In recent years, product sharing about ToB has begun to increase. This may be related to the changes in ToC’s Internet dividend cycle. From 2020 to 2021, the valuation of many SaaS companies is very good, attracting many excellent ToC Internet product managers to make ToB enterprise service products.
However, by 2022, the valuation of SaaS companies listed on the US stock market will also have a significant correction. Some investors continue to be very optimistic, believing that the golden age of SaaS in China will soon come; some investors and practitioners are more pessimistic, thinking that it is difficult for China to produce excellent software products. Here are a few representative popular articles:
"In 2022, SaaS has not yet collapsed, but the cycle repeats | Jiazi Light Year"
"Why Can't Chinese Software Companies Produce Products?" "
First of all, in terms of the software landscape, 1995~2010 was the golden age of traditional software; many IT giants are capable of providing customers with a family bucket package from hardware, database to application layer. The contract value of a large-scale project is tens of millions or even over 100 million. The sales of IT giants have enough marketing resources to follow up the customer's needs, understand the customer's organization, and gain insights into the customer's internal operating rules.
But in the cloud era, with the empowerment of public clouds and the rise of open source software, a small team can build excellent products at low cost. There are more and more useful software, and the transaction price of the software has gradually dropped to hundreds of thousands or even tens of thousands. This price can no longer support the high sales expenses. The traditional sales method of "business trip + business" has disappeared. Too much room to play. The competitiveness of products and technologies has become the core competitiveness of software companies. Under this trend, the SaaS business model is undoubtedly better.
At the high point of valuation in 2021, China's ToC Internet companies are close to or exceed half of the level of American ToC Internet companies in terms of market value and employee compensation. In the ToB field, the market value of top SaaS companies in the United States will exceed US$200 billion in 2021, and the PS valuation of some SaaS companies will even be as high as 30 to 60 times. However, in China during the same period, the market value of leading ToB companies did not exceed US$20 billion, and both market value and software revenue were only one-tenth of their American counterparts. Among the top 50 listed companies in the US market capitalization, ToB's enterprise software companies account for half; in China's market capitalization rankings, ToB's enterprise software companies are rarely seen.
Under such sharp contrast, investors will naturally look forward to the future of Chinese SaaS companies. If estimated by the ratio of ToC’s Internet companies in China and the United States, the valuation of China’s future top SaaS companies should reach at least 50 billion to 100 billion US dollars.
Will China's SaaS simply copy the past route of the United States? I'm afraid it's not that simple. The development of SaaS in China is not as fast as that in the United States. Is it just because of cultural factors?
Here is a rather vulgar question. Will the penetration rate of toilets in public toilets in China, including the vast rural areas, be the same as that in Europe and the United States? The answer is definitely not, even in Japan and other Asian countries, the penetration rate of toilets cannot be the same as that in Europe and the United States. Apart from all cultural factors, there is another more fundamental reason. The body structure of Europeans and Americans makes it almost impossible for them to do "Asian squats", so the toilet has become the only choice. But in Asia, because people can choose different ways, different toilet products form in different societies.
The development of SaaS is of course inseparable from the bandwidth of the Internet as the infrastructure support. But what everyone comes into contact with in life is more ToC-oriented bandwidth, such as 100 yuan 300M home bandwidth, 50 yuan 100G mobile package, etc. These bandwidth products are already lower than the Internet access costs of ToC users in Europe and the United States. The price of a top-tier mobile plan may only be one-tenth of that in the United States. The low entry cost of 4G and 5G has also made China the world's largest number of mobile Internet users, giving birth to various ToC Internet applications and platform giants.
But it is completely different in ToB's commercial bandwidth field. Taking the quotation of a public cloud as an example, the monthly cost of 100M bandwidth in the United States is 100-200 US dollars. However, the commercial bandwidth quotations in different regions of China vary greatly, which is related to the number of public IPs attached, as well as the location of the park and the property. The commercial bandwidth quotations of 100M range from several thousand to tens of thousands; if you use the public cloud As a reference, the monthly cost of 100M bandwidth will exceed $1,000.
