SaaS – The New “Cash Cow”

The conversation about software as a service (SaaS) has been going on for a long time.  The evolution of hosted applications is pretty interesting. It all started back in the 1960s when IBM and other mainframe vendors offered computing power and database storage from their data centers to the financial industry and other large firms.  Fast forward to the 1990s when, with the proliferation of the internet, Application Service Providers (ASPs) began offering hosted business applications. According to Wikipedia, the acronym (SaaS) allegedly first appeared in an article published in February 2001 by the Software & Information Industry Association (SIIA).

Some may think SaaS is passé and has been talked about to death, but although SaaS can be considered a “mature” market there are some very good reasons to revisit cloud software:

  1. Industry analysts and mainstream media all cite SaaS as a technology with strong growth prospects for both adoption and spending. AMI estimates that worldwide, small, medium and large businesses (SMLBs) spent $62 billion on SaaS solutions in 2017 and that figure is projected to more than double by 2021.
  2. Globally, about 22 million firms are planning to allot more of their IT budgets for hosted/cloud solutions as opposed to on-premise IT products and services with the largest portion slotted for SaaS applications.
  3. SaaS solutions are major forces driving growth as industry mainstays, who were formerly strong on-premise vendors, shift emphasis to the cloud. For example, Oracle reported Q3’17 overall cloud revenue increased 51%, but SaaS revenues rose 62% and Microsoft reported strong increases across all of its cloud offerings and is now the leading cloud service provider (Office 365 revenues alone increased over 10%).

“SaaS” comprises a wide variety of different cloud-based applications, from the most basic e-mail to solutions tailored for very specific industries.  Spending in 2017 on prominent hosted applications was strong. Beyond email, other leading apps included hosted CRM, business intelligence, productivity and highly customized line of business software (vertical or industry specific software).

As SMLBs seek to leverage technology to help them reduce OPEX, improve efficiency and employee productivity and improve the customer experience, many are looking to the cloud as a solution. About one-third of firms we surveyed reported migrating more applications to cloud services was very important to their company’s continued success. Firms reported a variety of reasons for adopting cloud solutions, including cost savings, scalability and flexibility.  Many businesses feel SaaS solutions allow them access to technologies that might otherwise have been out of reach cost wise, while others utilize cloud services because it enables them to reduce system hardware by using cloud vendors’ servers to store data. In addition, SMLBs will increasingly look to bundle SaaS solutions when making new PC and device purchases.  Popular bundles include hosted productivity suites, security, data back-up/recovery, online data storage, and online document collaboration.

Overall, projected growth for SaaS apps is strong through 2021 (20% CAGR).  Fueling this growth will be solutions such as productivity, point of sales, business intelligence, email, quotes & invoicing and travel and expense solutions.

Software as a Service is a concept that will continue to evolve as it is a win-win for everyone.  SMLBs will benefit as they shift legacy on-premise solutions to seat-based models for cost savings, flexibility and scalability, as well as access to new technologies. Independent software vendors (ISVs) offering cloud solutions will be able to attract and engage firms that may not want to incur the large capital investments required for on-premise installations. Cloud hosters, such as AWS, Microsoft Azure, Google and IBM, will benefit as more ISVs shift their current on-premise solutions to the cloud.

~ Eileen Zimbler, VP