China's HR SaaS is not Evolved to Focus on ‘Strategy’, yet
We believe that China is still in its early stage of the software world: entrepreneurs are looking to build widely-applicable products that would have a huge TAM; on the other hand, founders seek to solve industry-specific pain points.
SaaS companies have started to define themselves as specialists in a particular industry, or vertical. Hence the term “vertical SaaS” was born and it has become a hot topic of conversation in the tech, startup and investment world for years.
Horizontal SaaS infiltrates every aspect of business
The concept is borrowed from the microeconomic term “vertical integration” which refers to an arrangement in which the supply chain of a company is owned by that company. In this vein, vertical SaaS companies stay focus on customers in one industry. Horizontal SaaS companies have had huge total addressable market historically while they require large marketing and sales efforts to wrangle into that potential. Vertical SaaS is a new-age alternative to traditional SaaS by making the transaction much easier and affording the sales team to use industry language with buyers and solve the true problems. Vertical SaaS companies are inevitable to compete with horizontal SaaS companies but have an edge of understanding towards their target industries. Sometimes, horizontal SaaS companies have to partner with other vertical SaaS players (i.e. the CRM giant Salesforce with life sciences company Veeva). Vertical SaaS companies can sometimes achieve faster growth once they get into one industry; buyers will follow the trend and don’t want to be left. Though facing a smaller TAM, they can possess a higher overall market the penetration because of less competition in one certain industry.
In China, we don’t have much listed horizontal SaaS players. Accounting and ERP software company Yonyou (600588:SH) and its rival Kingdee (0268:HK) were established last century.
China is not evolving to focusing on ‘strategy’ from focusing on ‘administrative’, yet
Human Capital Management Solution, Human Resource Management System (HRMS), or Human Resource Information System (HRIS), is the crossing of HR systems and processes within information technology. According to Deloitte, the HRIS market has witnessed changing trends since the 1990s to date, when most of enterprises using HR software were mainly focusing on administrative like payroll systems and ERP solutions; Moving to 2000s, the ask of self-portal services and best-in-breed leading to a focus on costs reduction; In the 2010s, HR technology strived to provide clients with new ways of talents recruiting and management – social media and integrated talent. Nowadays, users of software can access to real-time data and reports at a click, as well as the needs of data analytics, becoming important, spawning the SaaS and strategy focus. The HRIS market has two primary categories of topics. The first topic Core HR is also used to mean basic HR responsibilities in human capital management (HCM) and it comprises functions including employee recruitment, scheduling, payroll, benefits administration, internal relations, employee training, compliance and safety. The second topic is Talent. Ever since tech job site Lagou and Boss Zhipin grabbed spectacular market share under the dominance of three major recruitment websites ChinaHR.com, Zhilian Zhaopin, 51job in 2015, the volume of HR Talent SaaS products in the market reached another uptick. As Alibaba claimed to share its HR experience via DingTalk, a subsidiary of the company, investors and founders were bought into the hype even more.
In this article, we introduced Core HR SaaS KNX, WFM SaaS GaiaWorks, and AI-driven talent app eCheng Technology. ECheng Technology’s core business engines are AI talent profile and BOT (refers to robotics). Based on the dynamic profile the system generates for each candidate, eCheng can enhance the recruitment efficiency of companies and provide digital decision support for talent selection and deployment. Based on the experiences in applying AI to the decision scenes of HR, it seeks to combine talent consultancy, AI with SaaS.
Starting its business from workforce planning, GaiaWorks added product features such as workforce analytics and leveraged linking workforce data to unrelated real-time data in mobile access use. Overseas market is also the company’s focus.
Midsize and large companies increasingly expect a SaaS HRMS vendor to provide a system of engagement, a talent suite, and transactional system of record on a single platform. Thus, both GaiaWorks and KNX have moved to a “building an ecosystem” stage, which is considered as a strategy that only mature SaaS company adopts. GaiaWorks acquired attendance software company Yiqin that served mainly big manufacturing companies in 2018, merging customer resources together; KNX made a strategic investment in Shanghai Laoqin, a company that provides blue-collar workers management software.
It is noticeable that Chinese large enterprises are still conservative about replacing their culture development, employment engagement surveys and talent assessment systems. Startups that try going upmarket are inevitable to face the problem.