IndustryThe Evolution of SaaS: 4 Trends To Watch In 2019

Ismael Wrixen3 weeks ago86115 min

The Software as a Service (SaaS) industry is now worth $116 billion worldwide. By 2020, this figure is expected to reach in excess of $130 billion. With companies like CultureIQ and AppZen following the trail blazed by Salesforce, SaaS businesses are on the rise.

However, customer expectations are quickly changing and businesses need to adapt or be left behind. In this post, we will analyze four key ways in which SaaS will evolve in 2019:

Incorporation of Artificial Intelligence (AI)

AI is no longer the “new kid on the block.” In fact, you could argue the beginnings of AI could be seen as far back as the 1950s. The following six decades of development has led AI to become an integral part of our everyday lives.

Your Amazon Echo, chatbots, and Uber all rely on AI. The technology uses data and algorithms to predict, recommend, and automate processes covering anything from accounting to emails.

In 2017, Salesforce sought to “democratize AI” by making large parts of its Einstein package available to all its users. The company, which was a relative latecomer to AI, reinforced its position as a market leader for automated CRM solutions.

Tellingly, AppZen, which offers automated auditing using AI, is the second fastest growing SaaS company in 2018 – recording 150% growth in the last six months – almost double that of the third-placed business.

Let’s take a look at which areas AI is supporting SaaS applications:

Personalization

One of the common misconceptions of the digital age is that companies are becoming more generic and less personalized. AI and data are driving SaaS businesses to offer highly personalized services. For example, user interfaces can be customized based on the customer’s history and how they’ve previously used the platform.

Without AI or any level of personalization, these interfaces would be crammed full of options and features. By utilizing the user’s data, SaaS companies can set up the options on a highly personalized basis.

Automation

As we’ve seen with AppZen and Salesforce, AI is a driving force behind automation in SaaS. Chatbots are another feature where common questions can be answered by a machine rather than a person. The main benefit of automation is that it enables businesses to respond to customer needs with less reliance on human resources.

Enhanced Security

With data security being an ever increasing issue in the digital world, it should be a priority for any SaaS business. Once again, AI is stepping in.

Oracle has recently announced it was bringing in AI and machine learning to its cloud security services in order to automatically detect and eliminate threats. As Oracle EVP, Steve Miranda says:

“Two years from now, we’ll probably be talking about a whole new set of things in this category that probably none of us is even thinking about today.”

These are just some of the ways AI is making SaaS more accessible and user-friendly. The fastest growing businesses have embraced AI, and the biggest did so two years ago. It’s now a fixture on the SaaS scene.

SaaS to PaaS

As with any industry, more established SaaS businesses switch their focus from customer acquisition to retention. Platform as a Service (PaaS) is one such solution.

It allows you to rapidly add new applications and quickly deploy code, a process that would otherwise take months. It enables SaaS companies to be more responsive to customer needs and dedicate more resources to development.

Content management platform, Box, is one such SaaS business which has embraced PaaS. For further technical details and the benefits PaaS can bring, I recommend reading this article on the ZNetLive blog.

Incorporation of Blockchain

Unlike the previous trends, this one is yet to gain traction. At present, blockchain and SaaS operate as different entities with little interaction between the two.

As Stephen Cummins, founder of AppSelekt, speculates:

“One of the SaaS verticals that blockchain is predicted to heavily disrupt is government. Auditing, compliance, distributing benefits, tax collection and government borrowing could all be revolutionised by blockchain.”

Cummins cites the example of Estonia, already one of the most digitalized countries in the world incorporating blockchain into its health services.

“Anyone that has visited a doctor in Estonia will have an online, trackable e-health record. KSI Blockchain technology is close to being rolled out to enhance this system in the near future, with the goal to ensure data integrity and protect against internal threats to the data.”

Blockchain is also disrupting the payments industry. Though it’s still primarily associated with cryptocurrency, the technology is being applied to mainstream transactions.

For example, Mastercard has started to use blockchain to facilitate B2B payments, addressing the challenges of speed, cross-border transactions, and transparency. Visa is also following the same path. The idea is to make the payment process and transactions more secure.

It’s inevitable that blockchain will become integrated into SaaS companies, much in the same way as AI.

Transaction-Based Payment Models

Traditionally, SaaS companies have operated on subscription models, where users pay a set fee monthly or annually. It’s a model which has served business and customer well due to its stability and convenience. For B2B services, such as email marketing, content management, and CRM – this will continue to serve as the most suitable payment model.

However, as new SaaS companies emerge and become increasingly varied, then a transactional model may prove to be the better option. Otherwise known as the “pay-per-use” (PPU) model, it works for businesses which facilitate one-off products, like t-shirt printing or a service with a relatively limited time-frame such as tax return services.

You should analyze your metrics and decide which payment model works best.

Additionally, you need to consider the cash-flow of your business. SaaS companies are known for having severe cash-flow issues at the early stages, and a PPU model would only exacerbate this. Focusing on annual subscriptions would help bring stability and build a strong foundation for your business.

At the later stage, when you have a steady customer base, you can then add the option for PPU. By offering flexibility in payment options, you can potentially add new customers and grow your revenue.

Wrap Up

SaaS is evolving before our eyes. With a market value of $116 billion worldwide, the industry is looking as strong as ever. The emergence of AI and blockchain will present businesses with new, lucrative opportunities. PaaS offers SaaS companies flexibility by offering customized solutions for existing customers, thereby improving retention. Adopting PPU models can also help a business attract new customers.

By adapting to the changing landscape, SaaS companies are well-placed to enjoy long-term, sustainable growth. The keyword is flexibility.

Ismael Wrixen

Ismael is an Editor at SaaS Mag and CEO of FE International, the leading M&A advisory firm for online businesses. Ismael has overseen the sale of hundreds of millions in online businesses, including the sale of the popular accounting software, Less Accounting, and the acquisition of Drip by Leadpages. He is also an active investor in SaaS businesses, sits on the board of numerous exciting SaaS start-ups, including MageMail and MRR Media and is and a member of the Forbes Finance Council. Ismael’s previous background was in large-cap M&A investment banking, where he executed several high profile public deals namely in the Technology sector.

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