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Get to grips with the latest SaaS trends to break into the second half of the year informed and prepared to outpace your competitors.
It’s no secret that global businesses are tightening their belts to prevent going into the red. But there’s one expenditure item that gets its share of the wallet despite the downturn — and it’s SaaS.
In 2022, users spent over $167 billion on SaaS products. By 2024, this figure is projected to surpass $232 billion. The growth rate of software as a service platforms also bears out the pent-up demand – 179% year-over-year increase in 2022. But as profitable as it may seem, it’s important to know exactly what spots to hit and what features to leverage in your SaaS product.
In this blog post, our experts share their perspectives on the upcoming SaaS market trends and give their recommendations on how to maximize the value of each.
What will shape SaaS trends in 2023 and beyond?
SaaS industry trends can’t emerge from a vacuum. They stem from a range of important objective factors, which cause changes in how individuals and organizations perceive SaaS businesses.
Customer demand
As the SaaS industry is maturing, customer expectations are settling in. Today, SaaS users are adamant about the experiences they’re seeking, favoring dynamic pricing, personalization, and on-demand SaaS offerings. To fit the bill, SaaS market leaders engage on-demand experts to increase customer retention, revolutionize customer experience, gather user feedback, and iterate on it to release new features.
According to KPMG, SaaS providers now have to balance personalization with generic features, demonstrate a clear stand on Environmental, Social, and Governance (ESG) issues, and develop a clear understanding of what value means for customers. It’s not about software anymore, it’s about a branded digital product with a personal, yet subtle touch.
Competitive environment
With market leaders such as Shopify, Salesforce, and Adobe accounting for $185 billion to $315 billion of total market value, it might seem challenging for new businesses to make a statement and go against SaaS market consolidation. However, while certain segments are oversaturated, there is still a market entry for niche products, or vertical SaaS.
Concentrated categories with growth potential also include databases, artificial intelligence, and content management. A micro-SaaS model is another SaaS opportunity to hit it big. Similar to vertical SaaS, it’s tailored to a specific industry, but on a more granular level. Also, micro-SaaS solutions can be paired with existing as-a-service products, enriching their functionality.
Evolving regulatory conditions
A patchwork of compliance regulations and data security standards make it hard for SaaS providers to operate on both local and global scale. Along with well-known regulations such as HIPAA, GDPR, and others, new AI regulations have entered the scene. As a result, security and data governance audits have become more of a legal requirement rather than an optional state of checks and balances for as-a-service companies.
Interestingly enough, providers have to comply with customer security requirements first, before any legal audits take place. SaaS clients demand a transparent data policy, records on IT security audits, root cause analysis, and other safeguards. Without thorough regulatory and data security knowledge, providers are likely to lose their grip on this tumultuous landscape.
Technology advancements
Organizations are looking to further their digital transformation agenda and experiment with cutting-edge technologies like generative AI, edge computing, and IoT. Offered over the SaaS model, these technologies become easily accessible, persuading global businesses to choose ready-made solutions over from-scratch applications.
To offer technology advancements as an a la carte option, SaaS companies have to flex their product design and development to embrace cutting-edge tech. By the same token, an impressive 90% of businesses adopt the DevSecOps methodology to create a continuous integration and delivery pipeline apt for fast and secure releases.
Economic factors
It hardly needs saying that the economic landscape has real clout in shaping opportunities and challenges faced by SaaS providers.
During economic upswings, they may have more room to maintain or even increase their prices due to higher demand and market stability. By the same token, favorable market conditions nudge investors to provide more funding to SaaS companies, enabling the latter to expand their operations and develop new features.
Conversely, in tough times of belt-tightening caused by economic shake-ups, SaaS businesses have to deal with difficulties in customer acquisition and retention as well as investors’ concerns.
That’s why, to facilitate revenue recognition, SaaS providers should better define their offerings and value that comes with the cost of their solutions.
Investor expectations
Global Venture Capital (VC) funding fell 53% year-over-year in the beginning of 2023, making it difficult for SaaS startups to nab investor dollars. Yet, companies that generate profit at a sustainable rate and meet the bar of the Rule of 40 are still of interest to VCs.
According to The Rule of 40, the growth of a software company is deemed sustainable only when its combined revenue growth rate and profit margin equals or surpasses 40%. If the company isn’t able to beat the Rule of 40, then it doesn’t pass the health check and is considered to be a risky investment.
To operate at the Rule of 40, budding businesses have to establish a predictive view of customer health via advanced analytics and proactively identify cross and upsell opportunities through AI-based analysis.
Moreover, leading players operate at a higher speed-to-market, incubating new ventures faster than competitors. Available tech competence and IT talent are a must to grow fast and resiliently as companies are launching new features and business lines.
