SaaS Trends for 2018 in Action
A new year is often a time to reflect on the past and to look towards the future. In the Software-as-a-Service (SaaS) space, the door for innovation is always open.
In 2017, the global SaaS market was estimated to be worth $58.6 billion USD, with projections for 2018 reaching $71.2 billion USD. This explosive growth doesn’t seem to be slowing down anytime soon; the forecast for 2020 projects the worldwide SaaS market to be worth nearly $100 billion USD.
In fact, SaaS is currently outpacing the world economy’s rate of growth by nearly five times. The space was set to hit a compound annual growth rate of 15.5% by the end of last year, compared with the 3.2% global rate of growth seen in 2017 and projected for 2018 as well.
In order to join the ranks of a successful SaaS company in 2018, it’s important to be in the right market with a validated product that is executed especially well. Beyond that, the product must actually solve a problem for customers or fulfill a need within the market in order to be viable long-term. Taking into account where the industry is heading, and incorporating that direction into a product’s development, is a surefire way to leap ahead in this highly competitive and innovative sector.
So without further ado, let’s take a closer look at some of the exciting trends for 2018 in the world of SaaS! We’ll pay particular attention to how these trends are playing out within our own wheelhouse, evident in many of the companies that Alacrity Global and the larger Wesley Clover family invests in and supports throughout their growth.
Using Build-on-Top & SaaS-enabled Marketplace strategies
Totally original solutions are challenging to come up with in the current market. As new companies enter the space to try to capture some of the market share and SaaS veterans look to maintain their own positions, unique answers to common problems will only get increasingly difficult to come by. Building software on top of existing platforms is a good way to get around the ingenuity conundrum.
Creating SaaS that uses an already established platform as its basis has a number of advantages. Most significantly, it can reduce the initial costs of building out the necessary basic infrastructure, improving financial figures for the trailing twelve months (TTM). By producing added value for a common solution, for example, by using a widespread, well-known, generic Customer Relationship Management (CRM) solution as the foundation, and then building out specific solutions for other vertical use cases on top of it, a new SaaS company can also reduce their time-to-market (another TTM that matters).
English Ninjas, a recent addition to Alacrity Turkey’s portfolio, uses the Build on Top strategy to deliver their English tutoring platform to users. By building on top of existing services such as Mitel and CounterPath, they can offer their specific service to customers in an easily adoptable way.
SaaS-enabled marketplaces can use a similar strategy by partnering with existing industry giants to offer a more comprehensive service to customers. For example, AirVM leverages Amazon and VMware-powered cloud infrastructure to deliver a complete business management platform to its customers, allowing them to scale their cloud services on demand with the features they need. By offering both a standalone SaaS solution, alongside a marketplace that allows customers to buy or sell relevant services, these types of SaaS companies will pop up more and more in 2018.
Vertical SaaS outpacing horizontal SaaS
Vertical SaaS is another evident direction that the SaaS space is headed in. Vertical platforms focus on a niche market and have been getting substantially higher valuations than more typical horizontal SaaS platforms that focus on offering their services to a broader market to reach scale.
These types of platforms are generally easier to adopt by customers since they are specifically designed to address their needs. They also tend to be highly referrable solutions since there are often limited choices (if any) within a given niche market. Once a well-executed SaaS offer does become available, referrals and a high rate of adoptability can result in quick scaling, as well as in lower customer acquisition costs for the company.
Cliniconex is a vertical platform that focuses on offering a tailored SaaS solution to Canadian physicians and other healthcare professionals. By delivering features that are particularly useful for doctors’ offices and clinics, such as managing patient reminders and appointment confirmations from a seamless integration with most North American electronic medical record (EMR) systems, Cliniconex can alleviate some of the pain of schedule management so that care providers can offer better overall care to their patients.
Prioritising Integrations and developing APIs
Speaking of integrations, this will continue to be a pillar of the SaaS sector in 2018. By developing solutions that easily connect to existing targeted and/or industry-neutral solution(s), and by ensuring that the solution can easily connect to other solutions later on through building out application programming interface (API) functionality, new SaaS companies can ensure they will be relevant for years to come.
Prioritising integration is increasingly important for SaaS companies as the future will only come with a more granular need for systems, both internal and external, to work together. As SaaS solutions continue to become an intrinsic part of the way that most modern businesses operate, ensuring that integration is an option will also help to eliminate the problem of shadow IT at the enterprise level.
Mitel’s Cloudlink API, for example, allows users to connect various communication channels together, while also giving them access to the Internet of Things (IoT). Other popular API connectors include Zapier and IFTTT.
