The global software-as-a-service industry is growing at an exponential rate. From artificial intelligence to blockchain technology, and from IoT to advancements in machine learning (ML) – a host of factors are driving the growth of SaaS in various industrial sectors. By the end of this year, the valuation of the SaaS market worldwide would go beyond $71 billion (~21.5% more than the corresponding figure in 2017). A recent Forbes report indicated that the CAGR of SaaS applications will hover around 21% in the 2015-2020 time period. In today’s discourse, we will look at some key SaaS trends and stats for 2018 and beyond:
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Business Ops account for the most SaaS subscriptions
Back in 2009, engineering did all the early running in terms of paid SaaS subscriptions, while the shares of marketing and business operations were relatively very small. Cut to 2017, and the scenario has undergone a full overhaul – with DevOps easily being the segment that registers the maximum growth in paid enterprise software subscriptions. As this segment has expanded, the percentage share of engineering has gone down (right through the early years of this decade). At present, the focus is squarely on enterprise-wide application of SaaS tools and resources – from sales, customer support and dev ops, to financial operations and even HR activities. At present, the average company is going in for 16-18 SaaS subscriptions, and investing close to $14000 for the purpose.
Note: Slack and GSuite are two popular SaaS applications used in business operations. In engineering, tools like Google Cloud and Amazon Web Services are used.
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Increased emphasis on feature marketing and anti-lean products
The tech market as a whole has already entered early maturity. The strategy of companies to come out with ‘minimum viable products’ (MVPs) as quickly as possible is no longer a viable one – with too many MVPs (with features that overlap) crowding the tech industry. Seamless implementation of SaaS is gradually enabling organizations to create ‘feature-rich’ versions of their products – the so-called ‘anti-lean products. These ‘relevant functionalities’ are also helping companies in getting a competitive advantage. The rise of anti-lean products is, in turn, pulling up the importance of feature marketing (in place of the more holistic ‘product marketing’). Over time, a product can become ‘too big’ to be marketed per se (as developers keep adding new features and add-ons) – and the need shifts to promoting specific new features. SaaS offers platforms for the purpose.
Note: According to Cardin Partners, the growth rate of the global SaaS economy is almost 6X more than that of the world economy. There are 5000+ SaaS companies in the market at present – up from a measly 150 in 2011.
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Role of artificial intelligence is increasing
From bolstering human capacity and productivity levels, to enhancing security standards, facilitating process automation and ushering in the age of ‘hyper personalization’ (with natural language processing, or NLP) – artificial intelligence (AI) is playing a strong role in the effectiveness of SaaS platforms for all of these. On average, 8 out of 10 IT and tech experts are actively involved in AI-related development. Apart from automating repetitive activities, AI-powered SaaS optimises day-to-day business activities by quickening the pace of internal operations of enterprises, enabling AI chatbots for instantaneous customer servicing, and bolstering overall productivity levels. It’s all about optimizing business workflows – and the combination of AI (more specifically, machine learning) and SaaS is proving to be extremely useful for that.
Note: Leading tech players like CA Technologies, Microsoft, SAP and IBM switched over to SaaS-based product development strategies in 2017.
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The rise of vertical SaaS
Broad-based software tools and platforms that target many users and multiple industries (i.e., ‘horizontal SaaS’) are rapidly going out of favour. The focus has well and truly shifted to creating fully customizable, scalable and adaptable software solutions (say, a logistics system or an specialized analytics tracking system) for users from a particular industry or enterprise. Such ‘vertical SaaS’ tools are typically much more cost-effective and efficient – delivering greater business value to end-users. What’s more, important KPIs and other metrics are often pre-integrated with vertical SaaS platforms – and the latter offer greater usage flexibility and customer intelligence as well. More personalized software support is also bringing down customer acquisition costs (for large enterprises, ‘customer retention’ is often a more important concern than ‘customer acquisition’). As things stand now, both pro developers as well as general users need to be given open API access of SaaS tools – failing which, large-scale implementations are not likely to happen.
