Insight: SaaS (1) Why do I choose the US over China in the SaaS market?
This article is one of the articles in the series ‘Insight: SaaS’, it is the first article in the series.
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Many of my friends asked me why I didn’t start my SaaS company in China. China is a large market, and you are Chinese. In China, you know how to run a business and how to adapt to the local culture. Starting a business in China has many pluses.
The world has been accustomed to copying from Silicon Valley for a long time. The United States’ Silicon Valley has been at the forefront of the global technological trend. People from all over the world come to the United States to learn new technologies and business models, which they then implement in their own countries. However, as the world becomes more globalized, more and more technology companies are springing up in Asia and Europe, and many foreigners will open their businesses in the United States in order to compete globally. If the company’s products are good, it should be able to compete in the largest market.
1. The SaaS market in the United States is 10 times larger than it in China.
Salesforce, Zoom, Slack, ServiceNow, Zendesk, Mailchimp, WorkDay, and Twilio are just a few instances of American SaaS companies. Their market capitalization exceeds $20 billion, and their annual revenue exceeds $1 billion. In China, there is no 1 billion ARR SaaS company. The difference between China and the United States in the SaaS market is more than ten times. Despite the fact that more Chinese VCs are investing in the SaaS industry, the Chinese VC market’s overall acceptance of SaaS is far lower than the US market.
It’s not that Chinese VCs don’t understand SaaS; it’s just that Chinese SaaS companies haven’t yet provided satisfactory answers. It is largely caused by the objective service market gap between Chinese and American businesses. Given the fact that many Chinese SaaS companies claim to be China’s Salesforce and China’s Slack, their performance falls short. To assess future trends, venture capitalists require data rather than stories. There are 3,000 SaaS companies in China that can be found on the Internet, with another 4,000 to 6,000 potentially missing from the data. The typical scenario is that customer churn is high, revenue and expenditure are unbalanced, and marketing capabilities are lacking.
2. Customers’ payment habits in the United States far outnumber those in China.
Companies in the United States are willing to spend money on SaaS because they believe it can help them solve problems and increase efficiency. Furthermore, over the last ten years, this willingness to pay has gradually increased. Only 3.75 percent of Salesforce’s Free Trail was converted into sales in 2006. The conversion rate of free trials has reached 10–30% with today’s products of the same level. Companies that are exceptional can achieve a 50% success rate. The current Chinese market resembles that of the United States in 2006. Chinese businesses aren’t used to paying for software-as-a-service. Educating the market takes a long time.
Here are some examples:
Freemium and Free Trial Conversion Benchmarks:
SaaS has improved the efficiency of business operations for American companies. I am willing to pay a significant fee if you can bring me a 10% increase in inefficiency. Many firms in China and other emerging markets, on the other hand, have not yet reached the stage of fine-tuning their operations. The amount of revenue you can bring indirectly is important to business owners. Because many SaaS tools fail to solve this problem, companies are reluctant to pay for SaaS.
On the other hand, it must be recognized that Chinese SaaS companies produce far fewer products than American firms. Many products lack a transparent price list on their official websites and a large number of requests for a demo. There is no documentation or any open APIs. It takes a long time to try the product, and there is no AHA moment when you finally use it. Why would customers be willing to pay? A lot of SaaS products don’t have differentiated competition, so they can only beat them with low-cost strategies. The entire industry is in a bad state of health.
3. In general, the American market accepts online payment and bottom-up purchases.
Customers often have a long period of self-education before contacting you, thanks to product introductions, FAQs, and documents on corporate websites. Customers are more likely to obtain information on their own than they are to obtain information through contact sales. Customers decide whether to order SaaS products by using the free version and trial and often the decision-makers who buy are company employees, not the CEO/CIO. When a large number of people in an organization use your SaaS and it becomes ingrained in their workflow, it makes sense for them to upgrade to a more advanced version. Slack is designed to be used by members of a group first, and then gradually by the entire company.
Product-Led Growth’s SaaS products often stand out from the crowd, and customers can sense the value of the product. SaaS companies must constantly improve their products in order to attract more customers. Products, not sales, drive the company’s growth. This is ideal for international operations. In Shanghai, I can also develop. It is not suitable for me as a foreigner if every customer must touch FAE in order to purchase.
I chose the United States as Kiwicode’s target market for the reasons stated above. I never talk about making a big Chinese company; instead, I emphasize the importance of focusing on building a good global company.
The next article ‘Insight: SaaS (2) SaaS is a business model’ is published. Simply send me some claps and feedback if you enjoyed my article.
