SaaS 101: The Data Behind The Acronyms

SaaS — software as a service — is a huge subscription industry segment in which users pay on a recurring basis to use apps and computer programs. But what does it all really mean?

Source: Bigstock

“Software as a Service,” or SaaS, is a huge part of the cloud computing revolution, especially for small-to-medium business and for large enterprise users. Programs that used to run on mainframes and desktop computers are now cloud-based apps with even greater utility than ever. As they pay for ongoing access to these software services, firms that use the cloud (giving up the old model of software updates installed on local machines) become steady customers. And that makes SAAS a very lucrative part of the subscription ecosphere. Just how lucrative?

(Source: Forrester via Statista)

That’s a forecast of $92.8 billion in 2016, topping $100 billion worldwide in 2017, and you see that Forrester is bullish on future growth. That’s a forecast based on 2014 data, however. If you go to other sources, you get different answers. Here’s Gartner:

(Source: Gartner)

That’s more recent data, and it looks at the entire cloud-based ecosystem of products, of which SaaS is only a small part. According to Gartner, SaaS in 2016 totalled $38.6 billion worldwide, not $92.8. And in research from IDC, the answer (for 2015, admittedly), is also different:

(Source: IDC via SaleForce)

In 2015, that’s 73% of a $67 billion pie, or a total for SaaS of $48.9 billion. Bump that up say 16% (a number that I did not pull out of my hat, but which is based on this Forbes article) to get something in the neighborhood of $56.7 billion worldwide in 2016. Well, let’s throw out the optimistic 2014 Forrester prediction and say that global SaaS revenue is somewhere in the $38 to $57 billion range.

The historic increase (and predictions for future growth) in all of this tech service revenue has its roots in the evolution of computers. No longer is the dominant model one of devices that you pay for and load software on. Instead, companies subscribe to these services, on a month-to-month basis, say, in order to take advantage of a number of remarkable benefits: First, tech costs change from capital investments to a fixed, regular expenses — not to mention a lower cost of entry. Plus the service does all the administration, saving the company the pain of tech upgrades, information security, and a large IT staff. Since the service can supply more or less capacity, SaaS is very scalable. And since it is cloud-based, it is very mobile.

There are downsides too, of course. A company may find itself locked into a particular provider, and locked into that provider’s quirks. And as with all cloud services, when the Internet goes down, or when a particular service goes down, it can be crippling. And in this age of Equifax and Yahoo hacks, your security is only as good as your service providers.

Moreover, the diverse array of different services can be confusing. Part of the problem is the alphabet soup of ways to divide up the tech cloud. In the IDC pie charts above, there are these three top-level acronyms:

  • IaaSInfrastructure as a Service. That’s when you run your hardware remotely, on “virtual machines,” such that the customer does not have to invest in servers, storage and networking hardware.
  • PaaSPlatform as a Service. Here the provider provides base-level software, such as operating systems.
  • SaaSSoftware as a Service. In this case, the provider supplies the computer program, or application, or app, which runs in the cloud.

I like this graphic from SearchCloudComputing that explains it this way:

That’s the big picture view, but when you get closer, there are even more acronyms to parse. Take a look at some of the different kinds of SaaS services.

 

ENTERPRISE CONTENT MANAGEMENT (ECM)

Think of ECM as a company’s file cabinet. This is software used to organize documents and other kinds of content. Done right, that includes version tracking, user access management, database storage, and archiving. In an age when content is king, there’s a lot of revenue in ECM:

(Source: Radicati Group via Statista)

ENTERPRISE RESOURCE PLANNING (ERP)

More commonly used by larger companies, ERP is most often a suite of services with plug-in modules that facilitate business needs such as

  • Distribution process management
  • Supply chain management
  • Services knowledge base
  • Configure prices
  • Improve accuracy of financial data
  • Facilitate better project planning
  • Automate the employee life-cycle
  • Standardize critical business procedures
  • Reduce redundant tasks
  • Assess business needs
  • Accounting and financial applications
  • Lower purchasing costs
  • Manage human resources and payroll

But the key to ERP is that all these modules talk together, accessing a single shared repository of information, so that it all functions more efficiently. The growth path for ERP is similar to what we see above for SaaS in general:

(Source: Gartner via Statista)

SUPPLY CHAIN MANAGEMENT (SCM)

From factory floor to warehouse to distribution center to retail store, it all needs to be overseen, tweaked, controlled, and coordinated. That’s what SCM software is for — to coordinate the movement of goods across as many companies as needed, so that the entire chain is part of the system. Manufacturers, wholesalers, and retailers are the primary customers.

(Source: Gartner and Accenture via Statista)

PROJECT AND PORTFOLIO MANAGEMENT (PPM)

According to Leankit, PPM is “a process used by project managers and project management organizations (PMOs) to analyze the potential return on a doing a project. By organizing and consolidating every piece of data regarding proposed and current projects, project portfolio managers provide forecasting and business analysis for companies looking to invest in new projects.” The software package lets project leaders merge projects into a single portfolio that will provide reports based on the various project objectives, costs, resources, risks, and other pertinent associations.

(Source: Gartner via Statista)

DIGITAL CONTENT CREATION

The philosophy of subscribing to software has spread into content creation, most notably with Adobe’s Creative Suite. Also, office suite software has started to trickle into this category. This is the area most likely to be known to consumers by its subscription model, since most other cloud-based services, from email to file sharing to social media, operates on a free or freemium basis. There’s some serious revenue in this segment as well, even if it does not have an obscure acronym:

Source: Bigstock

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(Source: Gartner via Statista)

But aside from content creation, pretty much the cast majority of SaaS revenue comes from corporate accounts subscribing to business applications. That has for a very long time been the primary way that large enterprise-scale companies have operated. But there has been a recent push to sell cloud service subscriptions to much smaller companies, and they have an acronym of their own: small and medium-sized enterprise (SME) firms. You also see “SMB” out there; the “B: is for business. Human resource and payroll services are commonly marketed to these companies, which may not have the staff or resources to run HR departments of their own.

John Davis, the managing director of BCSG, sees it this way:

  • Our research shows that nearly two-thirds (64%) of small business owners already have an average of three [cloud] solutions in place. These are currently addressing such well-established needs as email and websites. As awareness grows and software solutions become more effective at meeting SMB needs, these numbers are set to increase with a potential overall market growth of 72% in the next 3 years.

Better Buys’ 2016 Report on the State of SaaS is similarly optimistic that SMEs will increasingly turn to cloud-based subscriptions:

  • 64 percent of small and medium businesses today rely on cloud-based technology to drive growth and boost workflow efficiency, according to research from BSCG. And 78 percent of businesses indicate that they plan to expand the number of SaaS platforms they use over the next three years, raising the average number of applications used from three to seven.

ZDNet sees the same trend:

  • SaaS applications are a natural fit for startups and small businesses, which are unlikely to be attracted by the prospect of deploying and managing on-premises infrastructure and applications.

Insider Take

The tech industry is moving away from the media model; software is no longer like a book or a song that you buy. Instead, it is a service that you rent. By offering clients a large degree of freedom from upgrades and installation and staffing for back-end operations, software service providers reap the benefits of the subscription business model, from regular steady income to the end of pesky piracy and intellectual property worries. When it’s all in the cloud, according to the providers and the large majority of their clients, everybody wins.

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