At the beginning of 2020, when you couldn't go out because of health events, the business model of deploying software in the cloud and charging for fees through subscription, that is, the concept of (SaaS) as a service became popular. Cloud office, cloud conference, cloud health care, and so on, were unprecedentedly sought after in the capital market.

At that time, the major seller's research newspapers always repeatedly expressed these views:

First of all, the epidemic benefits, SaaS will develop sooner or later, but we are not used to it, now that the epidemic, we really feel that SaaS is inseparable from life.

Secondly, the business model of SaaS is better than that of spirits. The initial investment, followed by annual charges, can smooth the cycle and at the same time have certainty. It is possible for the gross profit margin to reach more than 99%.

The third is the A-share and SaaS enterprises, the current market-to-sales ratio is only a few times, the valuation is in the value depression, do not believe you to the standard American stocks cloud computing enterprises, the vast majority are more than 10 times the price-to-sales ratio.

The seller's point of view, well-founded, once gave investors the illusion that A-share SaaS companies have a bright future and are still very cheap, which can be expected.

So speculation, rising, the market-to-sales rate becomes the market dream rate.

In July 2020, A-share SaaS on behalf of the three enterprises Hang Seng Electronics, Guanglianda and user network market sales ratio has reached a new high, more than 15 times, that is, for every 1 yuan of revenue, you have to spend more than 15 yuan to buy; the craziest is Jinshan office, the market-to-sales ratio reached 120 times.

At this time, A-share SaaS companies, the valuation of the standard American stock SaaS enterprises is marked, but the question is, are they really worth that expensive? Is it sustainable if it's so expensive?

While analysts are still arguing about their views, the market has proved by action that it is time to wake up.

In the current A-share market, SaaS is regarded as the subject stock benefiting from the epidemic. Since August 2020, with the improvement of the epidemic, and there is no significant turning point in the reported performance of SaaS enterprises, the stock price and valuation have fallen into consolidation.

Then, with the increasing certainty of economic recovery and the collapse of holding shares, A-share SaaS enterprises experienced a wave of strong valuation killing, the share price of Yuyou Network returned to the beginning of 2020, Guanglianda, Jinshan Office and Hang Seng Electronics all returned to the prices of June 2020.

Unlike A-share Sweets and Mrs. Niu, cloud computing companies in the United States can advance and retreat, regardless of whether the epidemic is alleviated or not, their performance is not poor: from August 2020 to April 2021, Oracle for databases and TWILIO for cloud communications increased by 27%, and CrowdStrike for security products rose by more than 54%.

But why, the A-share SaaS companies on the other side are caught in the dilemma of rising valuations and unsustainable bearing?

I. the gap between domestic and overseas is greater than that in the Pacific.

Overseas SaaS, and A-share SaaS, are in different stages. Product life cycle theory divides the product into four stages: start, growth, maturity and decline. Overseas SaaS, has entered the mature stage, but domestic SaaS, is still in its infancy and growth stage.

Salesforce fired the first shot of an enterprise-class SaaS service in San Francisco.

As early as 1999, Salesforce launched CRM (customer relationship Management) products delivered through the Internet, which gave birth to the embryonic form of SaaS.

Subsequently, Netsuite, which does ERP financial software, Successfactor, which does human resources software, and other small and medium-sized enterprises and technology enterprises have set up and released products one after another, taking the lead in trying to provide enterprise software services to customers through standardized delivery methods, and then charging user subscription fees to rapidly expand customers, causing other big companies to stir up.

Since 2005, Microsoft, IBM, Amazon and other leading actions, began to layout cloud computing, do a variety of subdivided products companies have also appeared and listed, the 2008 financial crisis, let enterprises realize the importance of reducing costs and efficiency, cloud model can well meet the needs of enterprises, a large number of enterprises began to use SaaS products, enterprise SaaS prosperity, rapid development.

After years of competition, entering 2010, the SaaS enterprises of each subdivision track gradually matured, and the SaaS enterprises with advantages in technology and business model killed other enterprises to stand out. On the one hand, they continued to develop their products to deepening and customization, on the other hand, they extended mergers and acquisitions and expansion, constantly increasing market share.

The business model has matured, the last stage is the explosive period of profits, SaaS manufacturers pay customers accumulated to a certain scale, new customers stable, old customers continue to renew low customer costs, profits rise in a straight line.

Correspondingly, after years of development, from the perspective of market capitalization, there are a large number of bull stocks in the US stock SaaS industry, which has risen more than many industries. From 2015 to January 31, 2021, 9 of the 44 SaaS companies in the US stock market have increased by more than 10 times, 8 companies have increased by 5-10 times, and 16 companies have increased by 1-5 times.

What is the concept of this increase? Look at Apple next door, which has quadrupled since 2015; Tencent, a stock of Chinese cattle, has risen fivefold; and Wal-Mart, the leader of Shang Chao, has only doubled. This contrast, the gap has come out!

This is a good business, but China's SaaS enterprises have not yet grown.

Back in 2004, when Salesforce was listed on the New York Stock Exchange, China gave birth to the first batch of companies to do SaaS services, imitating the model of Salesforce, but most of them came to nothing because of the low popularity of the Internet in China.

It was not until 2012, when overseas SaaS companies had entered a mature stage, that Pocket pass (the predecessor) of retail technology was born in China. As the technology matured, capital began to pour into the enterprise SaaS track. According to IT Orange data, the number of domestic investment in enterprise services was 259 in 2013, but soared to 1283 in 2015.

