The software-as-a-service (SaaS) market is expected to surpass USD 220 billion by 2022, registering a CAGR of 13.1%.
Though full of potential and promise, this fast-expanding industry has become more competitive than ever.
New players are entering the market every day, while the major brands such as Microsoft, Adobe and Oracle hold over 70% of the market share.
We sat down with Marcelo Lopez, founder of UruIT and expert in SaaS development with a wealth of international projects under his belt, to discuss the near future of this industry.
We discussed his views on the existing SaaS scene, development trends to expect in 2020, as well as his expert insights on breaking into this lucrative, yet saturated market.
Read on to discover his unique perspective:
1. Hi Marcelo, tell us a bit about UruIT’s experience in SaaS development.
Marcelo Lopez: UruIT has been working with a special focus on SaaS companies looking to outsource their development since 2007.
We’ve worked with a number of companies in different SaaS capacities.
One of our projects was working with Top Content, a Stackify platform that automates the process of analyzing and processing data from a website, such as traffic, content visibility, and keyword performance.
Another one was Zodaka, which is a secure payment app for high-risk fields such as the cannabis industry in California, using a software that intermediates and validates financial transactions between consumers and merchants.
Of course, these are just a couple of our examples.
This market is prolific and we’ve had a steady influx of SaaS projects.
There are between 10,000 and 15,000 SaaS companies in the U.S., and Gartner estimates that profits will reach 278.3 billions by 2021.
SaaS market has a lot of potential; We have seen it grow steadily over the years and believe that it will continue to do so. It’s the future.
2. Which SaaS development trends can we expect to see in 2020? Which technologies will underpin these trends and how?
ML: I’d highlight AI, vertical SaaS, mobile-first approach and blockchain.
AI has been steadily gaining traction over the past few years, but now it’s truly grown into something that is turning the way we run businesses upside down.
It’s an industry worth $15.7 trillion.
Nowadays, we’re seeing the power of AI combined with SaaS, making strides in personalization, and automation of data and processes.
For instance, we are helping a California-based SaaS company working in the media industry to leverage Computer Vision to digitize and categorize tons of teras in video. This app has clients such as Fox, Channel 4, Disney, Videofashion!, Sky and others.
Where horizontal SaaS was about breadth, vertical SaaS is all about depth.
We’re seeing a massive trend towards vertical SaaS products because of the wide variety of benefits that it offers—from customer intelligence to business value and improved governance, and most of all, customization to the client or industry.
Customization through data has been the trend for some time now, and vertical SaaS allows us to tailor software solutions for smaller niches, industries and their targeted customers.
A Mobile-first Mindset
Mobile devices are quickly surpassing their desktop counterparts. Experts predicted this ages ago—everyone’s talking about accessibility and mobility in business now, so it only makes sense that mobile is growing more advanced in order to catch up.
As with a lot of technologies, SaaS started with a computer-first approach, which means that now it’s having to catch up to all the advancements in mobile technologies.
As mobile technology advances, this also increases the opportunity for the development of SaaS technologies. In fact, it’s not just an opportunity but a need—basically, if you’re not thinking about mobile SaaS, you’re going to be left behind very quickly.
Blockchain is still having a huge moment and its huge potential remains untapped.
Government borrowing, tax collections, auditing and compliance — these are all places where SaaS and blockchain are set to massively disrupt.
The key to note here is that blockchain can make online transactions easier and more transparent, which paves the way for a huge range of possibilities.
3. SDCR: How do you see these trends evolving in the next -say- five years?
ML: AI has already had significant impacts on automation, and will continue to do so—changing daily work and life as we know it.
Our Machine Learning experts have identified opportunities especially in the healthcare and real estate industries, that are structured around processes and steps for fulfilling users needs.
Automatic learning is an ML concept that businesses from these industries can apply to make their processes more effective based on the users interaction with it.
By studying users’ actions and foreseeing needs and problems, these systems can minimize costs, time and effort.
In other areas such as eLearning and eCommerce, Machine Learning can make users’ decision-making process faster and better by suggesting options based on their previous purchases.
Machine learning will also make waves in fields like sales and marketing where it can predict lead quality for example — which has the potential to revolutionize the field entirely.
We’re seeing a change in the quality of data, how we’re obtaining it and how it can be used.
Experts are projecting that 80% of all enterprise workloads will shift to the cloud, which will make for a more seamless development process, and we will see the shift from just personalization to hyper-personalization.
