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Could The Next Decade Be The Golden Age of Software-as-a-Service?

The Blue Water Team

This article by ARK Investments highlights the significant investment potential presented by software-as-a-service (Saas). SaaS refers to software that resides on the cloud instead of on individual computers and that is accessed on a subscription basis. Its easy access, minimal required hardware, and other benefits make it an appealing choice for consumers, while software companies prefer it as a business model because of advantages such as the predictable income provided by subscriptions and the ability to produce software at a lower cost. 

SaaS companies have flourished, thanks to low startup costs and the increased demand for specialized software occurring in businesses that are adopting digital transformation. Between 2009 and 2019, venture capital investments in SaaS increased from $7 billion to $44 billion. At the same time, cloud computing eliminated the need to build data centers to handle new software, making it easier and more appealing than ever for SaaS companies to flourish. 

Digital transformation has also played a role in the growth of SaaS businesses. Digital transformation is the adoption of technology to improve or transform business models to better serve customers. Digital transformation creates a market for powerful and disruptive software in every industry. SaaS businesses are assisting with the digital transformation of untold numbers of companies, increasing demand for these services. 

When it comes to investing in SaaS companies, choosing enterprise-focused businesses rather than consumer-focused businesses is a smart choice thanks to the fact that these businesses far outnumber consumer-focused companies. Between 2008 and 2020, enterprise software IPOs performed three times better than consumer tech companies in the United States. 

Over time, SaaS could merge with most aspects of software, as both traditional businesses and software IPOs adopt SaaS models. ARK estimates that by 2030, SaaS will account for 80 percent of the software market. 

After 15 years, now is the time for SaaS to grow. Five trends account for this new focus on SaaS industry investments: 

Ability to Bypass IT

SaaS makes it possible to bypass the IT department, leading to faster implementation of desired technologies. The cloud-based nature of SaaS also eliminates the need to purchase hardware and makes it easier to access and use desired software solutions.

Broad Reach

Since 2005, SaaS' potential market has expanded from use in specific departments to every information worker in the country. As a result, the total available market (TAM) of SaaS has expanded to $50 billion worth of potential business in the U.S. 

Affordable Strategies for Customer Acquisition

SaaS businesses are developing methods of earning new customers that cost less than traditional approaches. 

AI Platforms

SaaS can provide the data, analytics, inferences, and predictions necessary for AIs to operate effectively. 

Pandemic-Driven Remote Work

Finally, the shift to remote work created by the global pandemic is driving the demand for software that can be accessed and used as easily from home as from the office. 

Thanks to these trends, SaaS should come into its own, experiencing significant market growth and providing an appealing investment option over the next few years.