Changing Dynamics of SaaS and its Impact on Businesses Growth

Executive Summary 

With SaaS technology revolutionizing the world and enhancing competitiveness among firms, businesses must ensure a proactive approach to sustain and identify opportunities. Specifically, SaaS technology is helping businesses to unleash their true potential to capture the market. In fact, this exploratory research includes its evolution, growth in different industries, advantages and disadvantages, and modern trends shaping its dynamics.

Introduction to SaaS

Cloud computing delivers IT resources on-demand via the Internet with pay-as-you-go pricing. Instead of purchasing, owning, and maintaining physical data centers and servers, you can use a cloud provider to access technology services such as computing power, storage, and databases on an as-needed basis. 

Three models of cloud computing include 

1. IaaS (Infrastructure-as-a-Service), 
2. PaaS (Platform-as-a-Service), and 
3. SaaS (Software-as-a-Service)

The SaaS model licenses software on a subscription basis with access provided through hosting on external servers instead of in-house servers.

Evolution of SaaS

Having originated in the 1960s, it was initially based on a time-sharing system implemented by small businesses, educational institutions, and the government. However, it was necessary to consider it more stable to manage larger business applications. So, as the usage of computers expanded, developers started selling software licenses. Eventually, these companies provide an alternative to owning software blended with many features.

However, its exponential growth and limitless functionality made it a viable option for businesses of all sizes. Companies switched from single-use or perpetual licenses to subscription-based licenses due to lower upfront costs and greater scalability. So, one of the primary benefits cited by SaaS customers is cost savings. As a result, almost every business application widely uses such products.

Source: a16z

The pre-2000s era saw the introduction of On-premise and licensing SaaS, primarily for large enterprises. In the 2000s, subscription-based SaaS became accessible to small and medium enterprises. After that, innovators developed metered, trial-based, and freemium SaaS for individual users. Fintech-integrated SaaS is now accessible to all types of users. This unlocks the full potential of firms in the 2020s.

SaaS Industry Growth

According to Technavio Research:

• The Software as a Service market is forecasted to grow by USD 147.44 billion during 2022-2026, with a CAGR of 11.41% during the forecast period.
• The US is the essential software as a service market.
• The COVID-19 pandemic positively impacted its market in North America in 2020.
• Y-o-Y growth of the industry is forecasted to be 9.27%.
• The significant contribution of the performing market is from North America at about 51%.
• Key consumer countries of SaaS are the US, Japan, China, India, the UK, and Germany.

Statista Report states that the best Software-as-a-Service companies are Microsoft, Salesforce, Oracle, SAP, and Google. As a result, the revenue from the public cloud market is forecasted to grow to USD 592 billion.

According to SWZD, Enterprises are more likely to increase their IT budget in 2023 by 61%. Clockwise Report says that 50% of the world’s data will be stored in the cloud by 2025, and 85% of business apps will be SaaS-based.

In a 2021 Harvey Nash survey, 73% of 1,724 respondents said that SaaS technology is essential for achieving business goals. Also, with 35% of respondents deeming these technologies “quite important” and 38% considering them “very important,” the majority of business owners prioritize this technology. In fact, they prefer it over artificial intelligence, the Internet of Things (IoT), and blockchain technology.

Source: Harvey Nash

The BetterCloud Survey revealed that, on average, young companies (one to two years old) begin with 29 apps. So, by the age of three to six, that number has risen to 103. Also, large companies use far more SaaS and custom apps than SMEs.

The motivation of companies to use more SaaS technology is explained by BetterCloud Survey:

SaaS vs. Traditional Software

To gain a competitive advantage in the SaaS business model, companies can tap into the customer-vendor network connection, streamline business processes, improve service delivery, and build a large customer base for economies of scale and network effects.

Source: Chaotic Flow

When selecting new association management software, you often have to choose between “enterprise” software and software-as-a-service. So, the difference between traditional software and SaaS is:

Traditional Software	SaaS
One-time Fee	Subscription Fee
Free trial not available	The free trial is often available
Installment required	Installment not required
Some updates are automatic	All updates are automatic
Less likely to have supplemental apps	Most likely has supplemental apps
A new version is a new purchase	A new version may be a new purchase
Mobile synchronization requires additional software, often costly	Mobile synchronization may require additional software, often free or affordable

Source: bundledocs

SaaS Advantages

Manual errors can severely compromise a company’s security posture. Automation, however, ensures that all steps are carried out in accordance with documented procedures. Furthermore, it improves security and compliance by eliminating the possibility of missed steps, misconfigured apps and systems, and other issues. BetterCloud survey report explained the expected benefits of SaaS management companies.

