There are a number of trends revolutionizing the software as a service (SaaS) industry. In fact, its global market value was projected to reach $185.8 billion by 2024.
The SaaS industry is rapidly changing. What was considered a best practice or a useful tool in 2018 may not be the same in 2022.
To stay ahead of the curve and keep your company relevant, it’s important to understand these trends and consider how they can be implemented into your business.
1. The SaaS industry is growing at a rapid pace
The most important trend to understand is that the SaaS industry is growing, and it’s growing fast. According to a report by Grand View Research, the global SaaS market was valued at $158.2 billion in 2020 and is expected to grow at a compound annual growth rate (CAGR) of 7.6% from 2021 to 2028.
This growth is being driven by a number of key factors, including the increasing demand for cloud-based solutions, the rise of remote work, and the need for businesses to digitize their operations. As the industry continues to grow, it’s creating a lot of opportunities for investors.
2. SaaS companies are prioritizing customer retention
The SaaS industry has been growing at a rapid pace for years, but it’s only recently that we’ve started to see the true impact of customer retention on a company’s bottom line.
Customer retention is the key to long-term success for any business, but it’s especially important for SaaS companies. That’s because the subscription-based model of SaaS businesses relies on customers paying for their software on a recurring basis.
In the past, many SaaS companies focused on acquiring new customers rather than retaining existing ones. But as the industry has matured, companies are starting to realize that it’s more cost-effective to keep a customer than it is to acquire a new one.
In fact, studies have shown that increasing customer retention by just 5% can increase profits by 25% to 95%. And, it’s much cheaper to retain customers than it is to acquire new ones.
3. There’s a greater focus on customer success
The subscription model has turned the software industry on its head. Instead of simply selling a product and then moving on to the next customer, software companies now need to develop and maintain long-term relationships with their customers.
One of the ways SaaS companies do this is through customer success teams. These teams are responsible for making sure customers are getting the most value from the software they purchase. They also work to identify any issues or problems that could lead to customer churn.
Customer success is becoming increasingly important in the SaaS industry. In fact, many investors now look at a company’s customer success team and metrics before deciding to invest in a SaaS company.
4. SaaS companies are increasingly international
The internet has broken down barriers to entry, and that’s been especially true in the world of software. SaaS companies have been able to expand internationally at a much faster rate than traditional software companies because of the virtual nature of their products.
This has been a huge growth driver for many SaaS companies in recent years. Some have even been able to generate a majority of their revenue from outside the U.S. and are increasingly looking to expand into new international markets.
5. The race to innovate is heating up
The SaaS industry is becoming increasingly competitive. As the number of SaaS companies in the market continues to grow, the need to innovate is more important than ever. Companies that fail to innovate risk being left behind.
This means that companies need to be constantly looking for new ways to improve their products and services. One area of innovation is the rise of eCommerce configurators, which allow businesses to offer personalized, interactive shopping experiences. By enabling customers to customize products in real-time, these configurators enhance engagement and drive conversions.
They also need to be looking for new market opportunities to take advantage of. This is one of the main reasons why M&A is so common in the SaaS industry. By acquiring other companies, SaaS companies can quickly and easily add new products and services to their portfolio.
6. SaaS companies are investing more in sales and marketing
The SaaS model is all about growth, and the vast majority of SaaS companies are still in the growth phase of their life cycle. That means they are prioritizing revenue growth over profits.
This is why SaaS companies are willing to spend so much on sales and marketing. Customer acquisition is a top priority, and SaaS companies are investing heavily in sales and marketing to drive top-line growth. In fact, sales and marketing spend is the largest expense for most SaaS companies.
It’s important to note that high sales and marketing spend is not necessarily a bad thing. As long as a SaaS company is able to acquire customers at an attractive cost and retain those customers over the long term, it can grow into its valuation. However, if a SaaS company is spending a lot on sales and marketing and not seeing results, that’s a red flag for investors.
7. The SaaS industry is consolidating
In the early days of the SaaS industry, there were a lot of small, independent companies. But over the years, many of these companies have been acquired by larger players, leading to a wave of consolidation in the industry.
There are a few reasons why we’ve seen so much consolidation in the SaaS industry. For one, it’s a lot cheaper for a company to acquire another company than it is to build a competing product from scratch. Acquisitions can also help companies gain access to new technology, customers, and markets.
Consolidation can also be a good thing for investors. When a company is acquired, it’s typically done at a premium to the company’s current market value, which can result in big gains for shareholders.
On the other hand, some investors worry that consolidation can lead to less competition, which can be bad for consumers. That’s why it’s important to keep an eye on trends in the industry and look for companies that are well-positioned to succeed, regardless of what’s happening with the competition.
8. There’s a greater emphasis on security and privacy
With the rise of technology comes the rise of cyber threats and privacy concerns. As we’ve seen with countless data breaches in recent years, customers are increasingly concerned about how their data is being handled.
As a result, security and privacy are now top priorities for businesses of all sizes. That’s why many of the best SaaS companies are investing heavily in their security and privacy measures.
For example, many SaaS companies are now offering end-to-end encryption to protect their customers’ data. They’re also investing in things like advanced firewalls, multi-factor authentication and regular security audits.
By prioritizing security and privacy, SaaS companies can build trust with their customers and gain a competitive advantage in the market.
9. More SaaS companies are going public
The SaaS industry has been one of the most active in terms of initial public offerings (IPOs) in recent years. Many SaaS companies have gone public, and several have done so through direct listings or special purpose acquisition companies (SPACs).
For example, Snowflake (NYSE: SNOW) went public in 2020 through a traditional IPO and was one of the most successful debuts in history. Meanwhile, Palantir (NYSE: PLTR) went public through a direct listing, and C3.ai (NYSE: AI) and UiPath (NYSE: PATH) went public through SPACs.
This trend is likely to continue in the coming years, as the SaaS market grows and more companies look to tap into the public markets. Investors should keep an eye on the SaaS industry for potential IPO opportunities.
10. The subscription model is evolving
The subscription model has been one of the biggest trends in the SaaS industry for the last decade. It’s what’s allowed companies to grow so quickly and become so valuable. But the subscription model itself is evolving.
There are now all kinds of different ways that customers can pay for SaaS products. Some companies offer usage-based pricing, where customers are billed based on how much they use the product. Other companies offer “pay as you go” options, where customers only pay for what they use.
There are also companies that offer “lifetime” deals, where customers pay a one-time fee to get access to the product for life. And, of course, there are companies that offer free trials and freemium models.
The point is, there are more ways than ever for customers to pay for SaaS products. And companies that can offer flexible payment options are likely to see higher customer satisfaction and retention.
11. The future of work is changing
The COVID-19 pandemic has changed the way we work. Remote work, flexible work hours, and the gig economy have all taken center stage over the last few years. And software companies are taking note.
The future of work is one of the most exciting trends in the software industry today. Companies are developing new tools and technologies to help businesses adapt to the changing work environment. From communication and collaboration to project management and team organization, there are countless opportunities for software companies to help businesses work smarter.
The future of work is also a huge opportunity for software investors. Companies that are able to capitalize on this trend have the potential to grow rapidly and create a lot of value for their shareholders.
Conclusion
The SaaS industry is an exciting place to be right now. With the number of new apps and tools being released every day, it’s no surprise that the industry is growing at such a rapid rate. To stay ahead of the competition, keep an eye on these trends and think about how you can implement them in your own business.
Glen Harrows