Excessive commercial bandwidth costs will inhibit the desire of enterprises to use public cloud and SaaS. When many small enterprises use public cloud or SaaS applications, they may only enable 5M bandwidth first, and the experience in many application scenarios is very bad under such bandwidth.
In the case of limited bandwidth, the functions of many SaaS applications only perform some simple forms and processes, which cannot crush private deployment software in terms of functions and experience. Excessive connection costs will also reduce the willingness of SaaS to connect to each other and call services. Each SaaS product will try to build more functions in a product instead of integrating the functions of other excellent products on the market.
Even for public cloud applications such as WeChat, DingTalk, and Feishu used by a large number of enterprises, most enterprises do not occupy Tob's commercial bandwidth, but use ToC's low-cost Internet access kingly for employees' mobile apps. However, complex enterprise-level applications are inseparable from the PC side. After all, the display space on the mobile phone side is limited, and applications on the PC side require higher enterprise-level commercial bandwidth.
For many Chinese SaaS practitioners, it may be a headache to face various customization needs. Even if it is not an enterprise-oriented business system, but those HR modules and CRM modules that tend to be standardized, each enterprise has its own different standards. For SaaS products, if there is too much customization, the development cost and business cost will increase significantly, and the problem of inconsistency in future versions will also be faced.
The most important reason for this should be that China is still in the stage of rapid development, and there are many opportunities in all walks of life. For entrepreneurs, it is the last word to seize opportunities and seek development quickly. During the opportunity window period, each enterprise may have a different exploration path, so various customized requirements will be put forward, and these requirements will change at any time as opportunities change. Overseas, some fast-growing companies, such as Tesla, will also customize a large number of enterprise management software, even the ERP system is no exception.
In addition, in the corporate governance structure in Europe and the United States, after years of equity changes in large listed companies, they no longer have a single major shareholder, and corporate governance is mostly based on a professional manager system. Many professional managers have received MBA training and have a unified methodology in management. For example, most business schools use the same human resource management and marketing management textbooks, and software as a management tool also has a better standardized use environment. If a company's management style is too special and cannot be recognized by the market, the liquidity of their positions and talents in the market will also be reduced.
In addition, the founding major shareholder and the professional manager CEO have completely different styles of managing the company. A professional manager CEO must focus on the business indicators of the company and be supervised by the board of directors. It is difficult for his personal style to affect a company for a long time. Professional CEOs usually hire more professional positions to jointly complete the operation of the enterprise. The founding major shareholders are different. The founding shareholders of each enterprise have a unique style formed during the growth process. Enterprises also have various management methods and form a special corporate culture. In these enterprises, SaaS products will encounter a large number of "customization requirements".
Since Chinese companies have not been listed for a long time, most companies still have a single major shareholder of natural persons. Major shareholders have great influence on the management and employees of the company, and the ideas of major shareholders will be quickly implemented in the company, so even "unreasonable" and "costly" demands will be quickly responded to. It may take another 30 years to form a decentralized shareholder status and professional manager management mechanism like that of US listed companies. The management mechanism of China's state-owned enterprises is also very different from that of US listed companies, so I won't go into details here.
Many SaaS practitioners believe that the cost of engineers in China is too high now, and using SaaS software to replace complex private deployment software can reduce development costs. But in a software project, less than 20% of the time is actually spent on development, and most of the time is spent on matching business and requirements. If you want to do a good job of SaaS software, you need to take advantage of the structural advantages of SaaS to reduce business costs, transaction costs, and demand integration costs, not just reduce development costs.
Moreover, the value of software products is to reduce costs and increase efficiency for enterprises. If a human resource management software can save the company the manpower of 2 non-technical positions, then the value of the software may be equivalent to the labor cost of 2 ordinary positions. However, the labor cost of ordinary jobs in China is much lower than that of technicians, and it is also lower than the cost of ordinary jobs in developed countries. In this case, those management software that can reduce staff and increase efficiency may be difficult to promote in some low-cost enterprises.
