Saas Industry Outlook For 2021
Thanks to their ease of adoption, roll out execution, and scalability, Software-as-a-Service (SaaS) solutions continue to see tremendous growth as enterprise digital transformation gains momentum. The changing work conditions in the last few months has also prompted businesses around the world to embrace the cloud to pivot and survive through unforeseen circumstances. In India, the SaaS industry has the potential to grow multifold and become a $15 billion market by 2025, according to a NASSCOM report.
If you have chosen cloud software for your business recently, you know that the SaaS industry is a crowded marketplace. For every single business requirement, there are hundreds, if not thousands, of vendors to choose from.
The pandemic has thrown the SaaS industry into a sharp relief, highlighting its shortcomings along with its many advantages.
The pandemic has thrown the SaaS industry into a sharp relief, highlighting its shortcomings along with its many advantages
Even as the market adoption for SaaS grows, here are some other driving trends:
1. Lack of Profitability
SaaS is notoriously a low-margin business. Despite the market growth figures, the percentage of profitable companies in the SaaS market is, surprisingly, in the low single digits. At a time when VC funding is drying up, only those vendors that either run a bootstrapped model or can prove beyond all odds that they are on track to be profitable will make themselves more visible and relevant in the future. Those that cannot make that leap will most likely be a part of someone else's consolidation story.
2. Rise of the Suites
In a bubble, features tend to masquerade as products and products tend to masquerade as companies. During a recession/depression, this reverses. Products become features and categories consolidate. This gives rise to product suites which are either built from the ground up or assembled through acquisition. Already, bigger SaaS players are strengthening their offering by either building new products, or more often acquiring companies.
A SaaS industry with tens of thousands of companies is unsustainable. How many CRM companies do we need? 10? 20? 50? We have more than 5,000 currently. This suggests that many of them are likely to be consolidated and in multiple areas. Oversupply combined with the rise of the suites suggests that consolidation is inevitable.
The vast majority of SaaS companies today are built on top of the `Big 3' public cloud providers' infrastructure. Chances are the vendors might soon begin bubbling up to the application layer from the infrastructure layer. Among the slew of solution providers for each tiny function, vendors that add a clever differentiating aspect to their product's traditional value proposition will set themselves ahead of the competition. Just as we saw hundreds of calculators and flash light apps on smartphones during the early days which disappeared after some of these were baked into the OS. The same is likely to occur in the SaaS industry and differentiation is essential for survival.
5. Mobile-first SaaS
Even as emerging market countries start to make considerable investments in connectivity, the majority of them are likely to remain mobile-first markets. For instance, the number of smartphone users in India is estimated to reach over 760 million in 2021 and the global mobile-SaaS industry is predicted to grow into a $7.4 billion market. How well SaaS companies pivot to mobile-first in the coming year will determine their success in these markets.