Note: Many experts feel that a combination of horizontal and vertical combination – one which will be customized and yet have certain ‘use it everywhere’ functions – will be important for enterprises in 2018 and beyond. Prior to purchase/subscription, the compatibility of a SaaS tool with the existing tech infrastructure system of a business has to be ascertained.
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Increased acceptance in companies worldwide
In 2017, there was a ~33% YoY rise in the number of companies using custom B2B software applications. The per-company subscription moved towards the 20 mark in the third quarter of the year – indicating that SaaS adoptions are set to explode further in the foreseeable future. In the United States alone, around 80% final users prefer using SaaS applications (in 2016, this figure was 52%), and 39% companies initiated SaaS-oriented workplaces (in 2016, only 18% US companies had SaaS-exclusive spaces). The demand for optimized SaaS tools is being driven up by the need for greater team collaborations, cutting down on unnecessary legacy costs, facilitating faster data access, enabling greater business process consistency, and removing platform maintenance/upgradation-related problems. SaaS platforms can generally handle the required software updates without any hassles.
Note: By 2026, the total expenditure in the SaaS market in the US will cross $54 billion.
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The need for ‘immediacy’ is pulling up SaaS
The importance of promptly responding to a lead can hardly be overemphasized. Researches have shown that, the chances of lead-conversion fall drastically – if a company fails to respond to it within 5 minutes (an addition five minute delay can decrease the probabilities of lead conversion by ~400%, as per a recent Drift survey). The onus is on enterprises to engage customers with immediate and contextual ‘conversational conversation’ – to ensure smooth user onboarding and excellent first-time user experience (FTUE). Interactive chatbots bring in that much sought-after ‘human touch’ to business communications – and not surprisingly, they have emerged as one of the most important SaaS elements. Promptness and round-the-clock availability, along with advanced multitasking capabilities and assured efficiency have made sure that the trend of implementing ‘live chat support’ is here to stay.
Note: Lengthy lead forms and the blanket ‘spray and pray’ approach for professional B2B marketing are over and done with. With SaaS, the importance of engaging users, and helping them learn about products/services has become greater than ever before. Messaging apps are also being used by businesses for the purpose.
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Under the scanner: the pricing of SaaS
We are well into 2018, and the days of experimentation with SaaS platforms and implementations are behind us. Till now, not much importance had been given on the pricing factor – with nearly 54% companies not even having dedicated teams to analyze price-related stuff. Even in the first quarter of this year, a measly 15% people factored in pricing before deciding to create a SaaS platform. As SaaS implementation becomes more and more mainstream, this mindset will change – and all stakeholders (investors, venture capitalists, developers, final users) will keep a close eye on the pricing trends. That will enable them to track the returns from new enterprise software, and make more informed purchase-decisions.
Note: Salesforce’s ‘Lightning Essentials’ CRM package is priced at $25 per user annually.
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Moving on to PaaS and XaaS
Companies like Box and Salesforce (with Force.com) have laid down the marker – and over the next few quarters more top-level SaaS companies will start to deliver platform-as-a-service (PaaS) solutions. That, in turn, will allow clients to include additional applications on digital products, as and when required. Over time, it will become possible to use cloud services to perform nearly all tasks online – doing away with the need for software/platform installations. In other words, ‘Everything-as-a-Service’ (XaaS) is fast becoming a very real thing – and this progress is being boosted by the need for combining quality assurance, service delivery, and optimized engineering. Availability of 24×7 disaster recovery plans, and the ease of account upgradation/changes in subscriptions are also factors working in favour of XaaS. By the end of this decade, PaaS and IaaS (Infrastructure-as-a-Service) will find widespread acceptance – and XaaS will be making businesses smarter than ever.
Note: Minimal designs are a key characteristic of user-friendly SaaS tools. High-end enterprise software also needs to be device-agnostic and offer smooth operability across the board.
