SaaS in 2020: Growth Trends & Statistics
Wildly popular SaaS solutions aren’t going away any time soon. Thanks to their ease and affordability, Gartner anticipates that SaaS solutions will generate revenue close to $105 billion in 2020 alone. That is $20 billion more than Gartner estimates for just a year ago, in 2019. Surely this jump is due to the global pandemic, forcing companies to pivot to remote work—with SaaS solutions among the easiest to adopt and roll out.
Let’s take a look at other estimates, trends, and statistics that indicate how much we’re pivoting to SaaS solutions.
Though global IT spending might be down as businesses and economies suffer, cloud growth is the bright spot, with cloud spending expected to rise 6.3% year over year.
Among cloud options, the outlook for SaaS is arguably the brightest. After all, the overall growth of the SaaS industry will remain consistent through these years as more companies adopt SaaS solutions for a variety of business functions, extending far beyond the initial SaaS territory of core engineering and sales applications, fueled by SaaS trailblazer Salesforce’s model and immense growth.
But does SaaS remain the clear leader across all cloud services? That might be a harder argument to make.
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As the first cloud service to truly take off, SaaS has a significant lead on other cloud services. Gartner estimates that SaaS will continue to maintain its dominance. In terms of revenue:
The SaaS growth rate—how quickly it is growing—is beginning to slow, however. Looking at compound annual growth rate (CAGR) projections over a five-year period, SaaS is expected to grow 12%. Other cloud services, notably Infrastructure as a Service (IaaS) and Platform as a Service (PaaS), will grow faster, as these initially immature technologies have reached the Plateau of Productivity.
The SaaS market is reaching a higher revenue size than both IaaS and PaaS combined—at least for the time being. Ultimately, though SaaS might begin to slow this year, geo-economics may reverse that slowdown. By 2022, SaaS is still expended to generate double the revenue of PaaS and significantly more than IaaS.
We can also look at SaaS success in terms of the companies that make those products. In January 2020, the 10 largest publicly owned SaaS companies, per market cap, were:
A common misconception is counting Microsoft and Oracle among SaaS. We realize, however, that a significant portion of their revenue comes from selling on-premise software—so while they’re huge tech companies, calling them SaaS providers is a misnomer.
This demand for subscription-based pricing model, however, is spurring legacy companies to rapidly migrate their software solutions to a SaaS consumption model.
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This means strong potential for growth of SaaS products in the coming years as their Total Cost of Ownership (TCO) matches that of the on-premise software deployment models. Organizations dominating the enterprise software space—IBM, Oracle, Microsoft, and SAP—will likely maintain their market share for enterprise software products, as a growing number of customers can take advantage of the same product capabilities with the feasible subscription-based pricing model.
Of course, SaaS growth doesn’t stop with revenue projections. SaaS acquisitions feels as if they’re happening daily, as bigger companies look for the next big SaaS thing. Stability of the economy and investor interest in scalable cloud solutions have encouraged entrepreneurs, innovators, and enterprises to develop new SaaS solutions.
Notable SaaS acquisitions from just the summer of 2020 include:
Significant SaaS IPO news of the last year:
These numbers are expected to increase at similar growth figures in the coming years as organizations increase public cloud spending for the near future.
We can also measure SaaS growth in terms of adoption: are customers using more, less, or the same number of SaaS products?
The number and type of users of SaaS products has increased rapidly in recent years. Though initially positioned as ideal for SMBs and startups, companies of all shapes and sizes are finding SaaS a palatable, affordable solution that empowers agility and digital transformation.
Recent research finds that:
However, the rate of SaaS usage growth is consistent across organizations of all sizes. The growth is driven both by internal requirements attributed to:
The proportionality of SaaS adoption to workforce size is attributed to several factors:
Customers are increasingly adopting the subscription-based pricing model to satisfy growing IT needs—despite limited IT budgets particularly for SMBs and startups. Established enterprises aren’t looking down at SaaS either, despite their size. Instead, they’re wholeheartedly embracing the ‘as-a-Service’ business model to satisfy diverse needs with agile, modern solutions.
The result is a suitable business environment that facilitates healthy competition among SaaS vendors while the market demand continues to increase exponentially.
Research suggests that the number of competitors for SaaS firms starting around 2012 were less than three on average. By the end of 2017, every SaaS startup faced competition from nine other firms competing in the same SaaS market segment. Considering the example of SaaS marketing solutions, the number of products increased from 500 to 8,500 between 2007 and 2017.
SaaS growth rates, IPOs, and acquisitions all indicate this trend is not ending anytime soon.
From a customer perspective, SaaS products offer a variety of benefits:
SaaS technologies have made it easier for enterprises and software vendors to effectively deliver the necessary features and functionality to end-users, ultimately contributing to the popularity of SaaS solutions over on-premise software products.
For more on SaaS and IT trends, explore these resources: