First, let's start by defining SaaS for those who may not be familiar. Software as a service (or SaaS) is a way of delivering software through licensing or a subscription where the platform is accessed online rather than bought and installed on individual computers.
On a personal level, fewer and fewer people even remember the era when installing new software on your computer required a drive and a trip to Best Buy. Nowadays, no one buys their applications in a brick-and-mortar store and it's hard to find a computer that has a drive. That's because the software you use on your personal computer is delivered over the Internet—thanks to SaaS.
Think about Microsoft Office Suite for example. Nowadays, you pay monthly or annually to get access to the applications like Word, Excel, Powerpoint, etc. This is a SaaS model, and an evolution away from the old days where you installed Word via a disc you bought at the store.
On a business level, SaaS industries are more impactful. SaaS is transforming company IT departments from cost centers to value centers. Constant innovation is enabling a growing number of companies, estimated by Gartner to be 55% of all US companies by 2025, to go beyond using SaaS tools like Buffer and Dropbox, along with tools from Adobe, Microsoft, and Slack, to implementing an all-in cloud SaaS strategy.
Any SaaS industry overview links to the enormous growth of the industry to these SaaS industry trends to keep an eye on in 2022:
- Commodization of technology, viewing SaaS as a profit center for its consumers.
- Changing customer expectations and increased focus on customer experience, moving to outcome- and value-focused solutions.
- And the main driver of SaaS trends in 2022, the opportunity for new revenue streams provided by SaaS, such as AI and machine learning, no code solutions, and more.
As the number of SaaS companies passes 15,000, the types of SaaS products can be categorized as business-to-business (B2B) and business-to-consumer (B2C). B2B companies are businesses that sell to other businesses and B2C businesses focus on serving the needs of everyday consumers.
At High Alpha, we specialize in conceiving of and scaling B2B SaaS startups as a venture studio. In fact, we stay abreast of SaaS trends by hosting a weekly podcast with SaaS founders, investors, and leaders called Speaker Series Rewind. Below are some of the SaaS trends we are paying attention to.
Saas Trends 2022
In its analysis of SaaS market trends, Gartner estimates that worldwide end-user spending on public cloud services grew 23.1 percent in 2021, to $332.3 billion, up from the Gartner Public Cloud Magic Quadrant 2020 estimate of $270.2 billion. Of that amount, cloud application services or SaaS accounted for $122.6 billion. Gartner expects SaaS expenditures to reach $145.4 billion in 2022.
SaaS revenues are keeping up with the cloud services sector as a whole. The Gartner SaaS Magic Quadrant report estimated that SaaS accounted for 38 percent of worldwide cloud computing expenses. In their 2022 estimate of SaaS market size, Gartner estimates that SaaS will account for 36 percent of the global cloud services sector.
What's Driving the Growth of SaaS?
As energetic entrepreneurs explain in great detail in the High Alpha Speaker Rewind Series, companies are finding that the usage and adoption of cloud computing that served them well before the pandemic will look very different in the near future. Cloud adoption statistics for 2021 from sources as varied as the Harvard Business Review, Flexera, and Kentik confirm that cloud management has evolved from relatively pedestrian concerns such as application and infrastructure migration to technologies that combine cloud computing with technologies including the Internet of Things, machine learning, and more.
There have been no shortage of obstacles due to the global pandemic and the myriad of challenges that came along with it. The pandemic has forced many companies to rapidly transition to the cloud. As a business that is in the business of starting SaaS companies, we've also experienced massive adoption in the past 18+ months. In response to these challenges, we started more companies in 2020 than any other year throughout our firm’s history.
The cloud will be serving as the glue between different technologies of which organizations everywhere wish to make greater use. In many cases, companies will leapfrog into the latest technologies. The founders of the early-stage software companies in which High Alpha invests will be engines of disruption in their industries.
Saas Market Size
As SaaS becomes more and more important to the adoption of innovative new technologies, the SaaS market will become more focused on B2B than B2C. How many B2B SaaS companies are there?
SaaS industry statistics provided by the Leftronic SaaS market overview answer this question in two different ways.
- There are 6,829 SaaS companies in the marketing space alone. Challenges that call for robust solutions that depend on a solid hardware base are challenging for SaaS startups. But a multiplicity of servers may make data breaches less common. This is the reason the sector isn't becoming oversaturated.
- While SaaS industry statistics tell us that just 31 percent of the 32.5 million businesses in the US depend on cloud computing now, a whopping 55 percent are expected to adopt cloud computing over the next three years. That is 7.8 million new customers between now and the end of 2025 to expand B2B SaaS market size and fuel SaaS industry growth.
Over $100 billion in new business opportunities will arise in the B2B SaaS market this year alone. Subscribe to High Alpha Jet Stream to get High Alpha updates on IPOs, new company launches, new products, and the latest SaaS news in your inbox every month. Let High Alpha help you stay up to date with our portfolio companies and the future of enterprise cloud.