How SaaS products are changing the economy of software solutions for startups and enterprises alike?

Suroor Wijdaan, Founder - Xencov SoftwareBuilding SaaS companies is no more a very difficult challenge today. The innovative web tools like REST hooks are helping new entrepreneurs as well as big corporates to solve unique problems through SaaS. They can get prior developed features in form of APIs and connect it with their products on the web instead of coding it from scratch. In last few years, many SaaS startups have succeeded like Zoho, Salesforce, Zoom, Twilio, HubSpot, Splunk, Veeva, Dropbox, Wix, Grammarly, Slack, Mailchimp, Shopify, SurveyMonkey etc.

SaaS has a strong influence over economy from IT industry. Due to constant innovation in cloud computing, startups and enterprises are leveraging SaaS products to improve processes, operations, connect more efficiently with customers and eventually, increasing sales. Let’s see how and why SaaS is growing positively while the world IT growth rate is declining.

The worldwide economy of the IT industry is mainly driven by hardware, software, IT services, and BPOs. In 2019, the world IT revenue was projected to be 1748.7 Billion US Dollars, however, the software revenue was around 205 Billion US Dollars, i.e. 11.7%. When we see the growth rates and spending of World IT market and its sub-components like software, services, hardware, etc. individually, we find that overall, as reported by Gartner, Global IT industry is growing at a slow rate of 3.7%, while negatively growing spending in data center systems, devices and communication services. On the other hand, enterprise software and IT services have shown a brighter estimate as they are growing positively. With such a slowdown around complex geopolitical environments across the world, it is interesting to note that the software market is growing with a rising number of companies providing it as solutions to key problems to companies in many industries.

As per Statista, the overall software turnover was 456.1 billion US Dollars in 2018 and expected to increase to 507.2 billion US Dollars by 2021. It mainly includes the development, maintenance, and publication of software. The various business models to sell software include SaaS- Software-as-a-service, PaaS- Platform-as-a-service and IaaS- Infrastructure-as-a-service. Out of these, SaaS has been the most important one for multiple reasons like the software industry’s climate change effect from Cloud Computing in recent years. Before we dig into that, let’s have a look at the PwC Global data about these software selling models in the following graphs:

The top 10 companies mentioned in the above graph include Microsoft, Oracle, IBM, SAP, Symantec, EMC, VMware, HP, and Intuit. The interesting insight here is to note that SaaS + PaaS percentage is very high when compared with overall software revenue. It simply says that these big companies are making money by providing their software and platform as a service.

Further, in 2018, SaaS/PaaS revenue (22.4 billion USD) has reached 10% of total revenue (242.5 billion USD) of the top 50 software vendors. In the cloud computing area, SaaS enables customers to use applications without deploying them on-premises, and thus avoid procurement, deployment, upgrade, and management issues and costs. No doubt about the fact that SaaS has been highly influential when compared to others. Why is that? What makes SaaS so interesting? In addition to the remarkable utilities of the SaaS model in Software industry here’s below the few points that we have compiled to understand its beauty:
Affordability: Traditionally, the cost majorly comprises hardware, software, and maintenance. With SaaS, the management of IT infrastructure stays with the SaaS provider and not the user. Users can use it through web-browser which allows the remote uses as well. Whether the plan is a subscription-based or up-front license, the provider maintains it and brings down the overall cost to the buyer/user. Its flexible pricing possibilities allow both startups and big businesses to take advantage as per their needs. If the team size is small, the price to pay will be small because almost all SaaS products have varied plans according to usage also known as a pay-as-you-go model.

For instance, Google’s product Firebase which is into cloud functions, authentications, messaging, hosting and ML, provides pay as you go model. If a user company is willing to authenticate its customers using the phone, Google charges $0.01 per verification. It simply means that the user company doesn’t have to pay if their users are not using their platform.

Scalability: This is another wonderful advantage of SaaS product as a startup or company doesn’t have to worry about the technicalities of the tools when they are scaling up their business. In software terms, it can be defined as a favorable comparison between a larger version of some parallel system with either a sequential version of that same system or theoretical parallel machines. So, when sequential versions are to be added, the user can simply buy more subscriptions and leave the rest to the SaaS provider who will take care of the required hardware in the backend. So, when a user company is scaling, the SaaS provider grows alongside without any difficulties. The subscriptions are also offered for different scales which usually have reduced perunit cost because of basic price elasticity of demand.

SaaS has a strong influence over economy from IT industry

Ease of use: Most SaaS products are very easy to use and come with basic tutorials which make it easy to learn the nicks and tricks. SaaS provider develops the software while keeping in mind the value of time and money of their user clients. The front end of such a successful SaaS product is designed and developed in such a way that the user finds it very easy in its business process cycles. As it is ready to use, so the installation and configuration time also reduce by a huge amount in comparison to the traditional ways of deploying software

Real-time actionable insights: Since machine learning and artificial intelligence have come on to the top influential position in the technology world and can be easily integrated with the power of cloud solutions like AWS and Azure, SaaS products have consequently been able to provide actionable insights at an almost real-time basis. Cloud enables the SaaS developer to pick up the real-time data and perform insightful analysis over it to produce useful outputs on a dashboard as required by the end-user companies like predictive analytics, etc. AI enables companies to refine and automate many of these customer experience processes, such as marketing campaigns, upsells, and ongoing customer service through SaaS products. Few SaaS products which as extracted maximum benefits out of this utility are Grammarly, Slack, Wix, Mailchimp, HubSpot, Salesforce, etc.

Customization and API Integrations: A good SaaS product always provides a set of APIs’ or allows for the extension of the core features through modules which is a plus. API is nothing but the programmatic way of connecting services from the service experts across the web like for email, support, search, authentication, analytics, business intelligence, etc. It provides useful possibilities for customization and advantages in SaaS products as the number of hours used to build the product reduces a lot. Using API, a useful feature is just one click away from the SaaS product. Further, it is very easy to integrate because the work has already been done by the API developer. The SaaS developers get more resources and time to transfer this flexibility to the end-user through options they can now provide to develop the user-friendly customized dashboard. SaaS has become easier to develop for those developers who have very little experience with hard-core coding. This is one reason that adds to the rise in the number of SaaS-based entrepreneurial products because now everyone can ‘think’ of solving any kind of scalable problem using these multiple APIs etc.

Organization Level Control: Last but not the least, organization level control support can be customized on the SaaS-based products making it easy to distribute the responsibilities across the organizational hierarchy. For instance, CXO level people can access the financial dashboard but not the software developer levels. SaaS products can easily accommodate such flexible features. When the power of cloud computing is exploited properly, the collaboration of work on the SaaS platform makes it remarkably wonderful because now the human mind synergy is being flourished over a technology platform.

It is clear to understand that SaaS, as well as PaaS, has opened the millions of opportunities to this world because these kinds of products are nourishing the entrepreneurial trends all over the places. Let’s have a look at the Google Trends output to know how much the world is searching about SaaS & PaaS.