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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 a significant share of the market. According to recent reports, over 55% of SaaS sales and marketing expenses are directed toward customer acquisition, with more than half of that spent on acquiring individual customers. This high cost of customer acquisition is a major challenge, especially for heavy-duty manufacturers who struggle to maintain profitability in such a costly environment.
IDC forecasts that China’s SaaS market will reach $4.89 billion by 2021, with a compound annual growth rate exceeding 40% between 2017 and 2021. SMEs remain the core focus of this fast-growing sector, as they seek efficient and scalable solutions to manage costs and improve productivity. However, finding a low-cost way to acquire these customers remains a critical challenge for many SaaS providers.
Last year marked a period of rapid growth for the SaaS industry, with some even calling it an "explosion" in the market. As underlying IaaS technologies mature, user habits develop, and demand for cloud-based applications increases, the SaaS model continues to evolve. Despite this progress, the high cost of customer acquisition remains a key obstacle.
From a macroeconomic perspective, rising labor costs in China have driven businesses to prioritize efficiency and management quality. This shift has led more companies to adopt cloud-based SaaS applications as a way to control costs and streamline operations.
According to IDC's latest semi-annual report on China’s public cloud service market, the SaaS segment reached $540 million in the first half of 2017, representing a 34.5% increase from the previous year. The Chinese SaaS market is still in its early stages of rapid development, growing at a pace ten times faster than traditional software models. However, compared to the U.S. market, China's SaaS industry is still relatively immature, with only certain segments like CRM, ERM, and collaboration tools showing signs of maturity.
There is currently no clear "unicorn" in most sub-sectors, and the top ten SaaS companies only account for 35% of the overall market. This indicates a highly fragmented and unstable competitive landscape.
Industry analysts believe that SMEs will continue to be the main battleground for SaaS providers in the next few years. Due to lower levels of process standardization and a stronger emphasis on cost-efficiency, SMEs are more receptive to SaaS solutions than larger enterprises. Therefore, SMEs are expected to remain the primary demand drivers for the SaaS industry over the next 3–5 years.
However, both SMEs and large enterprises face similar challenges: SaaS sales and marketing costs exceed 55%, creating significant pressure on margins and delaying profitability. A closer look reveals that more than half of this spending goes directly into customer acquisition.
According to incomplete data, the cost of SaaS products varies widely, ranging from just a few dollars to tens of thousands. Additionally, the marketing cycle is long—on average, it takes about 60 days from initial contact to customer conversion. For SaaS vendors already under financial and capital pressures, this situation is extremely challenging.
To break through, companies need to focus on acquiring low-cost customers. One important approach is to start from within the product itself, ensuring it delivers value efficiently. From an external perspective, exploring new access channels can also yield valuable insights.
Traditionally, two main methods have been used to attract new customers: online promotion and direct marketing, or offline distribution and partnerships. In the early days of the internet, Baidu dominated PC traffic and captured a large portion of online advertising. However, as traffic sources diversified, the effectiveness of online marketing became less predictable.
Another strategy is resource swapping, which allows companies to acquire customers at a lower cost. However, this approach requires careful planning, including strong positioning, complementary offerings, and fair benefit distribution. If not executed properly, it can lead to losses, so timely adjustments are essential.
Looking ahead, emerging technologies like artificial intelligence and machine learning are expected to play a key role in the more established SaaS segments. These innovations will enhance the customer experience, offering more intelligent and personalized solutions. As a result, they will become a central focus for future SaaS development.