SaaS Service Research

Enterprise-level SaaS (Software as a Service) targets non-individual organizations and provides management software services to customers through the SaaS delivery model. The SaaS service model was first proposed by Salesforce in 1999.

The wave of enterprise digital transformation, especially under the COVID-19 pandemic, where home isolation and remote learning/working became the norm, has released the demand for digitalization in production and life. The demand for remote meetings has skyrocketed, with the number of users of Zoom overseas and Tencent Meeting in China growing rapidly. The number of users of DingTalk, Feishu, and WeCom has also seen explosive growth.

Many people believe that China’s SaaS has entered a golden age. In fact, comparing with SaaS services in developed economies, it is clear that China’s SaaS services are still in the primary stage. Enterprises engaged in SaaS services still have significant gaps with advanced SaaS enterprises in R&D investment, globalization, and revenue capabilities.

Industry Benchmark: Salesforce

Currently, Salesforce is the world’s second-largest SaaS company after Microsoft. As the most successful global cloud-native SaaS vendor, Salesforce has always been the object of imitation and learning for Chinese entrepreneurs.

Salesforce first developed CRM, forming differentiated competition with ERP of companies like Oracle. It achieved rapid growth by improving the customer acquisition capabilities that enterprises themselves invested in building. It went public in 2004 with its CRM product, stock code CRM.

With the popularization of the SaaS concept, traditional software giants and innovators have continuously entered the SaaS industry. Under competitive pressure, Salesforce launched the world’s first PaaS platform, Force.com, in 2007, where developers can deploy applications under a unified architecture. On Force, non-technical personnel can directly complete the construction, deployment, use, update, and management of applications in the cloud. Its establishment meant for Salesforce that it permanently opened up the relationship with subsequent entrants to the SaaS market and made up for the shortcomings in competition with traditional software giants. For subsequent entrants to the SaaS market, the PaaS platform provided by Salesforce offers conditions for rapid development. Developers can complete application development, testing, and deployment within a few hours, and can adjust or update at any time. At the same time, this kind of development lowers the requirements for programming skills, allowing developers to care more about the realization of specific businesses. Competition at the SaaS level began to no longer be a competition of IT technology, but a test of the ability to capture, understand, and implement solutions for enterprise business needs. Salesforce achieved a dimensionality reduction strike against SaaS vendors through dimension-raising thinking and defended its industry status.

After listing, Salesforce used its capital advantages and brand effect to integrate some CRM services through mergers and acquisitions, further consolidating its position as an industry leader. Currently, more than 150,000 companies of all sizes use Salesforce products, and Salesforce’s market share in the CRM field accounts for more than 20%.

Salesforce’s revenue mainly comes from two parts: Subscription and Professional services. Subscription refers to customers “renting” related services by paying monthly and settling annually, neither owning software nor hardware, but only enjoying the services provided by the software. Professional services refer to fees for project implementation, management, and training. Currently, subscription services account for more than 90% of its total revenue.

Core Issues of SaaS Service Enterprises

Subscription and Purchase Services

Subscription and purchase are the two main charging models for SaaS services. After the subscription charging model, for SaaS companies in the enterprise service field, whether to do customized business for large enterprises (KA) or standardized subscription for small and medium-sized enterprises (SMB) is a matter of strategic development direction.

Standardized subscription services for small and medium-sized customers have low average customer acquisition costs and do not require investment in sales personnel and follow-up service personnel costs, but the customer life cycle (LT) is short and the number of subscription accounts is small, resulting in low Customer Lifetime Value (LTV) and Average Revenue Per User (ARPU). Therefore, the contribution to total revenue is limited.

Customized SaaS services for large customers inevitably require high upfront sales costs and follow-up service costs and training costs, and customized services deviate from the original intention of standardized services in the SaaS model.

But the good side is that large customers have a long duration, and the long life cycle superimposed with high switching costs brings guarantees for renewal rates and long-term income. There are many sales personnel in the enterprise, so the number of subscription accounts is also large, and the customer lifetime value and average revenue per user group are high. The most critical thing is that large customers have fixed sales expense budgets, and their payment habits, payment capabilities, and willingness to pay are comprehensively better than those of small and medium-sized enterprises. Salesforce’s experience tells us that expanding the KA market means greatly expanding the TAM (Total Addressable Market).

The SaaS subscription model needs to calculate the sales and marketing expenses CAC (Customer Acquisition Cost) paid for customer acquisition, as well as the customer’s lifetime value LTV (Life Time Value) during the operating life cycle.

Standardized Subscription or Personalized Customization?

At the beginning of its listing in 2004, Salesforce said that although the revenue of small businesses accounted for more than 40% of the annual revenue in the previous year, the churn rate of small businesses was high, and the lost share needed to be continuously replenished. At the same time, large enterprises questioned whether they could provide high-quality service capabilities and did not adopt their products much. In addition, large enterprises have high requirements for customization, which exceeded the scope that Salesforce could provide, and Salesforce needed to invest more sales resources to acquire large customers.

After 2015, with the establishment of its service capabilities and brand, more and more benchmark enterprises and typical customers have accumulated in various industries. L’Oreal in the retail industry, Toyota and Yamaha in the manufacturing industry, Morgan Stanley in the financial industry, Vanke in the real estate industry, Amazon and Alibaba in the Internet industry, and Apple and Samsung in the consumer electronics industry are all its customers.

