We commenced operations in January 2003 through the establishment of Shenzhen
Xunlei, which currently, together with its various subsidiaries in the PRC,
operates our Xunlei internet platform.
In February 2005, we established Xunlei Limited as our holding company in the
Cayman Islands. Xunlei Limited directly owns Giganology Shenzhen, our wholly
owned subsidiary in China established in June 2005. Giganology Shenzhen primarily
engages in the research and development of new technologies.
Giganology Shenzhen has entered into a series of contractual arrangements with
Shenzhen Xunlei and its shareholders. These contractual arrangements enable
us to exercise effective control over Shenzhen Xunlei and receive substantially
all of the economic benefits of Shenzhen Xunlei. As a result, Shenzhen Xunlei
is our variable interest entity and we have consolidated the financial results
of Shenzhen Xunlei and its subsidiaries in our consolidated financial statements
in accordance with U.S. GAAP. The existing principal subsidiaries of Shenzhen
Xunlei include the following:
Shenzhen Xunlei Wangwenhua Co., Ltd. (formerly known as “Shenzhen
Fengdong Networking Technologies Co., Ltd.”), or Wangwenhua, which was
established in December 2005, and it primarily engages in software development,
technical consulting and other related technical services.
Shenzhen Zhuolian Software Co., Ltd. (formerly known as “Xunlei
Software (Shenzhen) Co., Ltd.”), which was established in January 2010,
and it primarily engages in the development of software technology and the development
of computer software.
Xunlei Games Development (Shenzhen) Co., Ltd., or Xunlei Games, which
was established in February 2010, and it primarily engages in the development
of online game and computer software and advertising services.
Shenzhen Onething Technologies Co., Ltd., or Shenzhen Onething, which
was established in September 2013, and it primarily engages in cloud computing
technology development and related services.
Beijing Xunjing Technology Co., Ltd. (formerly known as “Wangxin
Century Technologies (Beijing) Co., Ltd.”), or Beijing Xunjing, which
was established in October 2015 and currently a subsidiary of Wangwenhua. Beijing
Wangxin primarily engages in technology development and related services.
Shenzhen Crystal Interactive Technologies Co., Ltd., which was established
in May 2016 and currently a subsidiary of Shenzhen Onething, and it primarily
engages in development of computer software and provision of information technology
services.
Beijing Onething Technologies Co., Ltd., which was established in
January 2017, and it primarily engages in development of computer software and
provision of information technology service.
In February 2011, we established a direct wholly owned subsidiary, Xunlei Network
Technologies Limited, or Xunlei Network BVI, in the British Virgin Islands.
In March 2011, we established Xunlei Network Technologies Limited, or Xunlei
Network HK, in Hong Kong, which is the direct wholly owned subsidiary of Xunlei
Network BVI. Xunlei Network HK primarily engages in the development of computer
software and advertising services.
In November 2011, we established Xunlei Computer in China, which is the direct
wholly owned subsidiary of Xunlei Network HK. Xunlei Computer primarily engages
in the development of computer software and information technology services.
In June 2014, we completed the initial public offering of our ADSs, which are
listed on the NASDAQ Global Select Market under the symbol “XNET.”
In September 2014, we, through Shenzhen Xunlei Networking Technologies Co.,
Ltd., acquired from subsidiaries of Kingsoft Corporation Limited Kuaipan Personal
and Kansunzi, both software services in support of cloud-sourced storage and
sharing, and their related business and assets, for an aggregate cash consideration
of US$33 million. Kuaipan Personal has recently developed into a cloud-sourced
content service platform.
We are a leading cloud-based acceleration technology company in China. We operate
a powerful internet platform in China based on cloud technology to enable our
users to quickly access, manage, and consume digital media content on the internet.
In recent years, we have expanded our products and services from PC-based devices
to mobile devices in part through pre-installed acceleration products in mobile
phones to further enlarge our user base and offer our users a wider range of
access points. We target to deliver superior user experience in terms of ease
of access, management and consumption of digital media content anywhere, anytime,
and on any device.
To address deficiencies of digital media transmission over the internet in
China, such as low speed and high delivery failure rates, we provide users with
quick and easy access to online digital media content through core products
and services below:
Xunlei Accelerator, our most popular and free product, which enables
users to accelerate digital transmission over the internet and has approximately
145 million monthly unique visitors in December 2017, according to our internal
record; and
Cloud acceleration subscription services, which are delivered through
products such as Green Channel and Offline Accelerator and offer users premium
services for speed and reliability.
Benefitting from the large user base of our core product, Xunlei Accelerator,
we have further developed various value-added services or products to meet a
fuller spectrum of our users’ digital media content access and consumption
needs. These value-added services and products primarily include (i) cloud computing
services, (ii) live video services, and (iii) online game services.
