Why Chinese are starting to pay for software

5 min read

Chinese have become notorious for pirating software: in 2015, 70 percent of software installed on computers in China was not properly licensed, followed by Russia and India, according to a study last year by BSA, a trade association of software vendors. Now, however, the situation is changing.

Chinese people have developed a paying habit for content published by KOLs. Top content writer on Dedao earns $3 million in annual revenue with its close to 100,000 subscribers. And other Chinese platforms like Zhihu and Weibo have created ways for its KOLs to monetize their fan base. WeChat has introduced a tipping function to its WeChat service account, with 22% of the users tipping more than RMB 10 ($1.45) every month (in Chinese).

Tipping culture even has a history in China. In ancient China, audiences would give gifts or cash to performers, which partly explains why tipping artists and content creators is popular in China.

To find out if this is also true for software, we interviewed three software companies in China: Mockingbot, Strikingly, and Teambition.

“Five years ago, domestic users really didn’t have the habit to pay for online services. The online payment environment was also very immature,” CEO of Mockingbot, Zhang Yuanyi told TechNode. Mockingbot is a Beijing-based prototyping tool company.

When the first version of the Mockingbot came out in 2012, it was targeting overseas users, who are relatively used to paying in a freemium model. However, the China market environment has gone through a big change since then: the payment infrastructure.

“I think you can say Chinese users are paying more. But it’s not because they are developing a paying habit for software they didn’t pay for before. It’s that the consumer base and the infrastructure changed enough that allow them to do so now,” David Chen, CEO of Strikingly told TechNode.

China’s mobile payment system is developed and widespread now. Thanks to WeChat and Alipay’s online and offline promotion in 2014, many Chinese users started to try out mobile payments. In three years, China is now going cashless, with 84% respondents in a report saying they feel comfortable without carrying cash around because they can use mobile payment.

For Chinese consumers, they gradually started to value the time and efficiency in exchange for money.

“Chinese people haven’t been paying for efficiency improvement tools as much in the past, given that the labor cost is just way cheaper here, so the need for boosting efficiency is not that strong, and hence if you all of a sudden ask them to pay for something they haven’t paid for in the past, it will be hard,” Chen says. “But the newer generation has been taught and trained to care about efficiency, and they are becoming more of the purchaser in the economy now, and as a result, they can put a price on efficiency. That’s why they are paying for software that can help now.”

Earlier trials to make Chinese people pay online was done by Chinese video sites. QQ Video, Youku, and Tudou started to charge its viewers as they started to purchase licenses to show the content in China.

“A number of domestic video sites started charging users in 2013. Afterwards, they gradually realized that online services are actually valuable, and some online services are worth paying for,” Zhang says. “The pricing of our product is just one-fifth or one-tenth of our competitors, but still we achieved this revenue. As long as your product is good enough to really help users to solve their pain point, the user is willing to pay for your product.”

How do you make enterprises pay for your product?

Teambition is another Shanghai-based company providing team collaboration tool for different types of industries. Individual users can try out their website and app for free, then they can use the enterprise version if they want additional functions. This freemium model has become like a norm for many software companies in China.

According to Teambition CEO Qi Junyuan’s data, there are more than 3 million users on Teambition in many diverse sectors including TMT, advertising, education, professional services and other 38 industries. Among them, there are more than 4,000 enterprise version users including Huawei, TCL, and OPPO.

So how do you guide enterprises to pay for office software? Qi shared why Chinese enterprises pay for their software to our sister media TechNode China.

“The advantage of collaborative teamwork tool is that everyone in the department understands how it works,” Qi Junyuan said. “The marketing department is not interested how I can find the product department, or the product department is not interested how I can find the HR department. People can find the contacts of other departments within Teambition, and this forms economies of scale.”

“The second point is that SaaS software’s price is still much lower than the traditional enterprise software.” Qi Junyuan explained. For an enterprise to buy software, one needs review, ask for approval, and make layers of application for money. The whole transaction process is particularly long, but the process to purchase SaaS software is particularly shorter. “Our annual subscription fee for the most basic enterprise version is tens of thousands of RMB, I believe that an enterprise has this budget.”

“Third, the enterprise will always pay for business services that help them achieve high priority. For them, the high priority is always achieving their goal,” Qi Junyuan said. So Teambition will tell the customer, “We are here, not to help you solve a particular problem, but to help you achieve your goal.”

We asked: why do you pay for software?

TechNode asked some Chinese business people why they pay for software. One reason for buying licensed software is to avoid malware, as frequent software piracy of Chinese people leads to ransomware attack. According to New York Times, computers at more than 29,000 organizations had been infected reciting Chinese security company Qihoo 360’s report.

“If people can access pirated software, they will still choose it, but when people know the pirated software will damage their device, or the content cannot be well protected, they will choose the original one and pay for it; more and more people are aware that software is not free,” a Chinese businessman who refused to reveal his name told TechNode.

Another reason is the boom of Chinese mobile games, attracting gamers to make in-app purchases. In fact, China ranks #1 in total game revenue, recording $27.5 billion in 2017, according to Newzoo’s Global Games Market Report. The revenue bonanza here mostly comes from Tencent, with its revenue of RMB 12.9 billion generated from online games in the first quarter of 2017.

“I cannot represent everyone, but at least for me, I started buying authentic games from Steam, PS4 store and other copyrighted platforms instead of downloading pirated software anymore. The awareness of using authentic software only gained momentum in China in the past couple of years. Even five years ago, pirated software was still everywhere,” an avid gamer told TechNode.

“I paid for some games, especially football and baseball related, also Japanese and French dictionaries. We didn’t pay for music content before but we are paying for them now. We also pay for good apps. The key should be the content, not the app itself,” Carman Deng, senior vice president of HSBC told TechNode.