We’ve discussed one part, selling software licenses and then a year after gaining recurring monthly revenue for related services, so the initial contract serves as a driver for future recurring revenues. This is not the only way, though…
What is Saas?
- SaaS is a model of software delivery where the software company provides maintenance, daily technical operation, and support for the software provided to their clients. SaaS is a model of software delivery rather than a market segment; software can be delivered using this method to any market segment including home consumers, small businesses, as well as medium and large businesses.
What are the advantages of SaaS?
- Those recurring revenues. They’re not necessarily in lieu of a one-time up-front license fee, as well as complementary to it. For the customer, that could also be an advantage, especially for small suppliers who cannot afford a big upfront amount
- The main attraction is cementing a lock-in of customers. The company doesn’t sell software, it sells solutions, and this requires an ongoing relationship which offers multiple selling opportunities as well as ongoing work and revenues.
Things can become even more interesting if this is combined with another business model, that of B2B (business-to-business) web based platforms that offer a place for linking up different parties in often very fragmented markets (like suppliers, retailers, and manufacturers, depending on which site we are talking about).
These sites offer very strong increasing returns opportunities:
- Once a platform is established and has a certain amount of critical mass, other parties will flock to it as it offers more choice. This is network economics at work. According to Metcalf’s law, the value of a network increases exponentially with the amount of nodes it has.
eFuture has three such initiatives:
- We placed our focus in 2007 on enhancing our SaaS-based applications allowing us to be a fully integrated software application company. A SaaS-based application allows us to obtain revenue by not only selling our software but also by selling a corresponding service agreement which brings in a consistent revenue stream.
- We will focus on using this method to deliver software to small and medium size businesses in China, especially in B2B SCM Web, B2C Web, SMS marketing Web, Mini store, Specialty store as well as Chinese customers, this is a huge market in China, and we believe we will do well with this business model.
- We co-developed the SaaS of B2B (eFuture’s blue supply chain management solution) service with IBM Research Lab and IBM Global service team in October of 2007.
- We controlled 51% of the ownership in Beijing Fuji Biaoshang Information Technology Inc. by variable interest entity (“VIE”) in December of 2007.
- In April of 2008, we launched this product as our www.bfuture.com.cn website, and Wangfujing Department Store Group, one of the largest department stores in China, became the first to use the online supply chain management platform.
- Since the launch of the website, we have brought over 1,000 suppliers to the platform, allowing them to exchange business information, arrange payment online and access purchase orders, returns, payment status, inventory levels and sales data analysis. In the future, we plan to bundle our enterprise resource planning platform into the www.bfuture.com.cn website as well. We are very excited about our first SaaS products and the synergies we see with our current software clients. [The Form 20-F]
The Wangfujing Department Store Group alone has more than 20.000 subscribers, many of them too small to be able to afford upfront software cost to run their own applications. Such a big customer could rapidly create traction and critical mass, and boost the demand for eFuture’s other products and services
Yellow pages for small suppliers at Jindian
- “In Mandarin Chinese, ‘Jindian’ literally means ‘enter the store,’ which is exactly our goal,” said Mr. Adam Yan, eFuture’s chairman and chief executive officer. “Over 80 percent of local suppliers do business directly with local retailers. With China Jindian, we’re leveraging our strong relationships with China’s retail clients to help local suppliers enter retail stores across the country. This exciting development simplifies the supply chain and will also help our over 700 retail clients, which use over 500,000 suppliers and include many of China’s top 100 retailers, expand their procurement sources, increase procurement efficiency and reduce procurement cost.”
- The China Jindian online platform provides a searchable database of subscriber-posted listings focusing on the retail and consumer goods industries. On the website, suppliers can post listings with product descriptions, contact information, location and in some cases videos showcasing the suppliers’ factories. The postings are separated by category, brand and location and searchable by retailers, who can post requests for products and suppliers, store information and details about new store openings. [Reuters]
eFuture is partnering with Wangku on Jindian:
- “Our leading position in e-commerce, team of over 100 partners, which have over 2,000 salespeople, and network of more than 200,000 member clients are an ideal complement to eFuture’s supply chain management capabilities and relationships with China’s top retailers,” said Mr. Haibo Wang, Wangku’s chief executive officer.
- “There are millions of small to medium-size retailers and suppliers in China that, while wanting to do business in the national retail market, simply don’t have the medium to meet and exchange information with national retailers. China Jindian’s user-friendly and reputable e-commerce platform ensures efficient communication and opens the door for future generations of retailers and suppliers in China to succeed.” [Moneycentral]
Wangku is partly owned by eFuture as well, and it’s the owner of a third, more established B2B website
- Wangku, through its http://www.99114.com.cn website, is a leading provider of B2B e-commerce service solutions focused on helping suppliers to utilize the Internet rather than traditional Industry Yellow Pages. 99114.com.cn is a B2B portal and procurement link connecting manufacturers, distributors, resellers and retailers. Wangku initiated its “Yi Wang Tong” service (a one- stop enterprise B2B e-commerce service package), which integrates the functions of accessing websites, promotion, interaction, authentication and transaction.
- As one of the leading B2B e-commerce service enterprises in China, Wangku has received significant industry attention, and has been awarded one of China’s “Top-100 Commercial Websites,” “Top-100 Web 2.0 Websites” and “Top- 100 B2B e-Commerce Websites” for its success in the field of e-commerce. [Moneycentral]
- Wangku’s www.99114.com online marketplace helps connect domestic suppliers and buyers to conduct business in China. As of April 30,2008, the online business-to-business (“B2B”) community consisted of retailers and suppliers from more than 250 industries such as food, home improvement, auto and others and covered over 120 regions in China. “Both eFuture and Wangku continue to benefit from the synergies of our complementary businesses,” continued Mr. Yan. “We are leveraging eFuture’s over 770 international and domestic retail clients, which utilize more than 700,000 suppliers, to increase the sales of B2B services. Going forward, we will continue building a trusted online and offline community of small-to- medium size suppliers in China and abroad, helping them search for suitable retail stores, exchange information, find new products and drive business with China’s retailers.”
- EFUT holds a 51% stake in Wangku as of May 14 2008, and will purchase the remainder in the coming years. [Reuters]
So, to summarize:
- www.99114.com is the biggest one, a platform for more than 250 industries
- Jindian is focusing on the retail and consumer industries (which happen to be eFuture’s strength) and small and medium suppliers, it’s more like a ‘yellow pages’
- www.bfuture.com offers the combination of SaaS and B2B to streamline SCM operations and it has the Wangfujing Group to its nearly 20,000 suppliers as it’s main customer. It is a service especially geared towards these kind of large customers who have complex networks of suppliers.
The first site has a good deal of traction already. The Jindian site is in a trial period, and the latter, which was lauched at the end of April this year, already has it’s first big customer and it’s supplier network (although not all suppliers will have immediately signed up).
We think these offer very interesting opportunities, none of which seem to be priced in yet. eFuture is a debt free, profitable, leading business software producer with 9M in cash, 50%+ growth rates, and selling for 1.5 times sales, operating in fast growing markets. This cannot last too long, just as that mother of all corrections in Chinese shares in general..