When SaaS grows up

How market maturity is changing software as a service (SaaS)

When SaaS grows up SaaS has changed our perception of software, and the changes haven’t stopped.

The SaaS market is expanding. Statista projects that it will reach $130 billion next year – more than double its size in 2014.

But it won’t just be more of the same.

The market is fundamentally shifting as leaders extend their reach and new players target small specializations. Grant Thornton Advisory Director Brad Stern said there are already four market trends that point to some of tomorrow’s service-based solutions.

1. Platform as a Service (PaaS) Building on the advantages of SaaS applications that run in the cloud, platform as a service (PaaS) gives users the power to entirely develop, run and manage applications in the cloud. The PaaS model reduces the need to build and maintain a development infrastructure, simplifying the development, scaling and maintenance of applications. While there are already more than 360 PaaS vendors today, Gartner expects that the market will double its size from 2018 to 2022, and that PaaS will become the prevailing platform model.

Stern expects that some established SaaS providers will soon expand their solutions into a PaaS model where they can offer a broader catalog of service-based products.

“Where a solution already has a good reputation, or a good foundation in one geography or application, a provider could use a PaaS to extend its products to other geographies or languages, or to add new functionalities,” Stern said. Reaching new markets and providing new functions could yield new streams of revenue for an established SaaS provider.

2. Micro SaaS As established SaaS providers pursue larger markets, newcomers are breaking into the smaller niche markets they left behind. Micro-SaaS solutions are often very lean and very specialized – even working as add-ons to other SaaS services or tools.

“When a larger and more established SaaS company doesn’t want to invest the time or resources because they think a market’s too small or they don’t need to provide for the service, that’s when a smaller company can come in and really attack that niche market,” Stern said.

“Still, that niche or service needs to have critical mass,” Stern added. “An add-on for 10,000 people is not going to be profitable. But for 200,000 people, it could be profitable, whereas the larger companies will only look at potential markets of, say, a million plus users – they’re focused on the bigger fish.”

SaaS is inherently scalable, so a specialty solution with a flexible design could also provide a foothold in the technology and market for future products. “The key point is: Once you develop it for one customer, in a flexible way, you can market that technology to a million users with minimal customization,” Stern said.

3. Vertically focused SaaS applications Traditionally, SaaS applications have focused on performing specific functions that are standard for every company. But, to better win and keep customers in today’s competitive market, SaaS providers have started tailoring solutions to serve an industry vertical.

A vertical SaaS application addresses a specific process for a specific industry. When these applications specialize, they effectively shrink the size of their potential market.

“The services offered are often of no use to most other companies – for instance, a SaaS application that assigns medical instruments in a hospital to shipping software that optimizes container layouts,” Stern said. He added that these solutions could target the food service, medical and legal industries, where they could also help drive system adoption among companies that are still reliant upon paper-based processes. Better yet, a vertically integrated solution could offer differentiating customer benefits and quickly become a competitive advantage.

4. Transportation as a Service (TaaS) The impact of SaaS has changed some of our daily interactions, and those changes are likely to become more profound and widespread. Lyft, Uber and other ride services have already made an impact in several markets, and the Lyft IPO prospectus said “We believe that the world is at the beginning of a shift away from car ownership to Transportation-as-a-Service, or TaaS.”

“What we see happening is that car companies are working together with technology companies, and possibly with ride sharing companies like Via,” Stern said, noting that Mercedes Benz is already working with Via on a joint ride-sharing venture.

With the evolution of self-driving cars, the potential for TaaS becomes even easier to envision.

“I think, more importantly, the question is: What’s the next area that’s going to be transformed through the adoption of SaaS technology?” Stern asked.

Instead of having a manual way of connecting people in a marketplace (think auctioneer versus online auctions), or having human intervention (Chabots and AI replacing helpdesk representatives), where will mobile devices, 5G internet, the cloud and other technologies connect the next innovation in business and our lives?

Finding what’s next What are the early indicators of a market that’s waiting for service-based innovations?

“I think you look for repetitiveness, and recurring services that are not yet digitized or automated. Look for a way to digitize a repetitive or manual process,” Stern said. “What’s so powerful about a SaaS solution is that you can not only automate a solution – but, with artificial intelligence, you can personalize a solution for many people and companies without much human intervention. Another benefit of SaaS is that the software can receive ongoing updates. The provider’s able to continuously refine it and push out the latest proven updates, improvements and new modules seamlessly. These solutions are a great fit for when a provider can offer additional services for an additional fee,” Stern said.

“And ultimately,” he added, “SaaS helps people become more mobile, using their devices to better connect and manage their lives – because it’s connecting to text messaging, downloading, and other capabilities on that device.”

Brad Stern
Director, Advisory
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