Make the pivot to as-a-service business
Keeping a pulse on top SaaS trends: business and tech
Over 85% of organizations expect an unprecedented 80 percent of all of their apps to be SaaS in the upcoming years. Let’s see what else the future of SaaS holds and what technologies to adopt now to stay prepared for the times ahead.
1. Vertical SaaS
Being industry-specific, vertical SaaS solutions tackle the problems a generic, ready-made application can’t. As opposed to horizontal SaaS, vertical SaaS providers have a thorough understanding of your business challenges, just like an industry insider, and allow you to consume an off-the-shelf application without complicated customization and plugins.
According to Apptension, the market for vertical SaaS is projected to reach over $157 billion by 2025, growing at a CAGR of 23.9%. Since the availability of industry-based cloud services is still low, providers can take advantage of the young market. As for the vertical SaaS trends, healthcare, insurance, and finance are now one of the most popular industries being redefined by vertical as-a-service solutions.
2. Micro-SaaS
Akin to vertical software as a service, micro-SaaS are skewed towards a specific industry, audience, and even specific use case. This business model has emerged in recent years as a response to the overvent SaaS market dominated by recognized players. As smaller SaaS businesses have little chance of competing with established solutions, they build add-ons and plugins on the back of larger SaaS players.
Micro-SaaS businesses typically offer a single product or service, which is highly targeted to a specific market segment with unique needs that are not being met by more established players in the industry. One of the benefits of micro-SaaS companies is their ability to launch quickly, with minimal investment in time and resources.
Another advantage of micro-SaaS is the flexibility it offers. Because these businesses do not have the overhead costs of larger companies, they can be more agile and responsive to changes in the market, customer needs, and technological advancements.
3. RevOps
Amidst the dramatic shift in market dynamics, SaaS app companies struggle to grow while also maintaining profitability. The significant upfront investment, challenges of net retention, and competitors may take a toll on as-a-service companies unless they are strategic in managing their sales and marketing functions.
RevOps, or revenue-operations tools, is hailed as the next evolution of sales forecasting, and marketing analytics software — all rolled into one. These platforms provide businesses with a holistic, end-to-end approach to everything related to sales, marketing, and customer success. To achieve that bird’s-eye view, RevOps tools should be weaved into the entire lifecycle of the aforementioned functions and be equipped with AI-powered capabilities.
Along with the dominance of AI technologies, the RevOps framework is predicated on the following enablers:
- Focus on automation to scale demand generation
- End-to-end visibility through the full sales funnel, marketing, and customer service
- Equipping sellers and marketers with relevant collateral to boost conversion rates
- Implementing a data-driven customer success program to measure the value and scale cross- and upselling opportunities
- Moving from siloed capabilities to a central solution hub
- Optimizing go-to-market spends through integrated data view
Advanced lead scoring system is one of the RevOps linchpins that leverages ML-based algorithms to evaluate leads based on a wide variety of data points and behavioral indicators. The goal of an advanced lead scoring system is to provide sales teams with a more targeted list of leads, allowing them to focus their efforts on those prospects who are most likely to engage and convert.
Leading-edge sales funnel automation is another example of the RevOps approach. Using predictive analytics, sales funnel automation solutions offer personalized recommendations to the customer and upsell them on complimentary services or products. The trick here is to establish selling strategies around your product. To achieve that, you can integrate tracking mechanisms at almost every feature level in a SaaS product to identify what capabilities click with the customer the most.
4. Prioritizing net retention
As consumers hold back on non-essential spending, customer retention becomes one of the strategically important trends in SaaS. Top-performing SaaS businesses are paying due diligence to the existing customers, investing in marketing analytics and follow-up competencies.
From a technical standpoint, median net retention rates can be increased with granular automation directed toward retention strategies. By relying on SaaS analytics and artificial intelligence, SaaS companies can execute a contextual net retention strategy, including:
- Applying advanced customer segmentation
- Identifying the right timeline for upselling or cross-selling maneuvers
- Preventing churn based on customer behavior
- Making personalized offers to customers planning to cancel based on their usage dynamics
- Promoting account expansion with contextual upgrade modals and in-app messages
Paired with dynamic pricing and product support, a contextual retention ecosystem can cut your churn to a minimum and set a win-win post sale construct in place to maximize revenue growth.
5. Building new products based on a deep understanding of customer personas
Building new offerings on the back of a company’s existing data is among other SaaS trends in 2023 that differentiate agile, resilient businesses. Market front-runners such as Google and Netflix have based their SaaS products around the available customer data, which leads to new revenue streams and more granular products.
Likewise, other companies, irrespective of the domain, can capitalize on the core data assets they already have and branch out into new software-as-a-service data products.
The trick here is to build new lines of business based on a thorough understanding of a customer. To do that, companies must develop and nurture cross-functional capabilities for in-house data product management, including data experts, DevOps engineers, and other skills. The data landscape of an organization should be integrated, interoperable, and transparent as opposed to fragmented, siloed data that sits within an isolated team.
