Cloud technologies’ coming of age has spurred the explosive global growth of Software as a Service (SaaS), a cloud-based method of providing software to users. Rather than purchasing an application and installing it, users subscribe to a program and access it online via cloud servers. Companies like Salesforce and Adobe are now household names with millions of subscribers and billions in annual revenue.
In the wake of the Covid-19 pandemic, this already fast-growing segment has experienced extraordinary acceleration. Thanks partly to countless businesses around the world pivoting to remote working, by 2026, the size of the global SaaS market is projected to reach $307.3B.
Japan is at the forefront of this global SaaS revolution. Home to the world’s third-largest software market, Japan’s SaaS segment enjoys an average annual growth rate of 12%. Today, the groundwork for an enduring Japanese SaaS boom is being laid by SaaS start-ups, innovators, and investors.
At a time when economies around the world must transform outdated business models en masse to survive, Japan’s SaaS market offers a haven for companies and investors seeking continued expansion and accelerated growth.
How fast is SaaS growing in Japan?
Japan’s SaaS market is growing rapidly at an average annual rate of 12%. By 2023, revenue is expected to reach approximately $7.7B (¥820B), making up approximately half of Japan’s total software market. At this rate, SaaS in Japan will expand much faster than in neighboring Asian Pacific economies, including China.
What is driving this growth?
SaaS’s emerging strength in Japan stems from a convergence of technological and social factors, unlike any other in the world. These factors include substantial government-backed improvements to the country’s internet infrastructure, the rise of technologies such as artificial intelligence (AI) and machine learning, and multinational companies’ expansion into the Pacific region. This growth is further boosted by small and medium-sized enterprises (SMEs) rapidly shifting their businesses to cloud services and SaaS solutions.
Japan is also grappling with an aging workforce and declining birth rates, which will undermine domestic productivity in years to come. Hence, local businesses and government have been forced to search for new solutions to keep the national economy running smoothly.
The SaaS model, capable of automating processes to minimize labor-intensive tasks, offers the most expedient, long-term solution for Japanese companies to compensate for the growing labor shortage while simultaneously reducing operational expenditure and increasing revenue.
Lastly, in 2018, former Prime Minister Shinzo Abe passed highly anticipated work-style reforms, known popularly as “hataraki-kata kaikaku.” The new laws set out to curb long working hours, foster flexible working styles, and ensure fair treatment of employees. To comply, Japanese corporations must quickly find solutions without decreasing efficiency or profitability.
Newly inaugurated Prime Minister Yoshihide Suga is going even further. In October 2020, he announced a plan for creating a digital agency to accelerate the digitalization of government administration and Japan’s entire society. The move comes in response to the COVID-19 pandemic, which has laid bare the consequences of the country’s slowness to adopt digital technologies. For instance, insufficient allocation of ID cards created delays in distributing nationwide pandemic relief funds to all citizens. Government officials were also unable to hold video meetings due to internal systems incompatibility.
There is now a profound need for developers to act swiftly and at scale across industries nationwide, creating massive opportunities for global SaaS companies doing business in Japan.
What makes Japan’s SaaS market special?
Japan is known worldwide for its unique cultural heritage, which often appears shrouded in mystery to outsiders. The same is true for the country’s business culture, which suffers from “Hanko culture,” analog and time-consuming office practices that are considered outdated or even obsolete in most developed economies. This lucrative niche has not gone unnoticed by major players in the field. For instance, many executives use a stamp (“hanko”) instead of a signature on circular letters of approval or other internal decision-making documents. When DocuSign, the world’s leading provider of e-signature services, entered the Japanese market in 2015, their resounding success can in part be attributed to their creation of “eHanko“, a digital version of the “hanko,” especially for the Japanese market.
The new administrative reform minister, Taro Kono, recently declared war on Hanko culture, including fax machines and printouts. This creates vast opportunities for SaaS developers to offer innovative new solutions.
Who is investing?
The sustained growth of Japan’s SaaS industry has magnetized interest from venture capitalists all over the world. In recent years, Japanese SaaS-focused startups have attracted overwhelming attention from investors, both domestic and foreign.
More than $230M of Japan’s $2.5B in overall venture capital spending for 2017 was poured into SaaS start-ups. In 2019, leading Japanese SaaS companies, such as Sansan, Sumaregi, Chatwork, and Kaonavi, were publicly listed on Japanese stock exchanges.
Who are Japan’s major SaaS players?
Though there are hundreds of successful Japanese SaaS companies, these are the three names you need to know:
- Freee was founded in 2012 and provides businesses with cloud-based Enterprise Resource Planning (ERP) system management and accounting software on a multiple subscription basis. To date, they have received $142M in funding from more than 15 investors, including Pavilion Capital Partners, Herald Investment Management, and Nissho Electronics.
- SanSan is a free contact sharing application and cloud-based content management software for business teams. Optical Character Recognition (OCR) technology and human audio transcription allow employees to scan business cards, upload them to the contact network, and share them with their colleagues. The company was founded in 2007 and has received $119M in venture capital from over a dozen investors, including T. Rowe Price, the SPARX Group, and Energy & Environment Investment, Inc.
- SmartHR optimizes payroll and HR systems with SaaS-based document management software, providing businesses with back-office support. Their crowd-sourced personnel management software enables users to fill out an online form, which is then used to generate digital versions of crucial HR documents, such as those related to pensions, employment insurance, and more. The company has raised $73M in funding from 10 investors (including Beenext, Jun Nishikawa, and All Star SaaS Fun) since its founding in 2013.
Impact of Covid-19
Due to the global Coronavirus pandemic, companies from all over the world have been forced to abruptly reconfigure for the remote work environment.
In Japan, the numbers are particularly striking. At the outset of the outbreak in March 2020, only 18% of Japanese businesses had implemented remote working for their employees. By the first week of June, that number had more than doubled to 56%.
As remote working looks increasingly here to stay (tech giants such as Twitter and Facebook have announced extended and even permanent plans for employees to work from home), the potential for SaaS companies in Japan is enormous.
How do we break in?
The pandemic has created a global public health crisis, but the economic reconstruction that is to follow will look very different in different markets. In order not to miss the opportunities afforded by this unprecedented moment, it is vital for international SaaS brands entering or selling in the Japanese market to arrive at a profound cultural, economic, and political understanding of the uniqueness of Japan’s market situation and consumer mentality.
Our San Francisco-based team proudly offers one-stop-shop marketing and localization services to help software and SaaS companies enter the Japanese market—and sell.
The specific SaaS-focused solutions we offer include:
- Go-to-market and growth strategy
- Strategic target setting utilizing behavioral analytics
- Localization of all products, creative, and marketing materials, including websites, landing pages, creative assets, mobile applications, and software
- Usability testing with prototypes and user interviews
- Localized quality assurance (LQA)
- SEO services
- Integrated marketing campaign strategy and implementation
- Performance-based marketing strategy and implementation
- Content and email marketing
- Social media marketing
- CRM strategy and implementation
Want to know more about the SaaS landscape in Japan? Please contact us to discuss how we can work together.
Irep Inc. is an award-winning global digital marketing agency based in the San Francisco Bay Area. Our headquarters are in Tokyo and our network spans more than 20 countries. In Japan, we are ranked No. 1 for performance-based marketing. We also offer highly specialized market entry, as well as integrated marketing and localization services. Since 1997, our data-driven solutions have effectively led our diverse international clientele to continuous success in Japan, Asia, and beyond.