I also want to mention vertical Saas.
Like I said before, vertical SaaS allows businesses to effectively address their own dedicated user base within their niche.
This will result in increased flexibility, more up-selling opportunities, and lower client acquisition costs—all of which can be incredibly valuable to a SaaS business.
We will also see an uptick in virtual SaaS solutions, which will only surge over the next five years.
At UruIT we have been working with vertical SaaS for some time now. One of them is an important healthcare corporation that provides revenue management solutions, data services and expert consulting for health systems, hospitals, physicians, and others in the health field.
Another is a commercial real estate digital toolkit that provides data and tools to support financial, market, spatial, and competitive analyses for CRE professionals.
Both are examples of companies that want to provide one-stop solutions that solve all of their users' needs.
4. Which SaaS market trends can we expect to see in 2020? What types of SaaS solutions will be in demand? And, which industries will invest in SaaS the most?
ML: I’d focus on micro-SaaS, developments in branding and customer experience.
If there’s one thing to keep in mind, it’s that bigger is not necessarily better.
Micro-SaaS takes all the benefits of SaaS but condenses it in a tiny package focused on niche markets and a dedicated user base.
Think small but mighty.
This comes alongside other trends, like the rise of digital nomads and entrepreneurship and solopreneurship
Instead of offering the full SaaS product, micro-SaaS takes only the add-ons or extensions that users need, eliminating the need for anything unnecessary and serving the customers exactly as they need.
As a result, they’re able to stand up to larger competitors.
Everyone is trying to win new customers—but how to connect with users in a meaningful way when firstly, the market is so saturated, and secondly, the market is dominated by high-profile vendors?
SaaS trends are well and good, but the game has long-surpassed the product alone; In the eyes of the customer, everyone has a near-identical product.
What’s key here is creating consistent, high-quality branding touchpoints along with an engaging brand narrative.
Your marketing team should also work alongside your dev team to consider things like pricing policy, product model and mobile-optimization - all of which can affect your brand.
You don’t need me to tell you that the market is saturated today — and that a company’s customer experience is as important (if not more!) as its products and services.
Users and consumers have never had more freedom and choice than they have at this very moment.
Plus, it’s one of the best ways to stand apart from the competition.
It’s imperative to dedicate your and your team’s efforts to improve not only your product but customer experience.
5. In your experience, what does it take to develop a market-leading SaaS solution?
ML: This is what we usually tell our clients in the startup stage:
Select the right team when building your product.
It's extremely important to hire dedicated developers with experience and a solid portfolio.
A team of SaaS experts is used to creating cloud-based software and understanding the business needs behind the SaaS industry and their key metrics.
From developer to designer, it's vital that everyone engaged in the project can help you navigate the challenges of developing and launching a SaaS app from scratch.
Start With an MVP.
This is one of the many methods for building a SaaS solution; Start by developing a limited version of your software solution and trying it out with users.
The idea for your SaaS solution might be a good one, but there is no guarantee that anyone will use or pay for it.
Once the solution is validated, that is when you can launch innovation and further expansion.
You can also go for what we call a Product Discovery. It's a process that brings together the whole team, prior to development, to share ideas in activities such as Story Mapping, User Definition, etc.
The goal is to reach a broader understanding of the software and how it can serve its users in the best possible way.
Make sure to select the technology that can fulfill your technical and business requirements when building your SaaS solution.
Some technical stacks and platforms will be suited for your SaaS solution needs depending on the solution you’re trying to build, and others may not.
Remember that users will only pay for SaaS for as long as they need or want the solution.
This is why it's important to create a software that works perfectly and provides the best experience for your audience, increasing your chances to keep users engaged.
Also, your technology should allow you to iterate fast and launch new functionalities frequently so that users are always entertained with new options and possibilities.
Depending on the kind of solution you're providing to users, you should consider the best combination of frameworks, programming languages, tools and other platforms for fulfilling your goal.
Build a data-obsessed team that can help you evolve your solution.
This is just as important as having a team with the technical skills for building your product.
The SaaS model requires you to offer clear and constant service to consumers who are willing to sign up for incremental subscription payments—but keep in mind they won’t do so for everything.
You need to have clarity on whether the benefit you are providing is the right fit for your business model.
A team that relies on metrics and user feedback to move forward and provide new features in frequent releases is an invaluable asset for any SaaS development project. Agile teams are the ones that rely on continuous improvement, frequent iterations and early feedback.
