January 26, 2021
With its ubiquitous presence, SaaS may soon be written in lowercase fully. Leveraging scalability, lower customer acquisition costs and recurring revenues, SaaS is looking to replace traditional software (both consumer and enterprise) almost completely by 2030.
Fueled by the lockdown, SaaS solutions accelerated their evolution as go-to means for most personal and business needs. The increase in demand met the supply of startup brains, cloud services and deep-pocketed investors to generate revenues of at least $116 BN in 2020. I said at least, since that was Gartner’s estimation before the pandemic.
Where there is money to be made and room for growth, of course everyone’s interested in a piece of the pie. Tech is the darling of investors, and SaaS is the primary material of tech for that purpose.
So where is SaaS’ room for growth?
Years 2009 through to 2019 saw 120 software IPOs, of which 96 were enterprise tech companies and only 24 consumer tech.
Most of the big consumer-tech players can be boiled down to being aggregators of content, so he who has the largest content becomes too hard to beat. That’s why there is one Facebook, one LinkedIn or one Amazon marketplace. Probably less room here.
But there is considerable appetite for enterprise SaaS, where customization levels and specific business fit matter more than content. Mid-sized companies in the US (100-1000 employees) spend on average $8,500/employee/year with SaaS, and use around 180 different SaaS apps each. That’s probably more than what an average consumer has on their phone. And with enterprises, there’s a 30% annual app churn.
It is probably in the enterprise sector that SaaS will grow the most, by all accounts.
The SaaS muscle (or at least part of it)
All SaaS solutions – whether they are provided by startups or shifts from a previous traditional model – require significant software development effort. Much of it is outsourced, and nearshore development companies have historically helped build much of the SaaS that the public and companies use on a day-to-day basis.
The nearshore specifics that make it especially attractive to SaaS providers are:
- The constant changing / pivoting nature of startup products. This requires constant communication between the client and their software development team, beyond what is typical of well-scoped projects. Timezone proximity facilitates permanent sync – e.g. unscheduled calls and interaction throughout the working hours of client and nearshore provider.
- Shared culture. The need for a common language. Beyond English skills, client and provider need to be on the same page in terms of where the product is headed. This has more to do with shared culture and understanding of the end-client market than sheer tech or language skills.
Of course, the other benefits of generic software outsourcing (not nearshore-specific) apply – access to tech talent, team size flexibility, proven processes and tools.
Several other factors make not only nearshore software companies, but outsourcing providers as a whole, interesting for the SaaS world:
- Build-Operate-Transfer model, where the client could take direct ownership of the team under their entity after a predefined period (useful for exit strategies, among others)
- Services for equity – where a startup lacking finances could trade in minority shares directly to the outsourcing provider in exchange for software development. This avoids the strict conditions they would get from a bank or a VC.
- Own SaaS IP developed by software outsourcing providers
We can see the race for digital transformation continuing to intensify – at least a couple of years for the current trends – with SaaS solutions as its backbone, and nearshore development services continuing to power much of what makes it to the market.