Why SaaS could be the walking dead in China?

SaaS (Software as a service) market in China could be a pain in the ass for many entrepreneurs. Local VCs often shake their heads and some even told they no longer check out SaaS related startups which unlikely end up as the outsized winners in their portfolio.

Between 2015 and 2017, there had been a sudden surge in the field. But the sprint quickly decelerated. Current SaaS market in China is estimated at RMB 24 billion (USD 3.5 billion).

Top three SaaS vertical applications in China are:

  • Human Resources
  • Collaboration Tool
  • Cloud storage

However, the country seems to fail to produce SaaS unicorns, which can compete with Salesforce, Adobe on the same level. Most local SaaS startups either stay small, become dead or simply the walking dead over the years.

Two major obstacles might be in the way.

1)Due to the immaturity of the sector, China corporate clients tend to have neither the habit nor the budget of using SaaS solution.

According to a recent survey:

About 85% of Chinese companies spent less than RMB200,000 (USD 29,000) annually on SaaS products. The trend is not going to change in the short run.

2)To make matters worse, the low paying clients have a high demand for after-sale service, which would take on a toll on the startup’s scale-up.

One entrepreneur who established a BI focused SaaS company both in the US and China revealed local corporate clients can act like a giant baby who must be spoonfed everything. If you just throw a dashboard to their face and hope they would play around it, you must be daydreaming. In the US, one account manager usually handles 5~7 large corporate clients at the same time but in China, from project setup, implementation, training to generating PPT report based on the dashboard, one big corporate client consumes the full time and energy of just one account manager. Clients expect their SaaS vendors to hold their hands, walk through all the baby steps while facilitating the whole process.

In short, SaaS business in China is highly service-driven and labor-intensive.

On the other hand, local corporate clients’ user experience is also fraught with complaints. The bottleneck can be summarized as:

  • A standardized SaaS product often fails to cope up with the ever-changing digital ecosystem in China. The vitality of the product only lasts one or two years, then soon becomes outdated or irrelevant for the market
  • A standardized SasS seems so inflexible and is unable to meet the constant customization requirements from the local clients
  • Clients cannot see the immediate ROI results after one-year subscription, regarding cost reduction, sales conversion, efficiency enhancement, or revenue increase. They do not have much patience and discontinue the service soon afterward.

Today global SaaS market is expected to attain a market size of USD 185.8 billion by 2024, growing at a CAGR of 21.4%. Geographically speaking, North America dominates the bigger chunk of pie due to technologically advanced infrastructure and presence of a large number of organizations which are well equipped to integrate software as a service in the region. Even though few experts in China still holds out the hope that the “SaaS Spring” will be blooming in this barren land, the journey remains thorny.

By: Cecilia Wu