The digital transformation of enterprises has become one of the highly certain development directions in China, especially the digital economy has risen to the national strategic height, according to the “14th Five-Year Plan” digital economy development Plan issued by The State Council in 2022, the quantitative goal of digital economy development is directly proposed, and the added value of the core industry of the digital economy will reach 10% of GDP by 2025. Considering that the overall scale of China’s economy will still maintain a high level of growth, so the proposed 10% target means that the digital economy industry will enjoy structural increment while the overall scale of China’s GDP growth, the future growth rate of the digital economy can not be underestimated, will become an important driver to lead China’s economic development.

From the specific direction of the digital economy, the “14th Five-Year Plan” for the Development of the digital economy will “promote the digital transformation of industries, accelerate the process of digital industrialization, and improve the digital level of public services” three tasks, established as the main line of the development of the digital economy, encourage traditional industries to improve production efficiency through the application and deep integration of digital technology. Finally, the digital level of the whole chain will be improved, and it is proposed that professional digital transformation service providers will play an important role in it, and it is necessary to “cultivate the transformation support service ecology”, which undoubtedly provides a good development soil for digital transformation service providers.

In fact, digital transformation is not only in China, but even extends to the global perspective of high-growth markets. According to public information, the global digital transformation market size will grow from US $521.5 billion in 2021 to US $12475 billion in 2026, with a compound annual growth rate (CAGR) of 19.1% during the forecast period, and many excellent digital transformation service enterprises have been born in the trillion-scale market.

The SaaS business model has been recognized by the market, and the digital tools segment of the US stock market has outperformed the market in the past five years

SaaS is one of the most well-known digital tools in the market, and the digitalization degree of American enterprises is recognized as the world’s leading, so the development stage of digital tool service providers is also relatively advanced. First of all, from the perspective of the U.S. stock SaaS listed industry, enterprise SaaS services cover a wide range of fields, including CRM, office collaboration, ITSM, cloud security, software development tools, etc., with Shopify, Autodesk, Veeva and other well-known enterprises.

PFTL101BE 2.0KN 3BSE004214R1

Take Shopify as an example, it is the world’s leading one-stop e-commerce service platform with SaaS model. Shopify provides e-commerce merchants with the technology and template to build online stores, and manages omni-channel marketing, sales, payment, logistics and other services. Subscription solutions and merchant solutions are its two core revenue-generating businesses.

Subscription solutions are e-commerce SaaS services that Shopify provides for e-commerce merchants such as opening and designing stores, marketing, and inventory management, and offer different solutions for different customers. Subscription solutions mainly obtain revenue by paying annually, and form scale effects to reduce technology costs to increase profits through the expanding SaaS customer base, which is the basic cash flow business. Meanwhile, subscription solutions can cultivate high-stickiness customer groups, laying the foundation for the subsequent development of value-added services and the expansion of profit scale.

Merchant solutions are e-commerce value-added services, mainly covering logistics (ShopifyShipping), payment (ShopifyPayment), finance (ShopifyCapital), hardware (ShopifyPOS) and other four aspects, has become the new growth pole of Shopify. 70% of revenue.

In fact, Shopify’s business structure is a typical SaaS business model, that is, first cut into the basic function market with digital tools, accumulate initial customer base, then the enterprise development is mainly driven by the growth of the number of customers; Since then, with the growth of the number of customers and the continuous iterative upgrading of SaaS service functions, SaaS enterprises can carry out value-added services, thus forming a two-wheel drive growth of subscription services and value-added services.

To sum up, the profitability of SaaS enterprises will be gradually improved by the expansion of customer scale and the deep digging of customer value, and even huge enterprises will choose to cooperate with a SaaS service provider for a long time due to problems such as huge data and difficult migration. Therefore, as time goes on, the value of SaaS enterprises will become more prominent, which may also explain the strong rise of the SaaS sector in the US stock market for many years – investors are optimistic about the profitability of SaaS.

According to the report of Futu Securities, the total market value of the components of the well-known SaaS Index BVP Nasdaq Emerging Cloud Index exceeds $1.7 trillion, the total revenue of 2021 exceeds $130 billion, and the revenue scale of more than 100 billion of the U.S. SaaS track has proved the feasibility of the business model in this field. The average P/TTM REVENUE of 12.4 times also reflects investors’ recognition of the high value and growth of the SaaS track.