Definition of SaaS

Software as a service (SaaS) is a software licensing and delivery model in which software is licensed on a subscription basis and is centrally hosted. SaaS is also known as "on-demand software" and Web-based/Web-hosted software.

SaaS originated in the United States. At that time, a large number of SaaS companies such as Salesforce, Workday, Shopify, Snowflake, and Intuit emerged.

In the China SaaS market, the market is earlier than that in the United States, and it is divided into two types: industry vertical SaaS, such as Youzan in the e-commerce industry, Mingyuan Cloud in the real estate industry, etc. Horizontal SaaS targets a broad variety of customers, generally without regard to their industry. Some popular examples of horizontal SaaS vendors are Salesforce and HubSpot. Vertical SaaS, on the other hand, refers to a niche market targeting a narrower variety of customers to meet their specific requirements.

Global and China SaaS market dynamic

The global Software as a Service (SaaS) market size is projected to grow from $251.17 billion in 2022 to $883.34 billion by 2029, at a CAGR of 19.7%, among which the public cloud application SaaS end-user spending worldwide was USD147.43 billion in 2021, and is expected to reach 196.34 billion by 2023.

In China, driven by multiple external forces, the SaaS industry bursts out new vitality from the inside out. SaaS vendors have begun to learn and apply new business models, and the application of SaaS by enterprises shows a trend from outside to inside, from shallow to deep. Investors also joined in. Under the appearance of the high valuation of SaaS is the enthusiasm of investors. The SaaS market is finally no longer a solo on the supply side. Under the running-in between supply and demand, the functions of SaaS products have become more complete and more three-dimensional, and the services provided by manufacturers are more in line with the needs of enterprises.

After the market rebounded in 2018 and the growth rate dropped slightly in 2019, the growth rate of the SaaS market in China rose again in 2020 driven by the epidemic. In 2020, the China SaaS market size reached CNY 55.3 billion, a year-on-year increase of 49.2%. At this stage, the capital market’s attitude towards SaaS is more rational, and the development of various sub-segments is gradually maturing. It is expected that the market will maintain a compound growth rate of 35% in the next three years.

Challenges of the SaaS market in China

Currently, in China, large-scale SaaS tracks are dominated by large internet companies that usually obtain high income or profit; medium-sized SaaS firms are facing extreme challenges; and small-scale SaaS companies are in a situation where it is difficult to make a profit. Besides, there are many industry problems: insufficient product value (depth of business understanding), no standardized business, insufficient product functions, insufficient customer resources, low average revenue per user (ARPU), high churn rate/renewal rate, insufficient cash flow, insufficient team/technical capabilities, etc.

Market problems in China

Differences in payment habits. Compared with the United States, the cost of service personnel is lower in China, and the personalized service effect of personnel is better.

Differences in ability to pay. In 2018, China's GDP accounted for more than 16.00% of the world's total, but the IT expenditure of Chinese enterprises accounted for only 4.20%. The ability and willingness of domestic enterprises to pay are obviously insufficient.

Differences in the market environment. In the United States, there are many large-scale enterprises and commercialization. But in China, more than half of China's purchasing power is the government and state-owned enterprises, and they are more willing to customize procurement or overall service purchase.

To companies, Li Dong, the Vice President and Partner of Kyligence, an Intelligent OLAP Platform to simplify multi-dimensional analytics for the cloud data lake, told EqualOcean that the core competitiveness of one company should be focused on two sides: product and service.

For the product side, users' experience decides the quality of one product, and in order to make a product that will achieve the highest level of consumer satisfaction, leaders of the company should be active in solving real problems. For the service side, the key point is to make your customers succeed; meanwhile, small and medium-sized SaaS companies should control their costs to make sure that they are profitable while meeting their user's needs, Li said.

Chinese SaaS companies have their own strength when going globally. Li Dong said that Chinese SaaS companies will gain benefits from China's large population. For example, in order to satisfy its customers' needs, Kyligence will do a demo in China first, and due to a large amount of feedback data, it could customize products for banks or companies that are looking for software that could help them analyze large amounts of data.

To survive globalization, Chinese companies should be able to find their special strength and know their identity and target when competing with large foreign companies. Meanwhile, internal revolution and improvement are necessary. In the basic case of determining the feasibility of external factors, internal factors are an important starting point for enterprises. In corporate decision-making and product development, important resources should be invested in internal controllable factors, especially long-term, deterministic, Internal factors that generate value and capability are used to drive and influence uncontrollable and uncertain external factors to effectively form the results of business operations.

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