SAAS Industry Outlook - Time to Ride the Wave

After over 20 years of development, SaaS has become one of the most focused industry direction for the global tech industry. Currently, the global SaaS industry is undergoing rapid development. Along with continuous innovation of products and business models, and rapid changes of industry competition and product application scenarios, new market opportunities arise. Deloitte China TMT Industry presents the report " SAAS Industry Outlook - Time to Ride the Wave", which compares the development history of the global and Chinese SaaS industry, focuses on the market outlook, competitive landscape and business models, and further discusses the characteristics of high-quality SaaS vendors and how to choose better SaaS product for investment, providing valuable references for the industry.

Development Path of the Global SaaS Industry

• Over the past 10 years, the scale of the global SaaS industry reaches billions of dollars ，registering a compound annual growth rate of 25%.
• The global SaaS-related M&A continuously increased, from 35 in 2011 to 115 in 2020, contributing to a rapid increase in the total number of M&A. Meanwhile, the M&A volume grew significantly from about US$4 billion in 2011 to about US$24 billion in 2020, with a compound annual growth rate of 22%.
• The SaaS industry in developed countries shows a horizontal development path followed by vertical development.

Evolution of China's SaaS Industry

• Despite the late start of the SaaS industry in China, along with rising awareness of "cloud" and acceptance of SaaS by enterprises, China's SaaS industry sets off a new wave of development with the domestic SaaS market entering the fast lane.
• The domestic SaaS market is fragmented, where there are leading enterprises for each link of horizontal SaaS and each segment of vertical SaaS. Overall, at the current stage vendors in the bottom layer of the industry explore the demands of the market segments, vendors in the middle layer seek growing space, and vendors in the top layer are committed to breaking the growth ceiling. However, unlike the US market, there are no billions-of-dollars-worth giants.
• Compared with the corresponding historical period of the global SaaS industry. The development of China's SaaS industry lags behind by about five years. It is expected that domestic SaaS market enters the critical period of development in the next five to ten years.
• Industry development with Chinese characteristics
  • China is still in the critical period of economic development. In response to digital upgrading accelerated by COVID-19 and the pressure of revenue growth, enterprises are more focused on SaaS applications for business growth.
  • There is still room for improvement for China's IT infrastructure, and the construction of IaaS and SaaS will be promoted simultaneously.
  • Cultivation of SaaS business models with service as the core is an important prerequisite for industry development.
  • Cloud vendors inevitably play an important role in China's SaaS market.
  • The balance between product standardization and customization is an important path for the development of China's SaaS industry.

China's SaaS Categories and Enterprise Screening Criteria

• Deloitte believes that an excellent SaaS vendor shall have two characteristics: whether SaaS products create value for customers and are easy to standardize, and whether application scenarios and market space of the SaaS products are large enough.
• Looking at the development path of star products of SaaS enterprises, we divide them into three growth stages (short-term, medium-term and long-term), and determine the growth conditions of SaaS products in different stages from two dimensions: product portfolios and customer segment characteristics.
  
  
  • Short-term development: Take single-point demand as the entry point and create differentiated star products
  • Medium-term development: Extend the multi-core-product matrix, cover multiple functions or scenarios, and enhance customer stickiness
  • Long-term development: Build brands based on product capability, or build product ecology based on platform