Centralized Management

By 2027, 40% of businesses utilizing several SaaS applications would centralize management by using a SaaS Management Platform (SMP), up from less than 25% in 2022, according to Gartner.

Improves Business Swiftness

According to Workday, 75% of business leaders attribute the switch to it to increased business agility and 74% to faster implementation and deployment.

Cost Effectiveness

It eliminates the need for the user to pay an upfront cost for purchase and installation. Upgrades and maintenance are no longer an issue. Instead of investing heavily in hardware resources, SaaS apps are easily downloadable.

Scalability and Accessibility

Businesses can adjust their usage plan without worrying about giving advance notice. The SaaS application development provider hosts the software externally. You can also access SaaS companies’ applications from any global location.

New Releases

The provider upgrades the solution and makes it available to clients. This reduces the costs and effort required for upgrades and new versions compared to the traditional model, which typically involves purchasing and installing update packages. 

Challenges

BetterCloud survey conducted by 523 IT and security professionals revealed some challenges most crucial to solving in a SaaS-based environment.

Security and Privacy

Only 18% of IT organizations proactively monitor their SaaS environments to prevent confidential data leaks. According to BetterCloud, the greatest security challenge is the inability to locate sensitive data, which poses a significant risk for SaaS security companies.

Access management and the privacy of sensitive data are major concerns when it comes to cloud storage and hosted services. The report by Cloud Security Alliance identifies the security challenges to SaaS:

• Misconfigured SaaS environments are causing increased security problems, with 43% of SaaS companies facing misconfiguration-related security events. The main reasons for these events include lack of visibility (35%), access by multiple departments (34%), lack of SaaS security knowledge (22%), and misappropriated user permissions (8%).
• Last year, businesses invested 81% more in security tools for business-critical SaaS apps, but only 55% invested in people and 81% in security tools, leaving organizations vulnerable.

Lack of control

In-house software gives businesses more control than hosted solutions, where a third party holds power. In most cases, users must use the latest version of the software application and cannot delay upgrades or feature updates.

Low Performance

To optimize the performance of a browser-based SaaS application, businesses must invest in a fast and reliable internet connection and use performance management tools to monitor their SaaS app’s performance over time. This is because a SaaS app running on a remote data center may perform slower than a similar program operating from employees’ desktops.

Top SaaS Trends

Increased Demand For Collaboration Software

According to Owl Labs, meetings became Zoom meetings, with video calls happening 50% more than before COVID-19. So the demand for collaborative SaaS software companies increased after COVID-19.

Statista projected the rising number of daily and monthly active Slack users worldwide from 2019 to 2025.

Martech Accessibility

A growing number of martech startups are defying the SaaS trend. Canva is a prime example of the burgeoning “accessible martech” trend. Non-graphic designers can use Canva to create images for blog posts, email newsletters, and social media. Hence the marketing SaaS companies are rising to the challenge.

Vertical SaaS

Bsides, the vertical SaaS strategy focuses on meeting certain demands within an industry. It enables its provider to reach closer to the potential client than the horizontal strategy, which aims to cover as many industries as possible with a single SaaS product. Moreover, the reasons for the vertical SaaS trend are the growth opportunities, as it’s helpful for specific industries. Secondly, vertical SaaS companies face less competition than horizontal SaaS companies since they cater to a particular clientele with particular demands.

AI Integration

Artificial intelligence is getting integrated into the software of all types. Some of the use cases for AI in SaaS are:

• High-quality support services like chatbots, etc.
• Easier code review and maintenance
• Security breach identification
• Advanced user guidance and SaaS onboarding
• Dynamic pricing

API Integration

The code that joins two software products is an application programming interface (API). In other words, it enables the integration of SaaS products with other programs. So, the first benefit of APIs is that they let people integrate your product with their current systems. Second, users don’t have to manually transfer every piece of data when they sync their databases. Additionally, APIs enable users to combine all of their tools into a single software, eliminating the need for several tabs.

