I used to work in the software industry. For a period of time, I held this view: Over the long run, the American B2B software industry might wither away.

My old reasoning was as follows: The fundamental value of B2B software comes from the fact that software engineers are expensive in the U.S. That means client companies cannot easily afford to build software in-house (attracting and maintaining software talent is costly) and therefore, they buy from vendors instead. In China, however, an abundant supply of high-skill and low-cost labor means something quite the opposite—with inexpensive software coders, Chinese companies tend to build software in house. Therefore, as we can observe, China’s B2B software industry is nowhere near as successful as the country’s consumer internet industry or the U.S. software industry. So, I thought my reasoning had legs.

I naively thought that over time, in the U.S., the supply of software coders would increase, which would drive down the cost of coders and of the codes they write. Therefore, I came to the conclusion that if the B2B software industry had not done well in China, it would not do well in the U.S. either. The emergence of AI-assisted coding, which lowers the cost of producing software, only reinforced my old view.

Lately, as I spent more time on this topic, I came to realize that my old view was partially right but mostly wrong!

Now, I have increasingly come to this updated view: The success of the U.S. software industry is a fortunate result of a combination of several unique elements which do not exist elsewhere. The prosperity of a B2B software industry has something to do with “the land” in which it grows: the country, the culture, and the business environment.

Here l lay out my updated reasoning. I rank the elements in order, with what I think is the most important at the top.

In China: Why Is B2B Software Not As Successful?

The “Trust” Problem: Trust matters for commerce. Trust matters even more for B2B software. And that, I believe, really hurts B2B software businesses in China.

Let’s zoom out a bit. For people familiar with Chinese history and culture, it is easy to notice that in China, in general, there is something lacking around “trust.” To some degree, especially when in comparison with other places, trust among strangers is lower and trust among companies is lower still.

Examples abound. On the individual consumer side, we may look at payment cards as an example. In the U.S., credit cards have no passwords and consumers trust other people (e.g., a restaurant server, who is a total stranger) will not write down their credit card information for other uses. In China, credit cards typically come with a PIN that owners must type on a POS machine to authorize a transaction. Another example is Walmart’s “InHome.” It is a service that American consumers can sign up to allow Walmart’s delivery persons to enter their private homes (with a one-time-use key) to place groceries directly into their kitchens and even fridges! Similar services, I bet, would scare away consumers in China.

On the enterprise side, it is not a secret—and even the media has hinted at it—that some Chinese companies have staged fake job interviews for the purpose of extracting competitors’ internal information. They “interview” interesting people from competing firms to extract information they would otherwise be unable to obtain.

Now, back to software talk. Many of today’s B2B software products are designed to store client companies’ proprietary data and process their critical workflows. Those are the areas that require the highest degree of trust between client companies and third-party software vendors.

When I was working in the software space, I had numerous face-to-face conversations with clients and counterparties. It was apparent to me then, and it is still obvious now, that companies in China generally do not place as much trust in third-party vendors as U.S. companies do.

I am not talking about blind trust of trusting everybody with everything; I am referring to a level of commercial trust that is sufficient enough to allow B2B software products to work: trusting third-party vendors enough to delegate some internal data and processes to them.

If trust is deficient, how can client companies have confidence in delegating their most sensitive data and processes to third-party vendors?

How can I trust you not to leak my internal data? How can I trust you to keep my internal “alpha” confidential and not give hints to my competitors?

No way. I will not use external software. I will develop my own. This is the thought process in a low-trust environment.

That is why I think the “trust” problem has the biggest bearing on the outcome of the B2B software industry in China. Perhaps, it is something structural and will not change anytime soon.

“Top-Down” Culture: Founders and senior leaders tend to take pride in their ways of doing things. Those are normal human behaviors. What differs is the degree of that tendency and the pros and cons associated with it. In China, there are phrases like “Yi Yan Tang,” depicting a commonly observed leadership style: “What I say goes.” As a result, in China, client companies often demand that the software products adapt to them and build customized products and systems. In the U.S., we observe something different. American companies, particularly the smaller ones, purchase B2B software with an intention to learn the “best practices” of what the largest companies are doing, and adopt these practices by adapting to the software—not the other way around. The outcome, as we might reasonably expect, is that in the U.S., packaged software takes off; in China, customized software prevails.

Role of Permanent Records: In the U.S., “system of record” software products have a market because client companies perceive permanent records as an asset. They are useful in helping a company analyze its own business and understand how to improve. They help fulfill compliance requirements. They can be used to defend against potential liability claims. In China (and broadly in developing countries), for many companies, a complete and permanent set of records can be seen as a liability. Often, companies have exposure to gray-area activities—so, permanent records, for whom, for law enforcement?! Pay for these software products that record everything that I do? No thanks!

Willingness to Pay: In China, intangibles, like software, are often perceived as something less valuable and less productive than tangibles. Expensive mahogany office furniture for the boss, good! Expensive software for everyone, hmmm… Software is often perceived as a cost to be minimized, rather than a productive asset to continue to invest in. Even if B2B software companies can find buyers for their products, buyers are unwilling to pay a good price.

In the U.S.: Why Is B2B Software Successful?

Concern for Shareholder Returns: U.S. capital markets demand companies pursue shareholder returns, which leads to the pursuit of efficiency. Instead of (re-)building software that already exists and maintaining permanent staff to maintain these systems, obviously, the more efficient way is to buy, rather than build.

For example, among the Fortune 500, more than 65% of them use Workday (source: Workday FY2027 Q2 earnings press release). Google, despite having some of the world’s best software engineers, still uses SAP. That is even more so for smaller companies with less resources: Wealthfront, despite claiming in its IPO prospectus that “we have a strong, somewhat contrarian preference for building over buying or partnering,” it still buys many third-party B2B software, such as Bill.com and Expensify (source: company CFO interview).

Such a dynamic, I think, creates two conditions that are beneficial to America’s B2B software industry:

1. The largest companies, as paying clients, provide funding dollars for B2B software companies to develop better products. More R&D dollars, better products.
2. The largest companies, as paying clients, provide the legitimacy (i.e., the “logos”) that software companies crave—“Look, Walmart is our client! So, you can trust our software.” With big client logos, software companies can sell more effectively across the entire spectrum of end clients. More legitimacy, more sales.

The “Lawyerly” Society: Dan Wang, in his book Breakneck: China’s Quest to Engineer the Future, gave a name to a cultural difference between the U.S. and China. He describes the U.S. as a “lawyerly society.” In America, there is a legal culture where certain people are responsible for certain liabilities. Lawsuits are often and are expensive. This creates a demand for “defense” and some software products do exactly that! That is probably why HRs like to use Workday to process payrolls and CFOs like to use Workiva to do SEC filings. Similar reasoning applies to some other software products, including the “system of record” software mentioned earlier.

The Spirit of Contract: B2B software contracts typically last more than one year. If companies behind a contract do not have confidence in each other’s good faith and future behaviors, they would be less willing to enter into such long-term contracts. Instead, client companies would be motivated to build software internally. The U.S. provides a commercial environment that gives companies on both sides confidence in the integrity of longer-term contracts, thus more buys, less builds.

Summary

We should credit the unique conditions in the U.S. for the historical success of the American B2B software industry. By this reasoning—thanks to these elements—the U.S. software industry is unlikely to share the same fate as China’s software industry.

An ancient Chinese script goes: A tangerine south of the Huai is a tangerine, but north of it, a bitter orange. (橘生淮南则为橘，生于淮北则为枳).

The land it grows on.

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