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English|How a Chinese Investor Discovered China’s First PLG Unicorn Lanhu( 二 )


Companies with a PLG strategy are able to capture quality end users that later become paying users. After users become accustomed to the product, they will naturally pay for it or upgrade to a professional subscription, which is similar to users paying for apps on the App Store.
“There were very software companies in China that really focused on making a quality product in the past,” Zhu told TMTPost. “Or we can say it’s rare for a software company to integrate all of the updates to one product version. That’s why it’s not easy to develop a product like Lanhu in the market.”
However, not everyone can see the true potential of Lanhu.
One of the main reasons for it is the fact the SaaS industry in China still focuses primarily on sales-led growth (SLG) strategy and customized services.
In contrast, the PLG strategy is commonly recognized in the SaaS sector and To-B business. Slack, a team management and collaboration software that was acquired by Salesforce at US$27.7 billion, is one perfect example of PLG company. Slack mentioned in its prospectus that its self-serve service allows end users to realize what Slack can provide, which can help convert them into paying users and boast growth.
Similar to Slack, companies like Zoom, Figma, Twilio and Dropbox also emphasize using the PLG strategy to achieve growth and revenues.
Zhu was amazed to find Lanhu, which adopts the PLG strategy. The cloud software industry is becoming a new investment trend in China and Lanhu has the chance to become a billion-dollar top player in the industry.
Statistics from Bessemer Venture Partners show PLG is becoming the mainstream growth strategy in the American To-B market. Companies of PLG strategy accounted for US$600 billion worth of market value in 2020, according to Bessemer Venture Partners’ data. On the 2021 Forbes Cloud 100 list, over 65%~70% of the companies focus on the PLG strategy. The figure was less than 35% five years ago. The market value contributed by PLG companies has increased from US$21 billion to US$687 billion in only five years.
Zhu believes the PLG strategy has entered a period of fast growth in the Chinese market.
English|How a Chinese Investor Discovered China’s First PLG Unicorn Lanhu
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PLG opens the era of cloud software in ChinaSince the birth of the world’s first computer in 1946, software companies had experienced three main eras - the CIO era, the Exec era and the End-User era.
In the 1980s and 1990s, software was something users installed on their computer from a physical disk. It was expensive to build and buy monolithic on-premise software programs back then. “Sales-led growth” was the key principle for software companies and was driven by field sales reps who schmoozed with the buyer (the CIO) during social events like dinner or a golf course. The key decision-making criteria of this era was simple IT compatibility. Companies like IBM, Intel and Oracle adopted such principles to grow their business.
The early 2000s saw the rise of Windows XP and mobile Internet. Cloud computing became a new demand as Salesforce and others changed how companies operated and drove software out of the data center and into the cloud. Development costs plummeted as users only pay for a small amount of money to use cloud services. Then software companies started to target a new group of buyers: the non-technical executives. Execs looked at criteria like key performance indicators (KPIs) and return on investment (ROI) to evaluate how well a given piece of software would help their team achieve its goals. This era was marked by “marketing-led growth” as a distribution model. Software companies invested lots of money in advertising on the Internet and paid platforms to display their advertisements to their targeted users. Alibaba Cloud, Tencent Cloud and Baidu Cloud used such growth strategies.

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