Industries Implementing SaaS

According to Statista, the top 15 public software as a service (SaaS) companies on United States stock exchanges in 2022 by market capitalization are:

And according to LATKA, the US has 8 times more SaaS companies than any other country. The following data will help you understand the market size of the most revenue-generating countries of the world in the this sector,

Country	Companies	Total Revenue ($)	Total Funding ($)	Total Employees	Total Customers
US	17,000	399.1 B	404.5 B	2 M	59 B
Italy	243	41.5 B	385.7 M	19 K	55 M
UK	2,000	26.6 B	14.7 B	158 K	3 B
Australia	635	16.1 B	4 B	30 K	233 M
India	1,000	15 B	10.9 B	676 K	2 B
Germany	1,000	14.9 B	11.9 B	71 K	2 B
Canada	2,000	13.2 B	12.6 B	111 K	3 B
France	1,000	11.9 B	9.4 B	69 K	1 B
Singapore	327	10.3 B	2 B	162 K	1 B
Netherland	402	9.5 B	6.2 B	44 K	967 M

The Cloud Adoption and Risk Report by McAfee shows that industry-specific platforms were among the most-used cloud services in 2018.

Saviom quotes the Forbes report, stating that the education, engineering, finance, government, and healthcare sectors are at the forefront of cloud adoption.

Education and Healthcare

Above all, an enterprise resource management platform enables administrators and teachers to guarantee that students receive access to the necessary resources for quality education. So, depending on the available resources and desired outcomes, they can do this for daily, weekly, monthly, or quarterly time frames. Education SaaS companies are supporting this effort.

SaaS healthcare companies provide the following type of services in healthcare sectors:

• Patient Portals
• Decision support systems for clinics
• Healthcare complaint management software
• Health Tracking Apps
• Healthcare Billing Software
• Hospital Management Software
• Electronic Health Records
• E-Prescribing Software

SaaS Companies in Engineering Industry

According to research by Sage from 2012, 16% of contractors said it was crucial to have cloud computing in their toolkits. So, more contractors (85%) have already implemented or are in the process of implementing cloud-based solutions in just a few years. Therefore, SaaS services are critical to engineering companies to avoid disputes over resources or other issues.

Finance

Moody’s Analytics shares that Banks are increasingly using SaaS as their preferred deployment approach to meet their regulatory IT needs. As a result, it improves clarity on bank solution costs, increases flexibility and scalability, and optimizes the total cost of ownership. Additionally, it expedites implementation and eliminates difficulties with upkeep and upgrades. In addition to security and transparency, proven cost savings, partner reputation, data residency, exit strategy, and operational model shift are crucial factors that banks examine when evaluating SaaS. The number of finance SaaS companies is also increasing day by day.

Government

For US government organizations, the use of cloud-based services is compulsory. In reality, cio.gov has a comprehensive plan to make sure that every office of the Federal government migrates to the cloud for greater security and to boost savings.

Conclusion

Oracle reports that 91% of businesses think SaaS would make it easier to implement cutting-edge technologies like artificial intelligence, the internet of things, digital assistants, blockchain, and virtual and augmented reality within finance and operation applications, and 88% within supply chain management.

Flexera reports state that organizations must implement the best cloud computing strategy to compete in the modern market. However, as a post-pandemic world starts to take shape, new cloud migration and usage trends are coming into focus. Cloud adoption has been growing for several years, and the pandemic has pushed it further. So, to stay competitive in this ever-changing digital world, businesses must make strategic decisions about cloud migration, architecture, public cloud usage, effective tooling, and cost management.

The report further evaluates that 42% of organizations are willing to move from on-premise software to SaaS.

What Oak Business Consultant Offers?

As proficient financial and business analysts here at Oak Business Consultant, we hope you can do your best in your financial planning. Therefore, we offer all business owners our spectacular financial services.

So, as a provider of Financial Modeling, Business Plans, Pitch Decks, and many more, we have the expertise to help you raise funds and develop your business plan. Specifically, our business plan includes organizational strategies to target the right market and develop a sustainable business. Moreover, financial models help forecast your future financials and provide flexible integration with your business models.

Also, based on the research above, which shows the importance of the SaaS industry, we have compiled a list of SaaS-related products that could help business owners to establish their businesses successfully. Here are a few examples:

1. Startup Excel Financial Model For Online SEO Service | SaaS
2. SaaS E-Commerce Software Excel Financial Model
3. SaaS Customer Services Software Excel Financial Model
4. Content Management Software Excel Financial Model
5. Customer Engagement Software Excel Financial Model
6. Fintech SaaS – Excel Financial Model
7. Field Service Software Business Plan
8. SAAS Pitch Deck Template
9. Blockchain-as-a-Service Pitch Deck
10. AI Services Pitch Deck Template

Undoubtedly, choosing us for your services would help you tremendously. For example, if you started your business and couldn’t pick a move, come to us, and we will help in every possible way. So, have a look at our portfolio and find out why all the Micro-Small and Mid-sized Businesses always prefer our financial planning services. Once you start rendering our services, we assure you there is no looking back.