For SaaS software, meeting compliance requirements and being strictly regulated is a basic requirement. Due to the cost sharing of a large number of customers, the security, high availability and compliance of SaaS products of the same level are better than those of private deployment products of the same specification. If a privately deployed software needs to meet GDPR regulations, it needs to undergo very complex structural and logical transformations.
If the regulatory authorities further increase the regulatory requirements, security requirements and disclosure requirements for enterprises, and if large leading enterprises have more requirements on software compliance for enterprises in their supply chain systems, the popularity of SaaS products will accelerate.
If you compare SaaS products to creatures in the ocean, traditional software is likened to creatures on land. Then in the same period of time, because of better mobility, killer whales in the ocean grow faster than animals on land, and it is easier to grow into a "monster".
The capital market has a higher valuation for SaaS companies because it is expected that SaaS products have higher growth potential and can quickly occupy the market to obtain higher monopoly profits. The "40% rule" that is often heard in the SaaS field is that the sum of growth rate + profit margin must reach 40%; if the growth rate is 80%, then the profit margin can be -40%.
There is also a very popular term in the SaaS field - PLG, which is the abbreviation of Product Led Growth, that is, product-led growth. PLG describes a new marketing and marketing strategy. Representatives of companies that have emerged from the PLG model include Figma, Dropbox, Slack, Atlassian, and Zoom. These companies use a method similar to Internet ToC to win the ToB market, and the user experience is better than traditional software, but the success of PLG is very dependent on the speed of product dissemination and traffic channels.
In developed countries, due to labor costs, the survival cost of product software companies is very high, and it is difficult to form a moat other than product strength. Once product competitiveness declines and revenue declines, it will be difficult to maintain the original scale, and it is likely to enter the path of a "death spiral". In this case, it is either a quick bankruptcy and liquidation, or it is acquired by other companies. Large companies also often evaluate the value of each department, and continue to sell non-main channel departments to other companies.
In the current software industry in China, mergers and acquisitions are not a frequent occurrence. Because of regional restrictions, the scenario of "a strong dragon can't overwhelm a local snake" often occurs, and many small software companies can rely on a single local customer relationship for long-term survival. Quickly eliminating competitors to capture a higher market share may require some different business approaches.
Even the best product promotion is not as good as the sharing and dissemination of customer best practices. A small number of innovative companies begin to explore and use those new products and technologies. After successful practice, some project members may flow to other companies. Good products and good ideas spread out. However, in the Chinese market, the mobility of Party A is significantly smaller than that of the US market. There are various regional restrictions in the talent market, including restrictions on education, housing and some other resources, which reduce the mobility of professionals and thus affect the The speed of distribution of the product.
I won’t talk about the difficulty of traffic propagation on Internet channels here, and everyone should be clear about the problems here.
The growth environment of SaaS software in China is very different from overseas. The road to SaaS in China may not be able to copy the road to success overseas so easily, but it does not mean that SaaS in China has no future.
In the field of automobiles, there used to be pessimistic ideas in the market, thinking that China's automobile industry would never be able to surpass developed companies such as Europe, America and Japan. It is also because of policy restrictions that in the Chinese market, traditional gasoline vehicles cannot incubate those powerful V8 and V12 engines, and cannot compete with overseas competitors in terms of power, and it is difficult to surpass them in terms of brand power. Even in the field of trams, due to China's urbanization system, most car owners cannot have their own independent garages, and charging is inconvenient. Such restrictions may affect the penetration rate of electric vehicles. But in the end, China's enterprise industry has embarked on a different development path, creating many competitive products in the pure electric and hybrid fields, and exporting them overseas in large quantities.
I believe that China's SaaS software can also take a completely different path. The more complex the environment and the more different it is from overseas, the harder it is to create superior products to be copied. The next article will talk about the current pattern and opportunities in the Chinese SaaS market, welcome to pay attention.