We are increasingly extending our services to mobile devices, as part of our
cloud-based mobile strategies. Mobile Xunlei is becoming a popular mobile application,
while bigger screen phones with enhanced storage capacity have influenced user
behavior in how they access and consume digital media content on their mobile
phones. This mobile application allows users to search, download and consume
digital media content on their mobile devices in a user friendly way. Based
on our own record, daily active user of this application was about 6.9 million
as of the date of this annual report. Mobile Xunlei is also one of the most
downloaded applications in its category. In the fourth quarter of 2015, we started
to monetize our mobile traffic through advertising sales and generated our first
mobile advertising revenues. Moreover, this mobile application supplements our
existing subscriptions business, enabling us to reach a wider set of user base
and to expand our services additional devices of a user who has multiple devices.
Our mobile initiatives also benefits from our relationship with Xiaomi, one
of our strategic shareholders. Since 2014, we have entered into a pre-installing
services agreement with a Xiaomi group company which manufactures Xiaomi phones,
a well-recognized brand of smart phones in China. Pursuant to the agreement,
we agree to provide our Mobile Xunlei acceleration plug-in, and the mobile phone
manufacturer agrees to install such plug-in on its phones, free of charge. Such
pre-installment arrangement provides mobile phone users with access to our acceleration
services, which we believe enhances our ability to generate more user traffic.
Our mobile acceleration software has been officially adopted by Xiaomi’s
operating systems, MIUI6, MIUI7, MIUI8 and MIUI9 and the software has been installed
on Xiaomi phones, including both new phones shipments and system upgrades from
existing Xiaomi phones.
An important part of our strategies is to continue our innovation in crowdsourcing
for idle capacity and potentially storage from users of our cloud computing
services, which targets to utilize our users’ idle uplink capacity and
storage by using our hardware devices. We plan for crowdsourced capacity to
supply an increasing percentage of the bandwidth that we use for our own acceleration
services. From the third quarter of 2015, we started to sell crowdsourced uplink
capacity we collected from users under our cloud computing services to third
parties. We intend to sell crowdsourced uplink capacity to more third party
internet content providers with bandwidth demand. To further develop our cloud
computing business and at the same time explore emerging blockchain technology,
we launched our decentralized cloud computing product, OneThing Cloud, and its
related LinkToken, which is renamed from OneCoin, a type of digital tickets
based on blockchain technology, in 2017. OneThing Cloud is essentially a cloud-based
storage and sharing device. It allows users to share their idle internet bandwidth
and storage resources with our content delivery networks. By voluntarily participating
in our OneThing Reward Program, users can be rewarded with LinkToken, which
can be used to redeem for our products and services. The technological backbone
of our products and services is our cloud acceleration technology, comprised
of a proprietary file locating system and massive file index database. Our technology
enables us to support greater user expansion with incremental increases in server
and bandwidth costs. This technology, based on distributed computing architecture,
along with our indexing technology, enables users to access content in an efficient
manner.
Cloud based acceleration
We provide data transmission acceleration services based on cloud computing
technology to internet users. Our cloud computing technology utilizes a network
of computers hosted on the internet to store, manage, and process data, thus
providing our users with acceleration in internet data transmission and improves
their download success rates. We provide our acceleration services to internet
users with the following products and services.
Accelerator
We launched our core product, Xunlei Accelerator, in 2004 to address deficiencies
of digital media content transmission over internet in China, such as low speed
and high delivery failure rates. Xunlei Accelerator allows users to accelerate
digital transmission over the internet for free. Xunlei Accelerator also bridges
users with diverse needs to other services we offer, such as: Xunlei Media Player,
which supports both online and offline video watching, and our various online
games, by recommending and providing links to these services on its user interface.
Xunlei Accelerator is designed to provide an effective digital media content
transmission solution to our users. In addition to our featured transmission
acceleration function, we have integrated certain features into the interface
of Xunlei Accelerator to enhance the overall user experience while helping users
transmit their desired content efficiently. For example, Xunlei Accelerator
provides a platform to integrate other third-party plug-in applications. Users
can add application tabs to create shortcuts to various services that are provided
by us, third-party application developers and application venders who have business
relationships with us. Xunlei Accelerator also has a task management console
to allow users to track and manage their transmissions in progress, to manage
and prioritize cloud-based data transmission tasks, or manage and synchronize
transmitted content across multiple internet-enabled devices.
Mobile acceleration plug-in
We offer a mobile acceleration plug-in, which provides mobile device users
with benefits of download speed acceleration and download success rate improvements
similar to those offered by the PC-based Xunlei Accelerator. Our mobile acceleration
plug-in has been adopted by Xiaomi, a Chinese smartphone maker, on its operating
systems, MIUI6, MIUI7, MIUI8 and MIUI9. Xiaomi installs our mobile acceleration
plug-in on all of its new phones free of charge and adds such plug-in to the
existing ones via system upgrade. Xiaomi phone users thus have access to our
acceleration services.