At this time, big domestic manufacturers began to release SaaS products, Ali released nails in early 2015, and then Wechat released WeCom. Therefore, from the stage of development, overseas than domestic, fully ahead of 10 years.

However, domestic enterprises, especially large government enterprises, are still more accustomed to having their own servers or local storage, adopt their own research, and are less willing to accept the SaaS model; small companies' ability to pay and awareness of payment are very weak, so the overall market acceptance is low.

It was not until the emergence of the epidemic in 2020 that people had to turn on telecommuting mode and put part of their work and business online before it began to heat up.

Although the domestic SaaS is also developing at a high speed, it is far smaller than the global market in terms of IT expenditure, cloud computing expenditure and market scale.

According to Gartner, the global SaaS industry market is expected to reach US $127.7 billion in 2020, accounting for 56.7% of the total cloud computing market size, compared with 47.4 billion yuan for China's SaaS industry in the same period, which is only 20.5% of the domestic cloud computing market size.

If we say that the overseas enterprise-level SaaS has reached a mature stage, then the domestic enterprise-level SaaS enterprises are still young children, and there are many ways to go.

This can explain why the impact of the epidemic on domestic SaaS enterprises is like a gust of wind, and the epidemic is just a catalyst. it makes more enterprises begin to change their old-fashioned thinking and change the speed. It can be said that the impact of the epidemic on A-share enterprise-level SaaS is equivalent to the impact of the 2008 financial crisis on overseas SaaS.

But it is not the decisive factor of demand, domestic SaaS to develop, market value and stock price to soar, but also need customers to use habits, technology in place, awareness of payment, and conversion costs one by one.

This can also explain why domestic SaaS enterprises, high valuation will make investors and the market panic, even if you can see the certainty in the future, but the short-term bottlenecks and differences are difficult to resolve, obviously can not support the high valuation.

Domestic and overseas SaaS companies, both in terms of valuation and logic, are more than a Pacific Ocean.

The prospect is bright and the reality is cruel

Back to the domestic secondary market, software companies can see their "cloud-to-cloud" strategy, as if software companies want to succeed, or open up a second growth curve, can only rely on SaaS.

Software companies are eager to move to the cloud, one is to get a better business model, and the other is to raise the ceiling.

The change of the business model is mainly the transition from the project system to the subscription system.

When making software, you need to invite tenders first, and after bidding, you have to customize the service content according to the needs of Party A, which costs manpower and material resources, and how much money should be spent; and when it comes to the subscription system, the products are standardized and can be replicated. customers pay on an annual, quarterly and monthly basis, and the marginal cost can be infinitely close to zero, and exclusive customization is not impossible, but it costs more.

This business is much better than the project system!

The change from project system to subscription system affects the stability and predictability of revenue. You can not only see how much market share you can achieve in the future from market penetration, but also build a moat of high conversion costs. Calculate how much money can be received from old customers in the future. Some people joke that as long as electricity is provided, it can continue to generate revenue.

Therefore, there is a phenomenon that in the financial statements and research of software companies, they will write "subscription services" in the most critical places, for fear that others will not know that it is not so hard for them to make money.

Then, the industry Matthew effect appears, bringing industry concentration and the deepening of the corporate moat, with the data concentration, can further derive value-added services, business space is expanded, so that the ceiling of the industry is raised.

The future is bright, but not every company can afford to lose money.

Many enterprises do SaaS, but the revenue is very small.

According to the statistics of Silicon Valley Power, in 2019, even if the user was the first in the ranking of SaaS enterprises, its revenue from subscription cloud services was only 851 million yuan, while the revenue from Kingsoft office subscription services, which ranked second, was only 680 million yuan.

This is due to low penetration and low customer unit prices charged on a periodic basis, as is the subscription revenue of head enterprises, not to mention those in the middle and tail.

What is more difficult is that in the early stage, it is basically earning revenue but not making a profit.

In the project system, it is mainly the way of cost plus pricing, which needs to include the R & D and sales expenses into the cost, and then set the price above the cost, so as to ensure profitability.

However, the subscription system delivers standard products, and the R & D cost should be shared among customers, but the revenue is confirmed by stages, so it will be unable to make ends meet in the early stage. Due to the deferred effect of SaaS revenue, the more customers, the more serious the loss.

For example, Salesforces has been losing money for 13 years, and Mingyuan Cloud's SaaS products are still in a loss state until the time of IPO.

Many managers are professional managers, or they can't stand long-term losses and turn SaaS into software for the sake of revenue and profit.

For example, in order to obtain more current revenue, sales are allowed to sign multi-year service contracts and collect subscription fees for many years in advance; for example, in order to increase revenue, public ownership and privatization are deployed together; or, in order to make higher profits, make both general products and customized products.

It really takes a lot of courage to stick to the consistent path of SaaS,.

III. Conclusion

It is not too much to use a word that has been very popular recently to describe the current word "volume" of SaaS,.

On the one hand, there are low barriers to entry, and there are many fast-growing manufacturers, but no matter how low your price is, there will always be big factories that burn money, setting the price even lower, or even providing you with services free of charge. The first batch has just collapsed, and the next batch has come again.

The other side is to do everything, in order to retain customers, the company continues to plump up packages, add a little bit of everything, but may not use anything, and finally found that it has become the look of a software company.

Ahead, there is a bright future in the successful experience of overseas SaaS companies, but despite the ups and downs, there are always people who have lost their way.