Several years ago, the software-as-a-service (SaaS) industry was growing like wildfire. Yet, analysts noted that its stability was in question. Start-ups continued to pop up, software giants were still jockeying for market share, and a critical mass of companies had yet to venture into the cloud. In 2017, the SaaS industry has stabilized as legacy software companies have attained a better grip on the market, startups have been acquired and customer adoption gets closer to maturity.
Growth of the SaaS industry is still brisk, however, and Cisco has predicted that more than four-fifths of all data center traffic—83 percent—will be based in the cloud within the next three years. Service users are becoming more dependent on their SaaS solutions, while at the same time they’re also becoming more knowledgeable and solutions providers are needing to spend less time convincing customers of the benefits of SaaS. This translates into firms better able to focus on differentiation from competitors and keeping their existing customers happy.
Growth estimates for the near future of software-as-a-service vary between vertical solutions and horizontal solutions. Horizontal solutions, which focus on a broad software category (think accounting or customer relationship management) will see more modest growth–competition is increasingly fierce in these categories, and customers are already convinced of their value–while compound annual growth rates will remain high in vertical SaaS solutions that meet the needs of a specific industry such as healthcare, education or real estate, where marketplace education is still underway.
While it’s not easy to predict what’s likely to happen to such a dynamic market in the future, there are a few trends that will affect the growth and shape of the market going forward.
Mobility in the SaaS Industry
We’re a nation of smartphones, and we’re no longer limiting them to calls, games and messaging. Today, about 43 percent of all business owners are using their smartphones daily to manage their operations, which is increasing the demand on the SaaS industry for mobile apps and “mobile first” solutions. Opportunities here aren’t just for mobile users, but for networked devices, machinery and even products. It has been estimated that by 2020, the number of things connected to the internet will exceed the number of people on the earth by seven times over, according to Wipro Technologies. SaaS solutions with a strong mobility presence will connect not only people to solutions, but also things like sales displays, information kiosks in stores and even products themselves.
Successful SaaS solutions will feature mobility-first apps (see an example of Agile CRM’s mobile app here) that allow business owners and managers to conduct their business operations from their pockets or briefcases. Marketing automation, sales enablement, telephony, helpdesk, web engagement, social media integration, email campaigns and mobile marketing can all be monitored and managed from iOS and Android phones and tablets. In CRM and marketing SaaS solutions, we see streamlined mobile dashboards allowing users to increase sales and track, tag and convert more leads from anywhere at any time.
In the earlier days of SaaS, companies perceived that they had a choice between the cost advantages and ease of using SaaS and the security features of premise-based solutions. Experts say that’s changing now as cloud security improves and international laws governing cyber security–once something of a no-man’s land–are formulated, implemented and enforced.
Many assumptions today about a lack of SaaS security are based on old, outdated models. SaaS developers are quite literally rewriting the book on security. Network perimeter security is no longer enough, and increasingly, the market will see developers implementing security as code to detect and identify security threats, protect systems and help them recover from abnormal security events.
“Cyber security is a very critical component for enterprises and is always assumed that on-premise is more secure than on the cloud,” wrote cyber-security thought leader Sudharma Thikkavarapu in a recent blog post. “This is because one believes in traditional security approaches that were built many years ago to guard the jewels. The security features provided in cloud environments are much more advanced than the traditional approaches; and most of the security capabilities are software-defined and easier to implement and manage ‘at a click of a button.’”
Just a few years ago, a small handful of companies had a lock on the SaaS industry–particularly with regards to horizontal solutions–largely because they controlled closed platforms that prevented interoperability except with a few chosen partners. Going forward, there will be increasing opportunities for more open platforms that integrate with a variety of complementary services. Imagine a SaaS model in the future that is simply a blank browser, iPhone or Android device that can upload the precise software users want from companies they wish to work with, all completely customized.
Strong integration strategies, enabled by robust APIs connected to integration platform ecosystems, will be a major driver of SaaS growth (with the added benefit of faster and easier authentication through a single sign-on, a feature that Agile CRM offers to its customers) as well as co-marketing opportunities between complementary solutions providers.
We’re seeing it already in the form of chatbots (which are admittedly still in their infancy). But some new acquisitions and investment in this area by the technology giants (notably Microsoft, Amazon and Google) is likely to push artificial intelligence (AI) forward in SaaS. With the rebranding of Google Cloud services, the company has said it’s in the process of weaving more artificial intelligence into its apps to help employees work more efficiently. Using machine learning to aggregate vast amounts of data, Google has reported that it’s reaching the point where apps will be able to prompt users to open files at certain times of day, for example, or propose meetings based users’ tasks and habits.
Predictive analytics are already leading to unprecedented levels of automation within SaaS, streamlining the user process and boosting efficiency and accuracy. In sales and marketing, managers and sales personnel will be able to spend less time prospecting, curating and inputting data and more time using their advanced “human” skills to sell and market.
Shifting Revenue Models
The days when developers and service providers struggled to determine a path to long-term revenue with SaaS are ending. Small business services delivered as SaaS are opening new paths to profitability. Revenue models are beginning to shift from purely fixed software models or blanket subscription fees to the transaction-based models that can already be seen in solutions such as AWS, Twilio, Zenefits and Gusto. This model is expected to represent a benefit both to solution providers and the smaller companies they serve.
As software-as-a-service shifts on many fronts to better accommodate the business practices of companies of all sizes, smaller companies are becoming increasingly willing to spend on these solutions. A study by Intuit found that 85 percent of small businesses are willing to invest more in software over the next five years, which represents a huge opportunity for developers. Across the globe, there are 600 million small businesses (29 million in the U.S. alone) encountering operational issues that cloud solutions have the potential to solve.
Experts believe that ultimately SaaS will become so pervasive there really won’t be a SaaS industry, per se, as all software will be delivered via the cloud. The biggest threat to innovation today continues to be internal politics and organizational culture (resistance to change), and as attitudes toward SaaS evolve, these barriers will slip away.
That’s our take, at least. What are you seeing in the SaaS industry? Let us know in the comments below.