I think a lot of people in the software business are wondering whether China will soon become a significant market for software and/or a source of competition in existing markets. So I was very interested to read a forum post about the realities of selling software in China from Felipe Albertao, an ex-Silicon Valley software engineer currently living in China. He kindly agreed to expand his forum post into an article for this blog.

Disclaimer: Although I live in China, I absolutely do not claim to be a China expert. I accepted Andy’s kind invitation because I have not seen anything at all written about the business of software in China for microISVs, and I humbly hope it will positively contribute to the discussion. This article is mainly based on my observations, and not on proven techniques. Use them at your own risk, and please report back your own findings!

Getting Paid

The first thing I need to say, right off the bat: Chinese users will not buy your software. Period. That does not mean that there is no money to be made, it simply means that they will not pay for your software license. The reasons are many, but for the sake of conciseness let’s suspend our “piracy is bad” mindset, and simply accept this fact as a reality. Think of the positive side: no payment processors or merchant accounts to worry about!

Chinese users will not buy your software, but Chinese companies might. Actually, let me clarify that: They will not buy the software license alone, but they are willing to pay for the license if it is part of a package that includes services (customization, installation, support, training, etc…). So, to get paid in China, you must offer services connected to your software. Of course, it would be very hard for westerners who do not speak the language nor have contacts in China to provide such services, but there are opportunities to partner with local independent professionals or small businesses in your target industry. More on that later.

Education is a huge business in China, especially for skills that give them a professional lead, like English language or IT. So, if you can somehow “plug-in” your software to an education-related service, that would also be another way to make money. For example, if you offer a component for ASP.NET, why not offer training on ASP.NET itself using your software? I am sure they will not pay for a self-paced course, but there is a good chance they will pay if you offer a hands-on remote live course. That is, a service rendered by a human, as there is no value perceived in the standalone immaterial software itself. Of course there is huge local competition, but one thing we have going for us is the fact that westerners enjoy a high degree of trust among Chinese people.

I suspect SAAS may be another way that Chinese users will pay for software (with a big question mark here). For example, today they do pay for services like site hosting, advertising and e-commerce presence, so we can assume there is at least a perceived value in subscription-based intangible products, though only the ones provided by well-known established companies, and not independent vendors. However, as the marketplace gets more fragmented and niche-oriented, I believe there will be opportunities for small players as well.

Web Site and Software Translation

Young Chinese people normally have a good grasp of written English, so I don’t think translation of the software itself is essential, although it always helps. IT professionals tend to be more English-proficient, as well as undergrad-level students. However, I do believe that the documentation must be translated, especially with IT-related software. Differently than western users, Chinese people actually have enough attention-span to thoroughly read a manual, and I have seen English-proficient programmers choosing frameworks and components based not only on the quality of the software itself, but whether the manual is in Mandarin Chinese or not (it’s always easier for them to read Chinese). So, translation here is not really a necessity, but a promotional strategy.

The “larger attention-span” assessment is also valid for the web site. We are used to the Web-2.0-ish recipe of a catchy one-liner plus 3 benefits and the big “Buy” orange button, and in China that probably works too, but users expect much more than that. I have observed that paid services almost always include some kind of workflow with arrows and circles and boxes explaining how the service works. Long explanations (not just a FAQ) are also quite common, and people actually read them! The fact is that here in China there is no such thing as “money back guarantee”, so people and companies normally think a lot before putting their hard-earned money into something. And forget the big “Buy” orange button: Instead, the call-to-action should be “Free Download” or “Free Sign Up”.

Sales

You are now probably asking yourself “Then where does the big ‘Buy’ orange button go?”, and the answer is: nowhere on your site! One fact you should be aware of is that here in China nothing happens without an established relationship (Google the keyword “guanxi” for more information). It is very unlikely that you will get any paid conversions originating from an ad or email. The goal of your conversion funnel should not be “sales” but instead “relationships”. Then, from the established relationship, the user can recommend your software to their boss, or whoever is the actual buyer. Of course the sales cycle is longer and it requires much more effort, but the rewards may be bigger too as you will be selling a package, and not only the license. Also, since guanxi is such an important part of making business, Chinese people are quite receptive when approached with a business proposition, differently than in the west where sales are normally met with resistance.