Adopting Machine Learning & AI
SaaS solutions have the capability to create infinite amounts of consolidated customer data. A fundamental part of machine learning is data and, by anonymising data and using it to power machine learning and artificial intelligence (AI), SaaS companies can develop a positive feedback loop, using data inputted into AI to continue product development in order to deliver an overall better service for customers.
MindBridge AI, an Ottawa-based company, uses AI to offer accountants with a SaaS solution that automates some of the more complicated data analysis for them, delivering reliable insights that they can use.
Similarly, Solink is in the process of adding AI to their loss prevention platform.
As SaaS platforms continue to grow and gain more customers, finding ways to keep them engaged with a particular solution will be an important part of reducing churn, increasing upsells, and propelling users from trial state to paying customer quicker.
Getting to know what each user likes and dislikes, and giving them ways to customise a platform to reflect those preferences, will work towards the success of a SaaS solution. The hyper-personalisation trend, especially when paired with AI and easy automation, can provide customers with added value, while boosting the results of a SaaS company.
For example, Segmentify uses advanced AI technology to get to know each of their customer’s customers. It then is able to offer hyper-personalised product recommendations and moment-relevant engagement points to increase sales for Segmentify’s users.
Similarly, SaaSquatch’s recently launched growth automation platform will empower customers to offer hyper-personalised rewards to their users, based on granular variables that engage them at optimal moments.
Next generation UX
Getting more output, while reducing manual input, will be a critical aspect of next generation user experience (UX) practices. Having a platform that offers engaging UX that learns and acts as users use it will be an interesting (and innovative) way to combine various aspects of all of the trends we’re seeing for 2018.
Conversational bots and forms are starting to be more commonly used in SaaS as ways to qualify customers and place them in the right bucket, before a human even beings to interact with them. This saves people power within a company, while simultaneously helping users progress through a particular flow uninterrupted.
Benbria does this through instant messaging options, providing customers with a customisable way to engage with their users to build more meaningful relationships with a particular brand. Similarly, Pisano allows its clients to gather critical customer feedback through interactive flows across numerous channels. By providing real-time engagement through next gen UX, both companies are able to increase customer interactions that result in important insights.
Data-as-a-Service (DaaS) is another trend that’s taking hold of the sector in 2018. DaaS provides companies with an opportunity to turn the data they already collect internally into a potential new external offer. This is done by giving customers on-demand access to anonymised data that can help them improve their own services.
The data that gets created throughout the lifecycle of a SaaS product is invaluable, both internally and externally. By either offering access to the data as an added value, or by building services on top of the data that analyse or repackage it in insightful ways, a company can make additional use of a resource they’re already harvesting.
Both Tutela and Echosec, Alacrity Canada portfolio companies, have a DaaS component included in their services. This allows them to provide their customers with an additional offer, beyond their SaaS solution, that can help them gain powerful business insights.
Data protection & Cybersecurity
With great data production comes great responsibility, as we’ve seen illustrated throughout the cybersecurity debacles of 2017. Protecting online data is a particularly significant part of becoming a successful SaaS company in 2018.
As new regulations come into effect in the EU, ensuring that user data is secure and protected and that accountability for breaches is upheld, SaaS companies that operate in the cybersecurity space are (and will continue to be) in high demand. For new solutions, being aware of how to protect user data properly will be a critical first step to product development.
HYAS operates in the information security space, using intelligence to identify threats of attack. By looking at historical records as well and connecting these to previous threats, HYAS delivers more insight into security information and event management efforts.
The 2018 trajectory for the SaaS space
The trends for 2018 in the SaaS space are set to make for an interesting year, full of innovative companies joining this explosive market. Whether building on top of existing platforms or creating a SaaS-enabled marketplace to capture market share quickly, or whether they choose to focus on a vertical that needs a niche solution, SaaS companies should think about longer term growth by prioritising integrations and APIs. By adopting elements of machine learning and AI, they’ll be able to create hyper-personalised, intelligent platforms that can be even further enhanced by next generation UX. Looking at data, companies can begin repurposing the data they already gather to offer new DaaS solutions to customers. However, ensuring that data protection and cybersecurity is a pillar of any solution will be the key to succeeding in the -as-a-Service space in 2018 and beyond.
We’re looking forward to seeing how this exciting space continues to develop, particularly through the lens of our own portfolio companies.
Speaking of exciting things, Alacrity Global is pleased to announce the production of a podcast called “Between Two Termsheets” in which our expert team will delve further into the financial and investment environment that this year brings with it. Stay tuned.
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