Why Is SaaS So Popular: Exploring the Reasons Behind the Unprecedented Growth
SaaS is growing more and more common among businesses of all sizes in today’s networked domain. It has emerged as the go-to platform for business owners and corporate clients alike who want to benefit from its extensive features, scalability, and affordability.
But how did we arrive here? What technological developments led to the quick and widespread adoption of SaaS?
In this blog post, we’ll examine the factors that have contributed to SaaS’s recent exponential surge in popularity.
What Is SaaS and How Does It Work Compared to Other Software Models
SaaS is a type of software delivery model, which stands for Software-as-a-Service. Rather than buying and installing software on your own computer or server, you access it via the cloud from an external provider.
The provider hosts and runs the application, meaning that all you need to do is log in with your credentials and you’re ready to use the software. This is a key differentiator from traditional software models, which require users to purchase and install the software on their own computer or server. And unlike the traditional software, a SaaS business model requires its users to subscribe to the product on a recurring basis, rather than only having to pay a one-time fee.
Since 2015, the SaaS industry has experienced an incredible growth of over 5x in only seven years – ballooning from $31.4 billion to an estimated $1617.1 billion in 2022.
Through SaaS, applications are delivered virtually with no requirement for local hardware or installations. This makes SaaS user-friendly and cost-effective, features that make it a preferred choice for most businesses.
As opposed to traditional software models where enterprises need to purchase perpetual licenses and deploy the applications using their own resources, with SaaS they only pay subscriptions based on usage, and the full support of the SaaS provider is included in this price.
This model also offers scalability which allows companies to start small and easily expand according to their needs.
In contrast, other software models rely heavily on infrastructure setup which can be expensive and time-consuming at times.
Furthermore, traditional software models require maintenance and updating of the installed applications which can be costly for businesses.
What Makes SaaS So Popular Nowadays
As businesses and individual users become increasingly tech-savvy, it is only natural that they also take advantage of SaaS solutions.
SaaS eliminates the need to buy and maintain hardware, cutting down on costs. Instead, businesses and users can purchase service plans based on their individual needs, without having to install or manage hardware.
Below are some of the key benefits of using SaaS for businesses and consumers alike:
1. Increased Flexibility
With SaaS, users can scale their operations up or down as needed, without having to make a significant upfront investment in hardware or software.
Additionally, SaaS applications can be accessed from any location with an internet connection, which makes it ideal for businesses with employees who work remotely.
2. Reduced Costs
SaaS applications are typically offered on a subscription basis, which means that businesses only pay for the services they use.
This can be a more cost-effective option than purchasing traditional software licenses, which can be expensive and inflexible.
3. Improved Security
SaaS providers typically have strong security protocols in place to protect data from being accessed by unauthorized individuals.
Additionally, SaaS applications are often updated automatically with the latest security patches, which helps to further protect data from being compromised.
4. Enhanced Collaboration
With SaaS applications, team members can easily share files and documents, and can even work on projects together in real-time. This makes it easier for teams to stay coordinated and on track, which can improve overall productivity.
5. Greater Convenience
With SaaS applications, there is no need to install or update the software on individual computers—everything is handled by the SaaS provider. This can save time and hassle for businesses and individual users alike.
6. Pay-as-you-go model
SaaS uses a pay-as-you-go pricing model, which means that businesses only pay for the resources they use. This can be beneficial for businesses as it allows them to scale their use of the application or service up or down as needed, without incurring any additional costs.
7. Automatic updates
SaaS apps are automatically updated by the provider, which means that users always have access to the latest features and security patches. This can be beneficial for businesses as it reduces the need for them to manage updates themselves, and for consumers as it ensures that they always have the most up-to-date version of the application or service.
With SaaS, there is no need to invest in expensive hardware or software, as everything is hosted in the cloud. Additionally, SaaS providers typically charge a monthly or annual subscription fee, which can be much cheaper than buying traditional software licenses.
With SaaS, businesses can easily add or remove users as needed. This makes it ideal for businesses that are growing or have fluctuating needs. Additionally, SaaS providers often offer discounts for businesses that add more users, making it even more cost-effective.
10. Easy to use
With SaaS, users can access their accounts from any internet-connected device and start using the software immediately. There is no need for complex installation or configuration, which can save businesses a lot of time and money.
11. Always up-to-date
Because SaaS solutions are hosted in the cloud, SaaS providers can push out updates and new features automatically and without interrupting users. This ensures that businesses are always using the latest version of the software and have access to the latest features.
Advantages of the SaaS Business Model
Not only does SaaS offer businesses numerous benefits to consumers, but it also has a number of advantages for SaaS providers as well. These include:
1. Lower Upfront Costs
With traditional software, providers must pay for the development and deployment of the software, as well as any hardware required to run it. With SaaS, providers only need to pay for the development of the software, as it is deployed and run on the servers of the SaaS provider. This can save a significant amount of money in upfront costs.
With traditional software, providers must develop different versions of the software for different customer needs. This can be very time-consuming and expensive. With SaaS, providers can easily scale their offerings to meet the needs of any customer, without incurring additional development costs.
3. Increased Customer Loyalty
Customers who are using your software on a subscription basis are more likely to continue using your software as long as it meets their needs, as they have already made a financial commitment to doing so.
Additionally, customers who are happy with your software are more likely to recommend it to others, leading to increased word-of-mouth marketing for your business.
