Who will be hurt by the free and low-price customer acquisition strategy?

Editor’s note: This article is from WeChat official account “I am Nanqidao” (ID: nanqidao33).

Once upon a time, corporate services were the children of other people’s families. When one after another corporate service unicorns were born in the United States, the Chinese corporate service industry was very quiet.

However, since 2018, the industry has ushered in a turning point. In 2020, SaaS investment and financing activities will be as active as the healthcare industry. The boom period of Chinese SaaS companies is also “late but coming” and presents a different competitive landscape. The companies that have emerged from the chaos have in common that they have achieved results in the subdivision of the track.

However, the problems faced by Chinese and foreign SaaS companies are the same. How to obtain higher renewal rates and customer unit prices is the key to the long-term development of SaaS companies.

SaaS’s localization road

The United States is a relatively mature area for the development of the SaaS industry. Companies such as Salesforce with a market value of more than US$200 billion were born. The Chinese and American SaaS industries are often used for comparison, but compared to their American counterparts, Chinese SaaS companies are losing ground and starting line.

SaaS is a type of enterprise service. When American companies purchase enterprise service software to solve problems, Chinese business owners tend to recruit more labor. For Chinese business owners, labor costs are more cost-effective.

The fertile soil has given birth to giants in the field of enterprise services such as Oracle, SAP, and IBM in the United States. These companies can share the market value and revenue with companies such as Google and Facebook. At the same time, Chinese technology giants are dominated by consumer Internet companies. Such as Tencent, Ali and Baidu etc., enterprise service companies have long been lacking in technological change.

Internet giants have made Chinese users accustomed to free services, and paid services are difficult to implement in China. But this situation is ushering in a change. Dongxing Securities A research report pointed out that China’s total labor force will be reduced by more than 200 million in the next 30 years. The non-working population will increase by nearly 100 million. This will have a very significant impact on China’s labor supply and demand in the future. The demographic dividend in the past has passed, and the labor shortage will usher in an era of shortage in the future. Labor costs will rise as a result, and companies must also improve human efficiency.

In this context, giants including Tencent have stepped into the industrial Internet. Ma Huateng even said that the consumer Internet without the support of the industrial Internet is a castle in the sky.

When enterprise services usher in the spring, the advantages of SaaS companies are reflected. Compared with the high license buy-out fee, the SaaS subscription fee method is more suitable for Chinese customers, and related enterprises are ushered in the trend. On the one hand, a large number of entrepreneurs cut into the track, on the other hand, traditional enterprise service companies such as Kingdee have also transformed to SaaS, and the industry is extremely lively.

The influx of capital and entrepreneurs has made the SaaS track very crowded. However, the differences in the soils of China and the United States have also led to different business ideas for different SaaS companies.

As mentioned earlier, American SaaS companies have unique advantages. Business owners have a strong willingness to pay and have a high ability to pay. They are willing to pay for companies that can provide professional services. SaaS companies compete with professionals.

In China, although SaaS charges are far lower than traditional software services, Chinese business owners are accustomed to the free model, and business owners have low willingness to pay and their ability to pay. Entrepreneurs in the SaaS field are also using Internet traffic thinking to make SaaS services. When overseas counterparts regard products and services as their core competitiveness, Chinese SaaS companies prefer to advertise low fees. The industry once relied on free and price wars to compete for customers.

However, this growth method faces problems. First, some SaaS companies have not found a real market and cannot meet customer needs; second, the free and low-cost strategy seems to be able to gain the market, but in the long run it is for SaaS companies. Double harm with customers.

The one who meets the needs of customers will win the world

A closer look will reveal that an obvious characteristic of the SaaS industry is that giants generally start in subdivisions. In the CRM field, the United States was born Salesforce; in the ERP field, the United States was born Infor; in the e-commerce field, the United States was born Shopify……

Image from: unsplash

Take Salesforce as an example. Between 2005 and 2019, Salesforce’s revenue increased by 55 times, the customer unit price increased by 8.8 times, and the market value increased by 125 times. It was the world’s first SaaS company with a market value of more than 100 billion US dollars. It has exceeded 240 billion US dollars. Starting from the vertical field and growing into a giant that scorns traditional software companies, Salesforce is the benchmark for all SaaS companies.

In the SaaS battle, traditional software companies and SaaS startup companies have their own advantages. The advantage of traditional software companies is that they understand the needs of customers and persuade them to change the original purchase of licenses to SaaS subscriptions. The disadvantage is that the adjustment is slow; but the advantage of SaaS startups is that they are more flexible, and the disadvantage is that it is difficult to find real ones. The track of market space.

In other words, SaaS companies that can find the right market and solve problems for customers are the ones with real potential. Let’s take a closer look. Companies that truly understand market needs and provide solutions to customers’ needs are the ones that will go far, and market needs must be in the segmented industries.

In the sub-industry, small and beautiful companies are also born in China. Such as