Industry Insights | The development of China's e-commerce SaaS service industry continues to maintain a high level

The participants in the domestic SaaS market mainly consist of traditional software service providers, native SaaS software service providers, and internet giants. Initially, SaaS software service providers target small and medium-sized enterprises, forming a market complementarity with traditional software service providers. In the later stages, they will gradually expand to large customers and develop into a coexistence relationship similar to that of foreign software companies such as Shopify, Salesforce, Adobe, SAP, Oracle, etc.

Traditional software service providers are no longer limited to the one-time software sales model and are gradually transforming into subscription models. They develop enterprise service software based on cloud technology, with internet giants focusing on building cloud infrastructure and playing an empowering role within it. On top of their core applications, they concentrate on developing third-party applications. Since enterprises have high requirements for customized development and service capabilities of SaaS products at this stage, native SaaS software service providers with a higher focus on the industry and traditional software vendors with a deep understanding of the industry are expected to achieve significant growth in the future.

SaaS companies help enterprises in various industries build functional modules such as CRM, HRM, and ERP on multiple terminal platforms, thereby enabling enterprises to efficiently achieve intelligent operation management, improve the efficiency and quality of enterprise decision-making, and enhance the competitiveness of enterprises in the digital economy era.

According to the scope of service enterprises, SaaS services can be divided into general-purpose SaaS and vertical SaaS.

General-purpose SaaS is suitable for all industries, focusing on general management and technical tools, including CRM, HRM, internal collaboration, financial management, internal communication, and other services. Vertical SaaS serves specific industry clients such as e-commerce, healthcare, catering, etc., providing more targeted software services that are closer to the business needs of customers.

Vertical SaaS focuses on solving problems of customers in a particular industry at various business stages. It requires SaaS providers to have a deep understanding of the industry, accurately grasp the pain points of specific industries, and then provide solutions.

In 2020, the market size of industry-specific SaaS reached approximately 15 billion yuan. E-commerce, healthcare, and catering are the three sectors with the largest market share among industry-specific SaaS, with e-commerce SaaS accounting for the largest proportion, exceeding 25%. These industries are closely integrated with end-users and were among the first sectors to be penetrated by the internet.

With the stable and rapid development of China's SaaS industry in the future, general-purpose and vertical SaaS are gradually moving towards a hybrid model.Industry-specific SaaS products in fields such as CRM and HRM increasingly emphasize vertical industry solutions or integrate more industry-specific versions with open platforms and partners.

The leading Chinese and US companies in 2C internet services are of comparable size, yet the market value of B2B enterprise service companies varies significantly.

The SaaS market in the United States started early and developed rapidly. It includes established traditional software vendors such as Oracle and SAP, as well as emerging SaaS companies like Salesforce and Workday, all with market valuations exceeding one hundred billion US dollars. In contrast, the largest company in the Chinese SaaS market, UFIDA Network, has a market value of less than 200 billion US dollars. In the SaaS market, there is a quantitative gap between the leading companies in China and the US in terms of market value and revenue.Chinese SaaS vendors face a unique domestic market environment, with opportunities such as the popularization of mobile technology and the development of e-commerce, which undoubtedly offer greater room for localization development.

The SaaS market in China is still in its infancy. This is because SaaS primarily targets small and medium-sized enterprises (SMEs), and it is sold in a standardized model. It offers better cost-effectiveness and faster iteration, significantly increasing the scale of adoption and penetration rates of enterprises.Large enterprises have complex business processes that are difficult to standardize. Well-performing SaaS products often start with small and medium-sized enterprises, which have relatively simple business processes that are easier to standardize. The SaaS products developed can easily meet user needs, thereby creating value for enterprises. Although the potential market space in China is huge, improving the level of enterprise informatization, cultivating the willingness to pay for software, and developing habits with SaaS subscription models all require a long time.

