Despite the pace of change in recent years, the growth potential of SaaS is still enormous. One reason growth will continue is the speed with which SaaS functionality is increasing. It is like there is a new Moore’s Law. The functional capability of SaaS products you can buy for $1 will double every 12 months. This means value and quality are growing in tandem.
Since I started to focus on the SaaS world I have been amazed. Almost every week I discover a product that I believe offers unbeatable value. Then I click a link and see something even better. Apps seem old fashioned and limited almost overnight. We all know that SaaS is only taking a small part of the legacy software market.
The increase in quality means the growth potential of SaaS is even more enormous. There is a major market shift taking place in the software industry. But legacy, licence based revenues are still dominant. This will not last, regardless of market and economic conditions. We will see the amount of technology bought as a service rise in the next few years.
How Much SaaS For A Dollar?
But the market is not the only source of growth. SaaS is fuelling a massive increase in software functionality and business intelligence. This leads to a new form of Moore’s Law:
“The functional capability of SaaS products available for $1 doubles every 12 months (or less?)"
I have no idea how to measure this but I can see and feel that it is happening. There are three solid reasons for tis trend:
In the short term it is also true that investment fuels this growth. Investment will not always be there. The current boom will end one day. But software will keep getting better even without the waves of cash.
The business world is not yet taking full advantage of this trend. I suspect we are approaching a tipping point. Lots of enterprises have made small investments in SaaS. Transferred non core functions. Or used SaaS for a new project. Replacement cycles and tight capital budgets will soon lead to a major acceleration. SaaS is about to go mainstream.
Once SaaS is established the ability of business to take advantage will be much greater. Conservatism and inertia will weigh less heavy. Rapid improvements in functionality. And much better information to support decisions. These will lead to immense benefits for the wider economy. Everyone will win.
Speed of change and adoption is still a challenge for every customer. For SaaS companies the objective is to win loyalty now. And stay in the game long enough to take advantage of broad growth when it arrives. Of course, also keep offering better software and more features.
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Kenny Fraser is the Director of Sunstone Communication and a personal investor in startups.