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The increasingly important role of BYOD
In the last half a decade or so, BYOD (Bring Your Own Device) has grown big – and that has further fueled the expansion & adoption of SaaS in enterprises. By the end of 2017, 68% of American small businesses had already adopted BYOD practices – and it was found that nearly 9 out of every 10 employees indeed connect to corporate networks (wifi) while at work. Acceptance of BYOD practices has facilitated quick data access and fostered a sense of confidence among workers – apart from generating additional business savings. Company cultures are changing, and dedicated SaaS applications with specific user-roles and permissions can easily help in establishing a secure, highly productive, and communicative environment. Microsoft reported that 68% of employees in the US admit the advantages that the BYOD regime has delivered for them. Fixed working hours and shared working spaces are becoming things of the past – thanks to the proliferation of high-quality cloud hosting services.
Note: Around 65% corporate organizations let workers connect to corporate networks – significantly more than the corresponding figure a couple of years back.
10. Growth in DaaS is making cybersecurity a big point of concern
Right through the lifecycle of an enterprise software tool, a large number of data points are created. Given the sheer number and seriousness of cybersecurity breaches in 2017 (Equifax, Uber and many other market leaders fell prey), the importance of robust security standards simply cannot be glossed over. As a result, the demand for secure cloud services is at an all-time high – and it has become imperative for a SaaS company to provide complete data safety assurances to final users. The volume of confidential, personal data shared in the online space is huge – and if a digital platform cannot rule out unauthorized third-party access/theft of such data, it is not likely to find any takers. Only after the data security standards have been finalized, can a company move on to the actual product development stage.
Note: As SaaS tools grow more refined, more attention is being paid on the user-end experience (UX) they deliver. Minimizing manual inputs and maximizing outputs/results should be the objective of these smart software solutions.
11. Smooth API connections and SaaS unbundling
As the quality and levels of built-in integrations in digital platforms are rising, the need for redirecting users to third-party applications is being done away with. Instead of the over-reliance on external APIs, companies are looking for quick and seamless integrations in current digital frameworks, through built-in API connections. In fact, lack of proper integration capabilities is, at present, viewed as a serious shortcoming by people – hampering the popularity of the SaaS tool as a result. ‘SaaS unbundling’ has also emerged as an interesting trend – with many instances of companies including all their main services in custom APIs (the Clearbit API serves as a classic example in this regard). The SaaS industry is mature and already crowded, there are many similar products in place, and packaging core services as APIs marks a great point of difference.
Note: The growth of regular SaaS companies is being accompanied by rapid rises in micro-SaaS tools – owned and managed by small teams.
12. A ‘mobile-first’ approach is gaining momentum
By 2020, the world will have 2.87 billion smartphone users. The popularity of messaging apps (like WhatsApp) is increasing – and their importance for sales, marketing, and productivity-related communications is growing. With a humongous 2.5 billion people expected to regularly use mobile messaging apps – it is hardly surprising that SaaS companies are treating the platform as a priority. Vendors have recognized the importance of delivering optimal user convenience at all times (top-notch user experience) – and letting them use digital products on the go, as and when they need it. People will continue to rely on their mobile devices – and ‘mobile SaaS’ will continue to grow.
The rapidly evolving SaaS industry has also increased the demand for trained workforce manifold. That has, in turn, resulted in greater needs for targeted coaching in enterprises, including real-time lessons and constant training. Identifying and addressing key areas of improvement, and providing timely feedback to the managerial level is also vital. At the end of the day, it is all about increasing customer convenience levels. In 2017, improvements in cloud functionality increased user-satisfaction levels by nearly 30% (according to a Zendesk report).
While the rate of new SaaS subscriptions might have eased out slightly last year, the spending on the technology continues to increase at a frantic pace. More and more companies are coming up with refined, feature-rich and customizable SaaS solutions. The market has entered a consolidation phase, the concept of ‘SaaS-exclusive workspaces’ are becoming a reality – and in future, enterprises will continue to benefit from cutting-edge software solutions.
Hussain Fakhruddin
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