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The SaaS model is unstable, and high customer cost is a key factor.
In the competitive SaaS industry, small and medium-sized enterprises (SMEs) are still vying for market share. Industry reports indicate that sales and marketing costs in the SaaS sector account for over 55%, with nearly half of that budget directed toward customer acquisition. This high cost of acquiring a customer is a significant challenge, especially for heavy-duty manufacturers who are struggling to maintain profitability. As the SaaS market continues to grow, finding a way to reduce customer acquisition costs has become a pressing issue for many companies.
According to IDC, China’s SaaS market is expected to reach $4.89 billion by 2021, with a compound annual growth rate exceeding 40% from 2017 to 2021. SMEs remain the primary focus, as they are more open to adopting cloud-based solutions due to their need for cost efficiency and scalability. However, the question of how to effectively target low-cost customers remains a key concern for the industry.
The past year marked a period of rapid growth for the SaaS market, with some even calling it an “explosion†in terms of adoption and investment. As underlying IaaS technologies mature, user habits have evolved, and demand for cloud-based applications has surged. This shift has created new opportunities but also intensified competition among providers.
From a macroeconomic perspective, rising labor costs in China have pushed businesses to seek ways to improve productivity and operational efficiency. This has led to increased interest in SaaS solutions that can help reduce overhead and streamline business processes.
IDC's latest semi-annual report on China’s public cloud service market highlights that the SaaS segment reached $540 million in the first half of 2017, reflecting a 34.5% year-over-year increase. The Chinese SaaS market is still in its early stages of rapid development, growing at a pace ten times faster than traditional software models. Despite this momentum, the market is still relatively underdeveloped compared to the U.S., where certain segments like CRM, ERM, and collaborative tools are more mature.
Currently, there is no clear “unicorn†in most sub-sectors of the SaaS market. Even the top ten SaaS vendors only account for about 35% of the total market, indicating a highly fragmented and unstable competitive landscape.
Industry analysts believe that SMEs will continue to be the main growth driver for the next few years. Due to lower levels of process standardization and cost sensitivity, SMEs are more receptive to SaaS solutions than large enterprises. As a result, SMEs will remain the core demand market for the SaaS industry over the next 3–5 years.
However, regardless of company size, SaaS firms face significant challenges. Sales and marketing expenses often exceed 55%, with more than half of that spent on customer acquisition. This high cost pressure makes it difficult for many companies to reach profitability, and profit margins are often squeezed as a result.
According to incomplete data, the cost of SaaS products varies widely, ranging from just a few dollars to tens of thousands of dollars. Additionally, the sales cycle is long—on average, it takes around 60 days from initial contact to customer conversion. For SaaS vendors already under financial and capital constraints, this situation is extremely challenging.
To break through this bottleneck, companies are looking for innovative strategies to acquire low-cost customers. One approach is to start from within the product itself—ensuring that the solution is intuitive, scalable, and cost-effective. Another is to explore external channels, such as online promotions, direct marketing, or offline distribution.
In the early days of the internet, Baidu dominated PC traffic and became a major platform for online marketing. But as traffic sources diversified, the effectiveness of these methods began to wane. Companies now need more targeted and creative approaches to reach their audiences.
Another low-cost strategy is resource swapping, where companies collaborate to exchange traffic or services. However, this requires careful planning, including alignment in customer positioning, complementary offerings, and fair benefit distribution. If not executed properly, it can lead to wasted resources or loss of customers.
Looking ahead, emerging technologies like artificial intelligence and machine learning are expected to play a major role in the SaaS industry. These technologies are likely to be first applied in more mature segments, offering smarter, more personalized experiences for enterprise users. As a result, AI and ML will become key differentiators for SaaS companies in the future.