China’s Enterprise SaaS Market: Opportunities, Challenges, and Strategic Lessons for International Technology Companies 3.1

Part 2 - Market Interpretation / Why Is It Happening?

The Coexistence of Horizontal and Vertical SaaS

One defining characteristic of China's SaaS landscape is the continued dominance of horizontal SaaS solutions(iResearch, 2025), while vertical SaaS has become the fastest-growing segment of the market.

As illustrated in Chart 4, horizontal SaaS accounted for nearly 70% of the overall market, with CRM, ERP, finance and tax management, and office automation (OA) collectively representing 76.7% of this segment. Vertical SaaS represented approximately 30% of the market, with retail e-commerce, healthcare, property management, and logistics accounting for 75.2% of vertical SaaS applications (iResearch, 2025).

By 2021, China offered more than 500 categories of enterprise SaaS products (MobTech, 2022), reflecting the increasing sophistication of enterprise demand and the growing need for industry-specific digital solutions.

This distribution reflects two parallel trends: enterprises continue to require common business management platforms, while increasingly seeking specialised solutions tailored to their industry's operational requirements.

Why Vertical SaaS Is Gaining Momentum

One of the most significant developments in recent years has been the rapid rise of vertical SaaS.

In 2023, for the first time, the number of investment rounds secured by vertical SaaS companies exceeded those of horizontal SaaS providers (iResearch, 2025). This milestone reflects growing investor confidence that industry-specific software may offer stronger long-term growth opportunities within China's enterprise market.

The trend also aligns with global market developments. According to Gartner, the global vertical SaaS market is expected to reach US$300 billion by 2025 (Gartner, 2024), supported by increasing enterprise demand for specialised software that addresses industry-specific workflows and operational challenges.

Standardisation Versus Customisation

Perhaps the most fundamental difference between China's SaaS market and more mature Western markets lies in enterprise purchasing behaviour.

Many successful US SaaS companies achieved scale by offering highly standardised products that could be deployed across a wide range of customers with minimal customisation. In contrast, Chinese enterprises have traditionally expected software vendors to adapt solutions to their existing business processes, industry requirements, and organisational structures.

This expectation has created a market paradox.

On one hand, customisation enables SaaS providers to deliver greater customer value and strengthen long-term client relationships. On the other hand, extensive customisation increases implementation costs, reduces product standardisation, and makes it more difficult to achieve the economies of scale that underpin successful SaaS business models.

This tension between customer-specific solutions and scalable product development has become one of the defining characteristics of China's enterprise SaaS market.

📌 Strategic Insight

China's enterprise SaaS market should not be viewed as a smaller version of the US market. It is a market shaped by different customer expectations, different implementation models, and different definitions of customer value.

For international SaaS companies, this has two important implications.

First, success depends not only on product quality but also on understanding how Chinese enterprises evaluate software solutions, including their expectations for localisation, integration, implementation, and ongoing support.

Second, the growing momentum behind vertical SaaS suggests that deep industry expertise may become a stronger competitive advantage than broad product coverage. Companies that combine scalable technology with sector-specific knowledge are likely to be better positioned to capture the next phase of China's enterprise software market..

3.Understanding China's Enterprise SaaS Market: Characteristics and Market Dynamics

Although China's enterprise SaaS market has broadly followed the global evolution of cloud-based software, it has developed distinctive characteristics shaped by China's business environment, and enterprise needs.

Compared with the United States, China's SaaS market emerged approximately five years later (MobTech, 2022). More importantly, it evolved under different market conditions, resulting in notable differences in adoption patterns, enterprise requirements, software ecosystems, and procurement processes (iResearch, 2025).