) solution based on its SD-WAN services.
Additionally, the company has been appointed as one of the SD-WAN Services Standard Drafting Units of China Communications Standards Association (CCSA). The company obtained the ‘SD-WAN Ready’ certificate for overall solutions issued by the China Academy of Information and Communications Technology (CAICT) in 2020, and further certified with ‘SD-WAN Ready 2.0’ in 2022. The company is among the first official members of the China Cross-border Data Telecommunications Industry Alliance for being recognized as legally compliant by China’s Communications Administration. The company is also among the first batch of ICT service providers in Greater China to obtain several ISO international certifications, including ISO/IEC 27001: 2013, ISO/IEC 20000-1: 2018, and ISO 9001: 2015 for information security, IT service management, and quality management, respectively.
Infrastructure
The company’s infrastructure, which consists of its data centers and data transmission network, is the foundation upon which it provides services to its customers. As of December 31, 2023, the company operated 50 self-built data centers and 112 partnered data centers located in tier-1 and their surrounding cities, including all of China’s major internet hubs, as well as locations in Southeast Asia, with 93,597 cabinets under management. The company’s extensive network, consisting of 222 POPs, is a ‘high-speed internet railway’ that connects its data centers with each other and links them to China’s telecommunication backbones.
Data Centers
The company adopted a distributed deployment method when choosing locations for its partnered data centers based on the specific requests of its customers, demands in different cities and its strategy for POP establishment; therefore, the locations and number of its partnered data centers are subject to change from time to time. The company operates two types of data centers: self-built and partnered. The company defines ‘self-built’ data centers as those with its owned cabinets, and data center equipment housed in buildings it owned, leased from third parties, or the company purchased from third parties. The company defines ‘partnered’ data centers as the data center space and cabinets it leased from China Telecom, China Unicom, China Mobile, and other third parties through agreements. As of December 31, 2023, the company operated 50 self-built data centers housing 89,357 cabinets and 112 partnered data centers housing 4,240 cabinets.
The company’s nationwide network of data centers not only enables it to serve customers in extended geographic areas, but also establishes a national data transmission network that sets up connections among carriers and service providers in various locations.
The company builds and operates its data centers in compliance with high industry standards in order to provide its customers with secure and reliable environments that are necessary for optimal internet interconnectivity.
Network
The company’s network transmits data and directs internet traffic, forming an internet highway system that is linked to the networks of major carriers, non-carriers and ISPs (internet service providers) and enhances communications among its data centers, its customers and end users located throughout China and around the world. As of December 31, 2023, the company’s network connected 222 POPs throughout Asia.
The company’s network also features numerous interfaces with four telecommunication carriers in China, which are China Telecom, China Unicom, China Mobile, and China Education Network. The company’s network is not only connected to the headquarters of each carrier, but also with their local networks throughout China.
Customers and Customer Support
Customers
The company serves a diversified and loyal base of customers, depending on the different types of services provided by it, its customers include enterprise customers for its hosting and related services, and individual customers who signed up for the Microsoft Azure, Microsoft 365 (formerly Office 365), Dynamics 365, and Power Platform services. As of December 31, 2023, the company had over 7,500 enterprise customers, of which over 1,500 customers are using its managed hosting services. The company’s enterprise customers represent a variety of industry verticals with different business scale, ranging from information technology and cloud services, telecommunication carriers, communications and social networking, gaming and entertainment, ecommerce, automobile to financial services and government agencies, as well as from blue-chip enterprises to small- to mid-sized enterprises.
Customer Support
The company offers service level agreements on most of its services to its customers. The company’s network operation center is staffed with skilled engineers trained in network diagnostics and engineering. The company requires its staff to respond to calls or request from customers within 15 minutes. For major customers, the company has a dedicated team to offer specialized services tailored to their specific needs. Areas of customer support include design and improvement of the company’s customers’ IT infrastructure and network optimization.
Technologies and Intellectual Property
Innovative Solutions and Services
The company offers a comprehensive suite of solutions with cutting-edge technologies for customers, and continually expand its service offerings to provide full stack solutions consisting of interconnectivity, colocation or data center managed hosting services and cloud services. Examples of the company’s innovative products and services include:
Hybrid IT Service: The company is the first among data center service providers in China to provide hybrid IT services. The company’s hybrid IT services are designed to be connected to customers’ existing operating systems and achieve real-time response to customers’ IT requests. The company’s hybrid IT services cover computing and storage of data, facility management and maintenance, as well as operation support, which can effectively meet the growing IT outsourcing demand of enterprise customers due to the increasing complexity of IT requirements resulting from new technologies and applications.