4. Access to New Markets
Finally, the SaaS business model gives providers access to new markets that they may not have been able to reach with traditional software offerings. For example, many small businesses may not be able or willing to invest in traditional software due to the upfront costs involved. However, these same businesses may be willing to subscribe to a SaaS solution that meets their needs. This provides providers with a new source of potential customers
The History of SaaS and Its Meteoric Rise to Popularity
Many people don’t realize that the SaaS business model actually has its roots in the 1960s with “time-sharing systems.” From there, Local Area Networks (LANs) replaced time-sharing systems and network managers were hired to manage them.
The first true “time-sharing system” was created by IBM in 1961 for use in large corporations. It was an inexpensive alternative to traditional computers because it allowed multiple users to access the same system at once, thus saving money for companies that could not afford their own computer systems.
As time went on, more and more companies began utilizing “time-sharing systems” instead of traditional computers because they offered faster accuracy and cost-efficiency benefits. These early providers included CompuServe, Prodigy, America Online, and many others.
The Evolution of Local Area Networks (LAN):
In the 1980s and 1990s, cheaper and more available computers led to an increase in LAN usage among companies. Unfortunately, these networks were difficult to manage because most companies did not have enough resources or formal training given to their network managers during that time period.
Different types of LAN networks such as Ethernet, Token Ring, FDDI etc., began being used by companies during this period but each one had its own limitations which impacted their operations for better or for worse.
However, it was not until 2006 that SaaS gained serious traction with the introduction of cloud computing and applications running off servers on the internet rather than off individual computers.
Modern-Day SaaS Business Model
Today we live in the age of cloud computing where businesses can easily access software without having to install it on their own computers or servers.
This revolutionized the way we use technology today with its cost-effectiveness and scalability benefits across all industries making it easier than ever before for businesses to take advantage of technology without needing extensive resources or personnel dedicated solely to IT management needs.
The reasons for its meteoric rise in popularity can be attributed to its ease of use, low cost, and reliability.
As businesses transitioned from owning large amounts of costly hardware and bulky software packages to leveraging cloud storage for their day-to-day enterprise operations, SaaS quickly emerged as a cohesive solution for businesses of all sizes.
That success has only continued, with increasingly powerful tools driving innovation in many industries from healthcare to banking.
The Future of SaaS and What to Expect in the Coming Years
The ever-evolving landscape of SaaS looks increasingly interesting in the years to come. Organizations, both small and large, are embracing the benefits that SaaS platforms can bring, like easy scalability and lowered IT overhead, consequently driving the demand for more sophisticated services.
Listed below are some of the key trends and predictions for the future of SaaS.
1. The continued rise of SaaS
There is no doubt that SaaS will continue to rise in popularity in the coming years. By the end of 2023, the SaaS industry is projected to reach its highest levels of annual growth ever – with a value of $195.2 billion. This signals a great opportunity for both existing and new businesses to capitalize on this rapidly growing market.
2. The continued growth of the cloud
The cloud is here to stay and will continue to grow in the coming years. In a survey of 1,283 respondents conducted before the pandemic, an overwhelming majority of 88% reported using some form of cloud services. Moreover, the majority believe that their organizations will continue to grow their usage of cloud services in the next 12 months. This signals a strong and persistent trend toward increased adoption of cloud services in many industries.
3. An increase in SaaS adoption by businesses
One of the reasons for the continued rise of SaaS is the fact that more and more businesses are adopting it. According to estimates, the SaaS-based business apps that companies use today account for 70% of their applications. This is expected to climb up to 85% by 2025, demonstrating the increasing prevalence of SaaS in enterprises worldwide.
4. An increase in SaaS investment by venture capitalists and other investors
Due to the immense popularity and potential of SaaS, venture capitalists, and other investors are investing heavily in this technology. In fact, US venture capital investment in SaaS totaled an impressive $94 billion across 4,459 deals in 2021, firmly establishing the sector’s foothold in the market. This is because they see the potential for big profits in the future as more and more businesses adopt SaaS solutions.
5. The emergence of new SaaS companies
Due to the high demand for SaaS solutions, more and more companies are entering the market. This is creating an incredibly competitive landscape that is driving innovation and pushing the boundaries of what is possible with SaaS.
Statistics indicate that there are approximately 25,000 SaaS companies operating worldwide in 2021. Of these companies, a notable number – around 7,000 – are dedicated to the marketing sector specifically.
As the story continues to unfold, one thing is for sure- SaaS is here to stay and will continue to shape the future of businesses across all industries. With its scalability benefits, low cost of ownership and ease of use, SaaS is sure to remain a go-to technology for businesses in the coming years.
6. The consolidation of the SaaS industry
As the SaaS industry grows, we can expect to see consolidation among the various companies that provide these solutions. This is because there will be a lot of competition and only the strongest companies will survive. Some of the notable consolidations in the SaaS industry include Microsoft’s acquisition of LinkedIn, Salesforce’s purchase of Tableau and Oracle’s buyout of NetSuite. This trend can be expected to continue in the future.
7. An increase in SaaS-based applications
As SaaS becomes more popular, we can expect to see an increase in the number of applications that are built using this technology. This will include everything from enterprise applications to customer-facing solutions. Software and SaaS are seeing unprecedented growth, with an estimated rise in market share from 9.8% in 2022 to 11.8 percent in 2023.
SaaS has become very popular in recent years for a variety of reasons. The flexibility, scalability, and affordability it offers businesses of all sizes is unmatched.
Additionally, the ability to quickly deploy new features and updates keeps customers engaged and coming back for more. As the popularity of SaaS continues to grow, we can expect even more innovation in this space.
If you’re looking to get started with a SaaS product of your own, be sure to do your research and understand the charged model before making any commitments. And for more tips on how to start and grow a successful software company, be sure to check out our blog.