Subscription services
We charge monthly or annual fees for our premium cloud acceleration subscription
services. The benefits and services within the subscription package, which typically
include incrementally larger bandwidth and faster acceleration speed, are upgraded
according to the VIP levels. The subscription fees generally remain unchanged
for subscribers at higher VIP levels. Our cloud acceleration subscription services
are delivered through the following major premium acceleration products:
Type of Services Description of Services
Green Channel This product allows our subscribers to transmit digital media
files from the internet, which significantly improves speed and reliability
of such transmission. This is particularly helpful when subscribers need to
transmit files that are only available from slow or unreliable data transmission
sources, or to transmit a group of files while having only limited internet
connectivity time.
Offline Accelerator This product allows our subscribers to engage us to transmit
digital media files from the internet on their behalf.
In addition to our major premium acceleration products, our product, Fast Bird,
also accelerates our subscribers’ internet access by increasing the bandwidth
of the network system provided by telecommunications service providers.
We adopted different strategies and various promotion programs for each VIP
level. For example, when we discovered that some of our users were not aware
of our subscription services, we provided users with greater exposure to our
subscription services in different parts of our platform and promoted products
with significant potential interests to specific users. We use our powerful
digital data analysis capabilities to explore different areas of user needs
previously unmet by existing functions and research and develop relevant functions
based on such analysis. We offer users promotional measures, such as providing
some free trials of premium acceleration services, to show the differences in
the data transmission speeds to demonstrate how our premium services tremendously
enhance data delivery speed and overall subscriber experience.
In order to promote customer loyalty, we may elevate the VIP levels of our
subscribers if they actively engage in our services, for example, frequently
participating in reviewing and rating of our products. Once upgraded to certain
higher VIP levels, our subscribers may be offered additional independent accounts,
internally termed as sub-accounts, at no additional charges. Such sub-accounts
also allow users to access our premium acceleration services, at no additional
charge.
We had a subscriber base of 4.3 million, 4.2 million and 4.3 million as of
December 31, 2015, 2016 and 2017, respectively. In this annual report, the number
of subscribers as of a given day excludes any sub-accounts.
Mobile Xunlei
Mobile Xunlei is a mobile application that allows users to search, download
and consume digital media content on their mobile devices. The monthly average
daily active user of this product was about 7.5 million in 2017. We started
to monetize our mobile traffic through advertising sales and generated our first
mobile advertising revenues in late 2015. Since then, our mobile advertising
business has grown rapidly. In 2017, our revenue generated from our mobile advertising
business increased by 46.7% from US$14.5 million in 2016 to US$21.2 million
in 2017.
Moreover, this mobile application also supplements our existing subscriptions
business. Many of our mobile application users also became users of our PC-based
Xunlei Accelerator.
Cloud computing
We launched our cloud computing project in 2014, which crowd-sources idle uplink
capacity from internet users who have bought and connected our proprietary hardware,
Zhuanqianbao, or ZQB, to their network router. Our ZQB devices can allocate
those users’ idle uplink capacity to us for our further allocation to
internet content providers. We pay users of our ZQB devices for the use of their
idle uplink capacity.
To further develop our cloud computing business and at the same time explore
emerging blockchain technology, we launched our decentralized cloud computing
product, OneThing Cloud, in 2017. OneThing Cloud is a cloud-based storage and
sharing device, which crowd-sources idle uplink capacity from our users who
have bought and connected their OneThing Cloud devices to their network router.
Similar to ZQB, OneThing Cloud can allocate those users’ idle computing
resources to us for our further allocation to internet content providers. However,
an important difference between OneThing Cloud and ZQB is that users of OneThing
Cloud can voluntarily participate in OneThing Reward Program and be rewarded
with LinkToken, which can be used to redeem for our products and services.
The crowd-sourced uplink capacities are valuable resources that we target to
commercialize with potential customers such as streaming websites and app stores.
Depending on our own needs, we also utilize those crowd-sourced uplink capacities
for our business from time to time, reducing our purchase of bandwidth from
traditional third party carriers.
Live video services
We launched our live video services in 2016 and adjusted our business model
in 2017. Under the new business model, while viewing live online performance
given by broadcasters, users may interact on real-time basis with broadcasters,
purchase virtual items from us to reward broadcasters they like. Users can access
our live video services through Xunlei Live website and mobile app.
Xunlei Media Player
Xunlei Media Player, which we launched in 2008, is a supplementary tool that
helps to deliver a more comprehensive viewing experience of digital media content
to the users of Xunlei Accelerator. Xunlei Media Player is our proprietary product
that supports both online and offline play of digital media content as well
as simultaneous play of digital media content while it is being transmitted
by Xunlei Accelerator.
Online game services
To better serve our users, we offer online games through our online game website
and purchase licenses from, or enter into revenue sharing arrangements with,
game developers. Such game play platform helps raise the average spending of
our subscribers. Online game players can play the games free of charge, but
are offered the opportunity to purchase in-game virtual items for a fee to enhance
their game-playing experience.
In light of the overall decline in the web game market and our intention to
allocate more resources on the development of our cloud computing business,
we streamlined our online game business by disposing of our web game business
in January 2018. After the disposal, we only operate MMOGs and mobile games
for our online game services.
We may also from time to time offer other ancillary services to cater to users’
needs and to supplement the major services we provide.