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Profits for Chinese SaaS Vendors will be a Long Way off
SHENZHEN, Jun 29, 2009 (SinoCast Daily Business Beat via COMTEX) --
"Non of us can make a profit in the coming two years, the SaaS (Software as a Service) market in China is just like a U-shape pit, we are unlikely to be profitable before we fill it up with money," says Yang Zhixiong, vice president at UFIDA Software Co. Ltd. (SHSE: 600588).
Though SaaS has been taken as the future of the software industry, Chinese software vendors such as UFIDA, Kingdee International Software Group Co. Ltd. (HKSE: 0268), and Alisoft are still investing heavily in the market and are nowhere near profitability.
SaaS is a model of software deployment whereby a provider licenses an application to customers for use as a service on demand. SaaS software vendors may host the application on their own web servers or download the application to the consumer device, disabling it after use or after the on-demand contract expires.
At the early stage of development, China's SaaS industry is moving forward among uncertainties. Smaller businesses in China have a surging demand for IT service as well as SaaS service, but few of them are willing to pay for the services.
According to a recent report released by market research firm CCW Research, paying users account for less than one tenth of all registered SaaS users.
Chinese smaller companies are very circumspect about putting their data on the Web. Another prime factor keeping them from buying SaaS services is that the devastating global financial crisis has caused them to cut back on spending.
However, a long list of software developers has made a bet that the prospect for China's SaaS market is bright. By now, China has some 43 million registered small and midsize companies.
Mr. Yang calculates that a SaaS service provider must have at least 100,000 paid users. For that to happen, it must cover at least 2 million smaller businesses.
But by far Alisoft, the company claiming with the most online users, has a mere 300,000 registered users. The combined user base of traditional Chinese enterprise resources planning software developers is less than half of the number. Take UFIDA Software as an example, it has developed about 700,000 users in the past 22 years.
Since its inception, Alisoft has invested as much as CNY 1 billion in SaaS business, so have UFIDA Software and Kingdee.
What Chinese SaaS service providers are waiting for is the day when Chinese smaller businesses get into the habit of paying for SaaS service.
(USD 1 = CNY 6.83)
Source: www.morningpost.com.cn (June 29, 2009)
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