6. SaaS with no exceptions
Although providers still offer a hybrid setup as an intermediate architecture for businesses, the future of SaaS is cloud-native. Born from the roots of cloud computing, this SaaS trend allows users to embrace all advantages of software as a service, including rapid scalability, high availability, and easy maintenance. Full-on SaaS also paves the way for a more holistic cloud migration that doesn’t require any in-between setups.
We believe in “SaaS with no exceptions”, which means writing truly cloud-native software. Exceptions are the death of pure SaaS because they lead to issues with software maintenance and disrupt customer service.
— Jens Krueger, Workday’s CTO for Europe (McKinsey, “A software platform experience built around the customer”, 2021)
For a provider, a cloud-native architecture means the independence of each service, which allows for rapid deployment cycles and horizontal scaling. This, in turn, translates into a more swift response to the shifting customer demand and reduced costs of rolling out new features. As a result, cloud-native architecture changes the anatomy of as-a-service solutions, both for a user and provider, supporting the change that comes with the digital transformation of a certain business.
7. Laying the groundwork for scalability from the get-go
An innate capacity of a SaaS solution implies easier scaling compared to traditional software deployed on premises. However, providers can only seize this benefit when they plan for scalability in the early development stages of their SaaS applications.
In particular, a detailed roadmap should drift development toward flexible, rapid turnarounds focused on problem-solving as opposed to fixed, solution-oriented flows. Flexible product roadmaps don’t stifle product creativity, they are cut out for changing the trajectory of product development based on user feedback.
Moreover, to achieve seamless growth in the future, you should have clear plans for feature innovation outlined in a roadmap. New releases should be based on explicit KPIs that align with how customers perceive value in your product.
A flexible architecture is also a crucial enabler of friction-free scalability that helps SaaS tools evolve. On the same line, a microservices-based architecture is one of the significant SaaS trends that breaks an application into separate components which are then loosely connected via APIs. This allows for high scalability, better fault isolation, and faster time to market.
8. Сontinuous innovation, delivery, and security
To win in a competitive market and over the customer, you need a quality product with the freedom of fast and continuous innovation. DevOps automation is what initiates uninterrupted product delivery, creates a resilient application environment, and brings customer-centered products to the table. By streamlining every environment build, DevOps allows providers to roll out new code as frequently as they need to instead of scheduled releases.
However, in 2023, it’s not enough to combine software development with DevOps. According to Gartner, 75% of companies are now restructuring their risk and security governing to battle advanced security threats. Likewise, SaaS providers are bringing security back into DevOps, placing DevSecOps on top of the 2023 SaaS trends.
The DevSecOps approach introduces security testing at every stage of the development process. Bringing developers, security engineers, and operation teams together, this framework promotes product development that is both efficient and secure. Everyone involved in the SDLC has a role to play in building security into the DevOps continuous integration and continuous delivery (CI/CD) workflow.
9. Democratization of platforms
Among other things, the imperative of data democratization also sets the tone for SaaS future trends, shifting the focus to easy access and distribution of SaaS products. More inclusive, accessible, and compatible SaaS products are top of mind for global companies, and providers are scrambling to meet the demand.
In doing so, SaaS businesses rely on microservice architecture that makes as-a-service platforms easily deployable and organized around business capabilities. In an attempt to make digital transformation more accessible, SaaS companies also center their offerings around low- and no-code platforms. The latter allows non-technical users (and businesses) to build and deploy applications without a coding background.
Low-code products experience a lot of footfall today as they offer a more cost-effective way to innovate, satisfy the rising demand for excellent internal workflow apps, and enhance user experiences. By 2028, the low-code platform market is projected to reach a value of $94 billion.
10. Self-service and self-heal environments
As over 81% of customers are seeking more autonomy, self-service capabilities are becoming a fixture in SaaS trends for 2023. Being a non-intrusive support option, self-service capabilities in SaaS software give users the freedom to learn, explore and solve issues at their convenience without the need for human agents.
Over the last few years, providers have been gravitating from traditional, static self-service options to more natural, AI-powered engagement methods. FAQs, customer portals, and tutorials made way for chatbots and voice-enabled conversational AI.
AI-enabled self-healing platforms are one of the self-service innovations that help SaaS users navigate the complexity of platforms. Self-healing solutions are designed to automatically detect and fix problems within a system without human intervention. They leverage machine learning, artificial intelligence, and predictive analytics to quickly identify issues before they become major problems, and proactively repair them without any manual effort.
Based on a full-cycle Artificial Intelligence for IT operations (AIOps) process, self-healing environments also reduce downtime and increase productivity by automatically fixing issues, which means that employees can focus on core tasks instead of troubleshooting.