Bare Metal Services: The company developed its proprietary bare metal services technology in August 2018. The company’s bare metal services can be integrated with high-quality BGP, VPN, and other services provided by it. The company’s bare metal services are based on automated operation and maintenance technologies and can be delivered to customers through the cloud platform on a fully automated basis without manual operations. It is equipped with security modules and network functions which can be integrated with other cloud services and network services provided by the company.
Hybrid Cloud Management Platform: In order to provide superior cloud management services under various cloud scenarios to its customers, The company developed a proprietary cloud management platform in June 2019. This platform can manage major public clouds and private clouds on a centralized basis and connect to its self-developed bare metal services, hybrid IT services, SD-WAN, and other services to achieve one-stop multi-cloud management service capability. The company’s hybrid cloud management platform enables the customers to manage all the services, products and resources provided by it, including private cloud, public cloud, enterprise virtual data centers, enterprise hosted private cloud, and bare metal services, as well as underlying data center and network connectivity services, on a centralized basis. Data analytics can be performed based on the information collected, which can realize the value of customers’ data assets.
Technologies for Data Centers
The company has implemented many technologies in designing and constructing its data centers, such as power transfer switch, cooling, lighting, and energy recycling technologies, to improve the electricity power consumption and energy efficiency of its data centers. The company is the first data center service provider that passed the ISO50001: 2011 Energy Management System Certification in 2017. One of the company’s data centers in Beijing, M6 data center, is among the first national green data centers named by Chinese Institute of Electronics in 2018. The company also applies heat recovery technologies at certain of its data centers to recover the waste heat from the exhaust of data centers to generate domestic hot water, which have improved its data center’s energy efficiency.
Research and Development
The company incurred RMB322.2 million (US$45.4 million) in research and development expenses for the year ended December 31, 2023.
Intellectual Property
The company’s research and development efforts had yielded 170 patents, 105 patent applications, and 335 software copyright registrations as of December 31, 2023, all in China and focused on the areas, including energy saving technology; data center design and facility maintenance and operations; network operation and maintenance management; cloud-related technologies; and edge computing and blockchain.
Sales and Marketing
The company actively markets its services and solutions through its direct sales force and it uses a mix of horizontal and vertical segmentation strategies to divide the market into groups with similar characteristics. Horizontal segmentation is used for products or solutions, such as retail colocation, interconnectivity, bare metal services, and generic hybrid cloud managed services, which are applicable to most of the enterprise customers. For more industry specific solutions, the company employs vertical segmentation for wholesale build-outs and wholesale colocation, as well as customized hybrid cloud managed services. The company’s sales and marketing teams are primarily based in Beijing, Shanghai, Shenzhen, Guangzhou, Hangzhou, Xi’an, Hong Kong, and Taiwan. Aside from standard products, the company is also leveraging and embedding its ecosystem’s offerings to provide turnkey hybrid cloud solutions for its key customers.
Regulations
The company strictly abides by relevant laws and regulations, including the Company Law of the People’s Republic of China, the Anti-Unfair Competition Law of the People’s Republic of China, the Anti-Monopoly Law of the People’s Republic of China, the Foreign Corrupt Practices Act of the United States, and the Sarbanes-Oxley Act. The company also establishes a complete and sound compliance management system tailored to it and has passed Anti-bribery Management System (ISO 37001) certification. The company has formulated and issued the Code of Business Conduct and Ethical Standards, requiring employees and third-party employees to engage in business activities accordingly.
In accordance with the laws and regulations related to intellectual property, such as the Patent Law of the People’s Republic of China, the Trademark Law of the People’s Republic of China, and the Copyright Law of the People’s Republic of China, the company has established and improved the intellectual property management system to protect its own rights and interests while avoiding infringement of other parties’ intellectual property rights. The company is ISO 27001 certified in the main operating regions of the company.
Competition
Carriers: The company faces competition from state-owned telecommunication carriers, including China Telecom, China Unicom, and China Mobile.
Carrier-neutral Service Providers: The company faces competition from other carrier-neutral service providers, such as SINNET and GDS.
Cloud Service Providers: The company competes with domestic Chinese cloud service providers, such as Alibaba Cloud and Tencent Cloud, as well as international cloud services which are operated by other data center service providers in China, such as AWS.
Other Valued-added Service Providers: The company faces competition from other value-added telecommunications service providers, including VPN service providers, such as Citic Telecom CPC, NOVA Technology Corporation Limited (NOVA) and HKT (6823.HK).
As of December 31, 2023, all of the company’s principal operating entities that are required to obtain Cross-Regional and Provincial VAT License, pursuant to applicable PRC laws and regulations, have obtained such licenses.
History
The company was founded in 1996. It was incorporated under the laws of the Cayman Islands in 2009. The company was formerly known as 21Vianet Group, Inc. and changed its name to VNET Group, Inc. in 2021.