In the past five years, the development trend of China's SaaS industry has been generally positive, with the market size growing from 7.5 billion yuan in 2016 to 275 billion yuan in 2020, a compound annual growth rate of 38% between 2016 and 2020. With the continuous popularization of the Internet and the increasing informatization level of enterprises, the demand for SaaS services by small and medium-sized enterprises has significantly expanded.

In the next five years, the Chinese SaaS industry will experience rapid growth under the influence of policy guidance, increasing enterprise demand, and technological upgrades. It is expected that the market scale of the SaaS industry will exceed 100 billion RMB by 2026.

The rapid development of cloud computing technology has promoted the swift popularization of the SaaS service model. By deploying applications on cloud servers instead of local installations, the upfront investment cost for SaaS products is greatly reduced. This also enables more small and medium-sized enterprises to become the application customer base for SaaS products.

For the e-commerce sector, small and medium-sized e-commerce merchants are the mainstream group on the B-side of e-commerce transactions.With the continuous development of the e-commerce market, online retail sales have been increasing year by year, and the number of orders has been growing exponentially. Merchants on various e-commerce platforms have put forward professional and personalized demands in terms of store comprehensive management, marketing promotion, operational services, customer relationship management, product inventory management, and other aspects to improve the efficiency of store operation management.

Based on the aforementioned market demand, a number of e-commerce SaaS service providers that offer various applications to merchants have gradually emerged, and they sell SaaS services or overall solutions tailored to the online merchants of e-commerce platforms.

Currently, e-commerce SaaS services have developed into the largest segment in the vertical SaaS service market, accounting for about 30% of the overall vertical SaaS service market size. Common e-commerce SaaS products mainly fall into three categories:

(1) Store Management:The e-commerce SaaS store management product suite integrates features such as product management, order management, store decoration, customer service performance, and data analysis. It can help merchants improve work efficiency and manage orders.

(2) Express delivery servicesE-commerce SaaS express service products provide batch order processing, order printing and shipping, etc., to meet merchants' fast and stable order processing needs and improve order shipping efficiency.

(3) Customer service:E-commerce SaaS customer service products use communication technology to enable instant messaging with customers, including product inquiries, pre-sales and after-sales services.

With the continuous intensification of e-commerce competition, the competitive advantage of high-quality merchants willing to pay for e-commerce services is becoming increasingly evident, and the paid penetration rate in the e-commerce service market remains at a relatively high level.

Data shows that the larger the scale of e-commerce merchants, the higher their paid penetration rate. The high service paid penetration rate in e-commerce has become a driving force for the development of the e-commerce SaaS industry.In recent years, the e-commerce SaaS industry in China has benefited from the rapid development of e-commerce and the support of the '13th Five-Year Plan' for China to build efficient information networks, develop the internet industry, and strengthen information security. The market scale of e-commerce SaaS in China has been continuously expanding. In 2020, the market scale of China's e-commerce SaaS industry was about 2.6 billion yuan, with a compound annual growth rate of 44% from 2016 to 2020.

With the development and support of information technology policies, the popularization of digital technologies such as cloud computing, big data, and the Internet of Things, as well as the continuous development of 5G, blockchain, and e-commerce, will generate a large number of new market demands in the future.The market scale of Chinese e-commerce SaaS is expected to continue growing, reaching approximately 7 billion yuan by 2026.

The penetration rate of mobile internet users in China increased from 50% in 2016 to 70% in 2021, and it is expected to exceed 80% by 2026.The growing internet penetration rate and widespread adoption of mobile devices have laid the foundation for the rapid growth of cloud-based SaaS products, which are expected to be applied in more business scenarios among online and offline merchants in China.

In addition, China has the world's largest consumer market and strong consumer potential. Data shows that China's per capita disposable income increased from 23,000 yuan in 2016 to 35,000 yuan in 2021.In recent years, the consumption patterns of Chinese consumers have been changing rapidly, with more online shopping and payment activities taking place. It is expected that China's growing consumer power will bring more business opportunities to merchants, while also driving the demand for cloud-based business service solutions.