11. The growing number of integrations
The secret recipe of growth for SaaS companies lies in making their product compatible with the existing app portfolio of their customers. By combining different SaaS solutions, businesses can create a robust, integrated ecosystem that fits their unique requirements. And as companies are doubling down on as-a-service applications, integration has become one of the strategic 2023 SaaS trends for providers.
Open APIs play a crucial role in making a combination of compatible SaaS services possible for users. When providers make their offerings available via open APIs, they allow companies to fine-tune the offering and sync it with existing systems, reducing costs and increasing efficiency. A SaaS program with ample integration capabilities also eliminates the need for a third party, thus becoming another reason your potential customer can say “yes”.
Conversely, a lack of integrations in a SaaS product means that the adopters have to develop custom APIs and cover additional development costs. Without integration, your SaaS product also becomes another siloed asset for the company that keeps critical data under wraps for other applications.
12. Generative AI
One of the SaaS opportunities that have got a big word of mouth lately is generative AI and its offshoot – large language models. While AI is not novel to SaaS providers, the introduction of ChatGPT and the like has widened the application area of artificial intelligence in the SaaS model.
Due to the growing popularity of gen AI models, the global generative AI market size is expected to grow at an impressive CAGR of 35.6% from 2023 to 2030. Touted as a new AI frontier, generative AI brings unprecedented out-of-the-box capabilities to SaaS companies, including content generation, sentiment analysis, market research, customer support, and others. And providers don’t think twice to consume and customize gen AI tools, changing the game for their users.
For example, Salesforce launched Einstein GPT, a tool based on OpenAI’s chatbot, to streamline the generation of personalized content for Salesforce users. Slack, another SaaS giant, has adopted generative AI to deliver instant conversation summaries and provide writing assistance to users.
13. BI-powered SaaS
Today, businesses across industry sectors are guided by big data to improve virtually every aspect of their operations. The increasing reliance on data-driven strategies in the business landscape is what drives the demand for SaaS-based business intelligence solutions. By 2030, the market of SaaS BI solutions is slated to hit over $35.71 billion, ushering in an opportunity with an untapped value for providers.
From a user standpoint, cloud-based analytics platforms, unlike on-premises analytics tools, enable businesses to uncover insights in their data right in the place where this data is generated. Supplemented with built-in AI and ML capabilities, SaaS BI platforms let decision-makers use those insights to automatically drive actions.
With cloud-based analytics tools, companies can access their data on the go, analyzing it from a single point of truth.
This trend is not limited to offering SaaS-based BI tools as a standalone tool, it’s more about enriching existing SaaS with analytics capabilities to deliver added value in the form of dashboards and reports to business users.
14. Mobile SaaS
Given the nature of a hybrid environment, mobile is becoming the primary interface for many field employees all over the world. This makes mobile-first and mobile-native SaaS solutions pronounced B2B SaaS trends that help address the needs of flexible work settings.
By enabling employees to access business data and applications while on the go, mobile on-demand SaaS helps to improve accessibility and eliminate downtime, allowing employees to work more efficiently. Collaboration is facilitated as team members can access and share data in real time, no matter where they are located.
However, to bring SaaS on mobile, providers need to cover at least the minimum level of complexity necessary to meet their core business process roles. In a perfect case scenario, a mobile-as-a-service application should boast unique features that are available on mobile only. In less-than-perfect cases, mobiles might serve as an extension for certain parts of an app or have limited functionality.
What makes a SaaS champion?
The share of the SaaS market is growing at a blistering pace driven by increasing cloud adoption and rising infrastructure costs.
But just like opportunities dim for some providers, other forward-looking SaaS businesses can effectively plot a course to success by taking advantage of the latest SaaS trends. The proliferation of AI technologies, easily scalable architectures, resilient innovation, and a wealth of integrations will set the standard in the SaaS niche in the upcoming years.
High performers will achieve growth by focusing on the detailed knowledge of the customer, pursuing high-value features, and adopting the latest tech comforts. To make it happen, SaaS providers should develop tech expertise, supported by domain proficiency and always-on availability of the IT talent.
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FAQ
According to statistics, the SaaS industry is expected to grow at a CAGR of 13.7% from 2023 to 2030. The rising adoption of cloud services, the added overhead of on-premise infrastructures, and the digital imperative of continuous innovation will secure the popularity of as-a-service solutions well into the future. Moreover, as vertical SaaS platforms are still scarce, companies can seize this opportunity to enter the market.
As the business adoption of as-a-service software grows among companies, providers will experience steady demand from users. Another factor contributing to the growth of the SaaS market in 2023 is the rise of emerging technologies such as artificial intelligence, generative AI, and IoT. These technologies are being integrated into SaaS solutions to provide more intelligent and personalized services to customers.
Thanks to advanced scalability, managed security and minimized management challenges, SaaS solutions remain a popular option for fast-growing companies.
