In the past few months, businesses around the world have embraced cloud technology to pivot and survive. Cloud-based apps allow businesses to continue their operations remotely. However, if you have chosen cloud software for your business recently, you know that the SaaS industry is a crowded marketplace. For every single business requirement, there are hundreds, if not thousands, of vendors to choose from.
The pandemic has thrown the SaaS industry into sharp relief, highlighting both its shortcomings and its many advantages. It should come as no surprise that the industry is expected to grow this year to US$116-billion this year (up from just under $100-billion in 2019). But is that growth sustainable?
Even as the market adoption for SaaS grows, here are some other driving trends:
- Lack of profitability
SaaS is notoriously a low-margin business. The percentage of profitable companies in the SaaS market is, surprisingly, in the low single digits, despite the market growth figures. At a time when VC funding is drying up, only those vendors that can prove they are on track to be profitable will make themselves more visible and relevant in the future. Those that cannot make that leap will most likely be a part of someone else’s consolidation story.
- Rise of the Suites
In a bubble, features tend to masquerade as products and products tend to masquerade as companies. During a recession/depression, this reverses. Products become features and categories consolidate. This gives rise to product suites which are either built from the ground up or assembled through acquisition. Already, bigger SaaS players are strengthening their offering by either building new products, or more often acquiring companies.
A SaaS industry with tens of thousands of companies is unsustainable. How many CRM companies do we need? 10? 20? 50? We have more than 5 000 currently. This suggests that many of them are likely to be consolidated and in multiple areas. Oversupply combined with the rise of the suites suggests that consolidation is inevitable. – Read more