If the track has four seasons, China’s SaaS is still waiting for spring

“The spring of SaaS is coming.”

If you ask any player in the Chinese SaaS industry, whether it is a VC, an entrepreneur, or an Internet giant like BAT, everyone is repeating the same narrative more or less: spring is coming.

“China’s SaaS started late, and the market space is very huge. With the strong support of policies, we must take the lead in the layout. Although we have not found a good business model and burned hundreds of billions, we are confident.”

In fact, you can replace SaaS with innovative drugs, metaverse, medical IT, cloud computing, and big data, which are also in harmony: “Hot words, huge market, policy support, burning hundreds of billions, have confidence.”

But just can’t find a good business model.

In the eyes of Peter Thiel, the godfather of Silicon Valley, companies that like to label themselves with track labels are almost always in the uninvestable category:

“I’m skeptical of all thematic hotspot investments. Generally speaking, such investments are indiscriminate. People like to put a lot of completely different things into one hotspot. The labels are, cloud computing, big data, Artificial intelligence, healthcare SaaS, etc., but it’s actually a company with no distinction at all at the bottom.”

01 SaaS track basic disk

China’s SaaS has not found its own direction until now, which can be seen from the market value of SaaS listed companies:

According to the statistics at the beginning of 2022, the total market value of the top 10 Chinese SaaS listed companies by market value is about US$61.22 billion, and the total market value of the top 10 US companies has exceeded US$1 trillion, reaching US$1,096.32 billion.

The total market value of the top 10 SaaS listed companies in China and the United States differs by 17 times.

Compared with those American SaaS companies that have already defined their business models and started global expansion early, most Chinese SaaS companies are still in the early stage of transformation from software service providers to SaaS:

Kingsoft Office is the only SaaS company with a market value of over 100 billion. This is because Kingsoft Office’s subscription revenue is close to 70%. In the market’s view, this indicator means that the SaaS transformation is close to success;

However, except for Jinshan Office, other SaaS-themed companies are still in the cold spring stage:

In 2021, the subscription revenue of UFIDA and Kingdee International will be 1.65 billion and 1.57 billion yuan, accounting for 31% and 57% of cloud revenue, respectively; The revenue reached 2.56 billion, of which the cost of software cloud revenue accounted for 67%, which can only be said to have just hit the passing line.

As for the companies such as Panwei Network, 263, Weimob Group, etc., we can easily judge from the fact that they have not exceeded the ceiling of 10 billion market value. In the eyes of investors, they are still far from a real saas company. far distance.

A rather comical comparison is that the total market value of these SaaS companies combined does not exceed 400 billion yuan. But in 2021 after the epidemic, the rapid outbreak of online education and online office lifestyle has attracted a lot of investment to this track. According to only incomplete statistics, in the past three years alone, the total financing amount of China’s saas track has been close to 200 billion:

If the financing amount of the SaaS track is regarded as the cost, and the total market value is regarded as the income, after 4 years, the return on investment of the entire industry is less than 30%, and the VC yield of the SaaS track is hardly optimistic.

02 The market is full of opposite stories

The capital bubble generated by VC’s massive investment has even further deteriorated the competitive landscape of the industry:

In the eyes of VC investors, after many SaaS companies get financing, their operations begin to take shape, and more and more SaaS companies begin to become traditional software deployment companies, eager to pursue revenue completion, only to complete VC decisions revenue target.

This is where the story of the opposite begins.

For SaaS startups, the high revenue generated by VC is a choice between two bottles of poison:

Startups of course need VC financing and guidance on revenue targets, but the negative effects of this kind of “top-up” revenue through customized deployment are extremely obvious: even if these revenue are real, the business model it represents is estimated The value is also surprisingly low;

In contrast, the subscription revenue reflected in the SaaS market, and the valuation it represents, are payments made by customers based on performance. The core of the SaaS model is to reduce the risk of software performance being less than expected, from the original The customer undertakes and transfers it to the producer.

The original appearance of a well-operated SaaS should be based on extremely segmented markets and customers. Through the subscription model, products and services can be continuously optimized over time, greatly reducing the use cost of customers, improving customer experience, and rapidly expanding the market. .

Many Chinese quasi-SaaS companies have gone the wrong way, and there are many pitfalls in the opposite direction: most companies are constantly making low-value localized deployments in pursuit of short-term revenue, in other words, they are becoming less and less like a SaaS company. , and has become a traditional software service company that is less like SaaS.

03 Deformed operations of giants

In the collaborative office SaaS developed by Internet giants, there are also a lot of plausible KPIs:

Some large companies try to evaluate the user time and use this indicator to determine the range of paying users; some large companies evaluate the number of monthly active logins and postpone the expansion of the payment range indefinitely; An online office software that the world wants to use.

In the eyes of a senior investor in a SaaS track, the assessment plans of these Internet giants without exception will further bias the project:

In the communication with the person in charge of the online meeting of a giant, he asked puzzled: “Why don’t you consider reducing the payment range from 300 people to 30 people?”

The answer he got was: “It could affect our monthly active numbers.”

“Then why don’t you cancel the MAU assessment?”

All he got was a helpless smile.

Like many VC-backed SaaS startups, the SaaS projects supported by Internet giants are also limited by the Internet people’s mindset of “everything hits the nail on the wall” when it comes to KPI setting: the maximum number of users and the highest possible number of users. The monthly activity and online time of the website are as free as possible, and try to cover all aspects of needs.

The results of setting KPIs in this way can be imagined. The SaaS products of almost every Internet giant have become too big and ineffective. The 1% of customers who need it can’t find the items they want to pay for, and 99% of them don’t. Free riders for any purpose, and without real feedback from customers who are willing to pay, the product cannot make any effective improvements.

04 Is SaaS this road unworkable?

Logically, the SaaS track should not be like this:

If we take the “G20 Digital Economy Development and Cooperation Initiative” released at the G20 Hangzhou Summit in 2016 as a symbol, the transformation of China’s digital economy has gone through its sixth year.

In a track where all BATs enter the market, VCs invest hundreds of billions of dollars, policies are highly caring, and each SaaS founder is either Stanford or Cambridge’s outstanding computer graduates, the digital transformation will pass 6 years.

At the moment, players on the track are still anesthetizing each other with the saying that “spring is around the corner”. But an indisputable fact is that the hundreds of billions of the entire SaaS track have now become tuition fees, but everyone is still going further and further on the wrong road.

Is the Chinese market not willing to pay for SaaS? But in fact, it’s not.

The demand for online office, online meeting, and online education has never declined after 2020, and home office has become a rigid demand;

With the emergence of the economic cycle effect, the demand for cost reduction and efficiency improvement in the manufacturing industry is increasing day by day, and a large number of business owners are willing to seek SaaS solutions to improve capacity utilization. The demand for information security in the government affairs section has put forward new requirements for Chinese SaaS companies.

It is not so much that the Chinese market does not have the genes of SaaS giants, it is better to say that many players on the SaaS track are still unable to enter:

In the final analysis, SaaS is a new service model for segmented needs. Instead of focusing on polishing technology and hard work, launching a new hot word every day, it is better to really let your heart down and push down from the very end of the track. Your customers Which piece of code are they willing to pay for 3 years.