Where are the Chinese SaaS giants? ·TechNode

After doing venture capital overseas for many years, I recently returned to China. Most of my time is spent on software as a service (SaaS). So I keep asking myself a question: Where are the giant SaaS companies in China?

The United States owns Amazon, Facebook and Google, while China owns Alibaba, Tencent and Baidu. Although the United States has Salesforce, Adobe and ServiceNow (China)… However, China has no similar products.

In China, large-scale adoption of SaaS has the potential to solve many workplace challenges in the country. From a macro perspective, the end of the demographic dividend (the working-age population is more than the unworking population) will lead to an increase in labor costs. SaaS can help bridge the labor gap by automating work processes and increasing worker productivity. Since Covid-19 has triggered a short-term demand for remote work, digital workflows will prevent weeks of lost productivity and revenue in the event of a resurgence of the virus.

Today’s Chinese SaaS

As a baseline, the following is a chart of the 20 largest technology companies in the United States ranked by market capitalization on August 29 this year: 55% By number and 40% By value.

Most enterprise companies are SaaS or very close companies.

In contrast, this is a chart of the top 20 Chinese technology companies ranked by market capitalization.Enterprise company accounted for 30% By number and 3% By value. There are no SaaS companies.

SaaS companies are not hidden in the private market. The following are the top 20 companies in the newly released list of Chinese unicorns by CB Insights (Ant Group is separated from Alibaba, so it is not shown here).

Although some may argue that there are large SaaS companies, they are all located within large companies such as Alibaba and Tencent. Alibaba Cloud, like other cloud service providers such as Tencent and JD.com, is a platform-as-a-service provider similar to Amazon Web Services: You need to build other SaaS applications on these platforms to realize the full potential of these platforms. For example, I can’t use Aliyun to collect taxes on every sentence fee, but if my data is stored in the cloud, I can definitely use SaaS products to perform tasks faster.

The strategy of Dingtalk, Lark, Wechat Work and other software is to attract users and lock them in the parent company, instead of acting as a platform-independent product, giving priority to user needs. From this perspective, I think that Alibaba and other companies educate on how to use software, which is a good practice, but if it enhances the impression that software should be free, then this may bring long-term to the SaaS market The problem.

It is estimated that China’s SaaS market will be between US$3.7 billion and US$6 billion in 2019, which is less than 6% of the total global SaaS market. In the chart compiled by Bain & Company, we can see that China lags behind developed countries in terms of IT investment relative to its scale.

What is preventing the adoption of SaaS?

For Chinese SMEs, which account for approximately 60% of China’s GDP, adopting SaaS is not an intuitive decision. Historically, cheap labor in China meant that manual execution was still feasible for most tasks, and it was rare to automate or record through software. Accompanying this is that China’s small and medium-sized enterprises usually do not have enough cash reserves to carry out system upgrades. When they did have investment capabilities, software piracy was widespread in the 2000s, so there was a general lack of willingness to buy software. Many companies usually do not see the value of using software.

This mentality makes the adoption of SaaS in China particularly difficult. Medium-sized companies with ample capital have traditionally been the starting point for SaaS companies in the United States and Europe. Without establishing a solid customer base in China, many SaaS companies must immediately try to market to more challenging corporate customers.

For Chinese enterprise companies, buying software is not a problem, but the industry faces serious problems in adopting cloud technology. McKinsey pointed out in a report on the adoption of cloud computing in China that Chinese companies usually do not have such advanced technology stacks. Cloud migrations are complex and costly because they usually have to create the hardware and software required for the migration. As a result, at least in the first few years of the migration, Chinese public cloud providers cannot claim that their services will reduce IT costs like other countries. Even if companies manage to migrate to the cloud, they still face many issues regarding the stability and security of the public cloud. Most choose private cloud or hybrid cloud deployment.

Another obstacle is the need for advanced customization. Most Chinese SaaS companies encounter difficulties with their customers’ complex internal company structures, processes and work processes. This not only makes customization very time-consuming, but also does not allow other customers to re-use a lot of work. For SaaS startups, the typical challenge is to customize to earn real income, or to focus on features that everyone can use.

This is a challenge faced by SaaS providers in all markets, but for most companies, China is an extreme case where there is no overlap between customized product features and standardized product feature lists.

For example, three factories in the same industry will have different workflows to monitor the quality of their production lines. When purchasing production monitoring software, they hope that the products reflect their respective workflows, rather than changing their processes to more standardized processes. Most importantly, a company will build an internal legacy system based on the old code and hope to port it to the new system, another company may want to use its brand beauty and custom visualization tools for specific indicators (even if the software supply The company does not provide visualization tools and has no plans), so the request list always exists. Many investors complain that most Chinese corporate SaaS companies are providing IT consulting services in disguise.

Other obstacles to deploying SaaS (including the willingness to build internally, distrust of public cloud services, and even the lack of talent to expand Chinese SaaS companies) all reflect that the SaaS market is in its early stages, rather than a sign of contrast to the Chinese market. especially.

Looking to the future

Based on the observation that corporate startups tend to follow consumer startups, I will rank the technology ecosystems in China, Europe, and the United States as follows:

Although the barriers to adoption can be complex, the progress of Western startups shows that these problems can be resolved over time. Venture capitalists who have traditionally focused on consumer start-ups and pursued a hyper-growth model began to seek new opportunities, which could lead to faster return on investment (or death). I often see Chinese commentators complain that since 2015, the return on capital of consumer startups has been declining. Venture capitalists have also begun to pay more attention to the field of enterprise software, and hope that it will take longer for inter-enterprise startups to reach scale.

Many Chinese SaaS products (such as Bytedance’s Lark) are very feature-rich, but they lack exciting killer features (such as Roam Research’s two-way link). When these SaaS products try to turn everyone into everyone, they often become the vane of successful Western startups, and they cannot explain the nuances of the Chinese market. China’s SaaS start-ups and consumer companies are still trying to figure out issues such as how to meet key needs and how to manage customer success in the Chinese market environment. The lack of a quick feedback loop from the customer base will not help.

The development of China’s SaaS seems to be very bad, but there are reasons for hope. Many of the effects mentioned are waning (for example, the end of the demographic dividend will mean an increase in labor costs in the future). At the same time, as the COVID has accelerated the adoption of cloud and remote work, new triggers have emerged, and opportunities have emerged as the government promotes cloud adoption.

Agora, a Chinese SaaS company that enables developers to add high-definition interactive broadcasting, voice and video, recently successfully conducted an initial public offering; its current market capitalization is $4 billion, which marks the arrival of things.