Key Indicators for SaaS Enterprise Success

Customer Success

The idea of customer success has always been advocated by Salesforce founder Benioff, and even its self-positioning is a Customer Success platform. Because Salesforce provides subscription services, it needs to ensure the customer renewal rate. If the product does not meet expectations, it will lose customers at the next renewal. For a SaaS company that lives on subscriptions, the customer renewal rate is life. Therefore, the enterprise service concept advocated by Salesforce is: provide customer value, help customers operate better, and get their due share in the customer’s success.

Salesforce CEO Benioff even believes that traditional after-sales support departments are no longer sufficient to meet real needs, so a new position was created - Customer Success Manager (CSM). The responsibilities of this position are:

1. Maintain long-term contact and visit habits with customers after sales activities end, focusing on customers with good operating conditions who have paid for advanced versions;

2. Front-line research work, organize and feedback information obtained from customer use to the R&D department, and quickly solve common needs;

3. Consultant & Sales, give consulting opinions based on customer usage, and appropriately recommend more advanced versions of SaaS tools and other products in the product matrix.

It can be seen that the Customer Success Manager is completely different from general sales or after-sales customer service, but needs to appear in front of customers as an industry expert, consulting expert, and implementation expert, carry out work in a more professional form, and create value with professional rather than sales rhetoric. A high-quality after-sales service team is also Salesforce’s commitment to customers.

Sales Expense Indicators

To make enterprises, especially large enterprises, recognize and accept SaaS services, a large amount of sales expenses and marketing expenses must be paid. Since listing, Salesforce’s sales expense ratio has remained above 45% for a long time. With the stability of the customer group and continuous renewal by old customers, its sales expenses will be appropriately reduced.

Problems Facing Domestic SaaS Services

Although Salesforce co-CEO BRET TAYLOR said, “Customers are not simply buying software, but establishing a relationship with a company that can lead them to navigate future technologies.” However, the premise for SaaS services to be applied for a long time is that the enterprise itself has good management capabilities. The reason why Salesforce in North America and SAP in Europe are still living well is that in these commercially developed places, the level of formal enterprise management is high, while the internal management processes of many domestic enterprises are not professional enough, the recognition of software value is low, and they are more willing to pay for manpower. Usually, management is casual, and it is unrealistic to hope to improve management through SaaS services. DingTalk person in charge Wu Zhao once revealed in a speech at Hupan University that the “Ding” function was developed to solve the problem of small business owners supervising employees, which shows the management level of domestic enterprises and the understanding of enterprise management by SaaS enterprises.

ps: Recently listening to “Hupan Sanbanfu” (Hupan Three Axes), the Alibaba executive team sincerely shared their entrepreneurial experience and management methods. Regarding Alibaba’s entrepreneurial history and development process, I used to listen more to Jack Ma and Zeng Ming’s sharing. These two mainly talked about mission, vision, and values, which were relatively abstract. However, Alibaba’s executives, especially those responsible for new businesses such as Cainiao and DingTalk, talked about the play of business from 0 to 1 from a more practical perspective. In addition, people from Alibaba’s HR system also shared many issues about talent training, team building, and even CEO training. Things told by people with real practical experience are different and very worth listening to.

SaaS Business Model Reference

Software and Hardware Integrated Delivery

In addition to value-added services related to business combined with subscription revenue, software and hardware delivery and business consulting independent of products are also feasible business models. Taking China’s leading e-commerce company Guangyun Technology and US enterprise cloud service provider Workday as examples: In terms of revenue structure, Workday provides independent consulting, optimization services, and professional training for enterprises on the basis of subscription services. Guangyun Technology adopts a combination of software, hardware, and services to provide customers with multi-dimensional products such as thermal printers, scanners, logistics services, and information technology services. Workday’s business model is suitable for large enterprises with mature SaaS usage, complex business scenarios, and consulting needs. Guangyun Technology’s business model fits the preferences of domestic enterprises and gives enterprises more optional dimensions in products. In terms of business layout, both Guangyun Technology and Workday are developing in the direction of serving business management scenarios within enterprises.

Transaction Commission

Through comparative analysis of the revenue structures of listed SaaS vendors in China and the United States, we can glimpse the differences in business models between Chinese and foreign vendors. Taking domestic leading vendor Youzan and foreign leading vendor Shopify as examples: In terms of revenue structure, although both use subscription revenue combined with solutions as their main business, Shopify’s subscription revenue has two forms: monthly fees and transaction volume commission, while Youzan’s subscription revenue is mainly based on usage duration and additional service fees generated by exceeding transaction thresholds. Shopify’s solution revenue includes logistics, hardware, transaction fees, etc. generated during the commodity sales process in addition to value-added services, accounting for a higher proportion of revenue than subscription revenue. Youzan’s solutions extract service fees based on the transaction volume generated by customers through value-added services. In terms of business layout, Shopify has always focused on retail e-commerce to provide one-stop services, while Youzan has expanded to other industries with retail e-commerce as its main business. From the comparison between Youzan and Shopify, it can be seen that value-added services extending transaction volume commission with SaaS business as the core are feasible in China. At the same time, vendors with complete service chains like Shopify can also try to extract service fees from various links.

Published at: Oct 28, 2022 · Modified at: Dec 11, 2025