However, note that I have not suggested that you should be the one personally cultivating those relationships. Maybe it is possible to do it remotely and in English, but it would be more effective if you partner with locals and funnel the leads to them. They do not need to be sales professionals per se, but they need to know your software and be able to help prospects. They could be software students for example. Of course, at some point you must get involved, but your partner can help you to filter the good leads as they cultivate the relationship. The reward for them could be payment per hour or a percentage of the sale. Students might also be eager to help a foreign company, so they can add that experience to their resumes.

A word about consumer-oriented microISVs: I am extremely skeptical about independent microISV B2C sales in China, because I honestly cannot imagine an individual paying for independent software. That does not mean that microISV B2C cannot succeed in China. My point is that B2C sales are in fact B2B, because businesses who deal with consumers are more likely to pay. And B2B requires guanxi.

Approaching bloggers

As in the west, approaching bloggers is probably the most effective way to let users know about your product. You can use Google Translate to find sites and bloggers that you would like to contact: Google Translate does a good job in translating keywords (that you can use on searches on Baidu) as well as entire pages (so you can read the blog posts). For IT-related blogs, cnblogs.com (Microsoft-focused) and javaeye.com (you guessed correctly) are the most popular ones.

You can contact the bloggers directly in English, as most young Chinese people have a good grasp of written English. Foreigners in China are well-respected, especially in the IT industry, so this is a point in our favor.

Dealing with piracy

Actually “Dealing with piracy” is a misleading title, because in reality there is no way to deal with piracy. People will crack, copy and use your software as they wish, and they will not even feel guilty about it. Again, let’s not judge, but accept the fact that piracy is simply part of the culture (for some it is piracy, for others it is just sharing)

Instead of talking about code scramblers and licensing keys, let me offer here a contrarian (perhaps even controversial) point of view, in the wisdom of “if you can’t fight them, join them”. You should consider yourself lucky if your software gets pirated, because that means that it got traction. For every pirated software there is always a happy user behind it (after all, they chose to pirate your software, and not your competitor’s), and if this user convinces their employer to use your software, then there is a good chance that these companies will be your future clients.

SEM / SEO

By no means am I an SEO expert, let alone a China SEO expert. However, I can tell a little about the users’ search behaviors: Non-technical users very rarely use Google. In fact, my observation is that while Google is a somewhat known brand, people first turn to Baidu hands-down. Baidu has the best search results in Mandarin Chinese, and they have a service similar to AdWords (though you might need help to set-up an account, as the interface has not been translated to English)

Technical users have a different behavior: These are IT professionals and students, and because English is so pervasive in IT, they normally do have a good grasp of the language. So, for technical searches they might use both Mandarin and English keywords, but still Baidu is their first choice. However, interestingly enough, Gmail is also quite popular among Chinese techies. So, if you are selling IT-related software, your SEM/SEO strategy should include keywords in both Mandarin and English, and include both Baidu and Google (or more specifically, AdWords targeting Gmail).

Face

I cannot finish this article without mentioning such important part of the culture: Face. There is not enough space here to explain the concept (Google “mianzi” for more information), but it’s suffice to say that it’s basically the same as in the west (face as in reputation), except that in China face is much more important.

When it comes to software, always keep in mind that most (if not all) decisions are made based on face: Users will use your software to be more efficient in a certain job, and thus look better to the boss; or to show that they have knowledge that other colleagues don’t have; or to show to their clients what cool software they have, and not their competitor. The contrary (that is avoiding face lost) is also true: To finish a job quickly so they can deliver the project on time, and thus avoid getting the boss mad; or to learn a new skill that their colleagues already have; or to show their clients that they also have the same cool software their competitors use. In the west we also make decisions based on face, but in China it is so much more prevalent. Keep that in mind when creating your promotional material.

Conclusion

I have no doubts that China will become a major technology consumer in the very near future, not only because of the sheer size of its Internet user base (which today surpasses the size of the entire US population), but also due to the number of high-quality IT professionals graduating at their universities.

The key message I want to communicate is that your China strategy should be a long-term one. It takes time and effort, but the rewards are worthwhile. Even if you conclude that there are no opportunities to be pursued, at the very least you should have a strategy to protect your marketshare against competitors that decide to go to China.

You don’t necessarily need to be so enthusiastic like me and move to China (although I guarantee you would have an experience of a lifetime!), but at the same time you cannot simply ignore it. Chinese users will certainly knock on your door, and you can even ignore them, but your competitors won’t.

Felipe Albertao is a software engineer with more than 15 years of experience, and has been living in China since June 2009. He is a native from São Paulo, Brazil, and lived in Silicon Valley, USA for 8 years. Felipe blogs about software and China at shanzhaier.com.