Scalability is key.
SaaS companies offer their users different plans, upgrades and options. As the number of users grows, so does the software.
Your dev team should choose a platform that is easily scalable, so as time goes by, it's easier to keep offering users the best service.
For that, it’s important to go for serverless architecture, have a strong devops culture and integrate with third-party services that allow the business to scale quickly.
The last thing you want is to have software that starts off strong but lacks the resources to continue growing quality alongside quantity.
6. Have you observed any changes in SaaS user behavior and preferences in the past few years? What are they?
ML: In contrast to more traditional software, SaaS businesses have less difficulty getting users’ attention.
In today’s market, people are often willing to try new apps —especially when they see others around them (on social media, for example!) doing the same.
However, that said, there are still two key challenges: converting these users into paying customers and retaining them over time.
So the teams behind SaaS have to create two important, yet very different strategies: one for making users adopt the software (and pay for it), and another for retaining customers who have already invested in it.
With this in mind, it’s also important to say that users’ attention shifts all the time. They get easily bored and in today’s market, velocity is everything.
That's why, after getting users’ attention for the first time, it's important to welcome them, get them acquainted with the application and show them how to gain value quickly. Otherwise, they will go and look for another solution at the app store.
Onboarding customers in an effective, yet agile and light way is key. Some onboarding examples I admire are the ones built by Slack, Trello and Dropbox.
Also, communication between business and users is more fluid than ever. Constant feedback has never been more important and every smart software should be analyzing users’ behavior carefully to identify potential for improvements.
It’s also important to note that users are more inclined to submit feedback, especially negative ones.
When dissatisfied, there's a good chance this user will tell you why through a bad review, a social media post, and so on. In such a connected world where everyone has a voice, feedback should be welcome instead of neglected.
Consider it a competitive advantage to have all this information at your fingertips. Plus, it will help you spot new trends to stay relevant in this dynamic market.
Metrics are key: It’s incredibly important to follow up the behavior of users in your software. Some interesting tools for this that we have implemented in our projects are Full Story and Sentry, which helped us to have real-time feedback of clients about the app.
Last but not least, SaaS is evolving along with users.
In order to keep customers motivated and engaged, apps need to continue to provide value and that’s only possible by listening to users and trying new features that can truly meet their needs.
It’s a fast and competitive market—a real challenge for the User Experience area in general.
7. The SaaS market has more than doubled since 2014, so it sounds like a highly lucrative space to be in. However, the top 3 competitors can hold as much as 70% of the total market share. How competitive would you say the SaaS market is and how does this vary with the type of SaaS solutions?
ML: Technology has made it easier than ever to create game-changing products and every single industry is only going to get more competitive.
Recently I read an interesting article published at SaaStr, an annual conference focused on SaaS that we are sponsoring this year, that said the competition in SaaS is so bitter because of two main factors: the existence of oligopolies and the effectiveness of Dominant Strategy.
On the one hand, big players prevent new players from competing. It's expensive to develop an app and the high cost combined with the small market a new product will have at the beginning (since it’s highly probable there’s a leading product monopolizing the market) can be a recipe for disaster for a lot of new business.
I mean, if you want to go after Salesforce or Shopify users, it's not going to be cheap, fast nor, dare I say, easy.
On the other hand, the pure dominance strategy guarantees top competitors stay at the top because "as long as there is capital to fuel it, SaaS competitors will try to enter every possible market niche, compete in every area possible of their market and for every single customer", as the article says.
So there’s still some flexibility.
8. How can new players compete in this environment?
ML: This is what I would highlight:
Find your unique product vision.
Focus on creating a bold, unique product that solves a problem in a different, better way.
If you want to stand out in a crowded space, you can’t simply iterate on what’s out there. You need to be unique, different, and bold.
Listen to your users.
It's a cliche in the software development industry, but it is still worth repeating.
A lot of times, designers are designing a product and engineers are building it, but they are usually not the product's users.
To truly understand users’ needs and worries, you need to get close to them. By approaching your product's development from the user's perspective, you can create a vision that is different from every other company.
Create an emotional connection.
Connected with the previous tip, I think it's also important to build a brand that connects with customers on an emotional level.
As the marketplace becomes more crowded, more people are starting to focus on which companies they should trust and what apps make them feel what they want to feel.
In order to survive in a hyper-competitive market, you need to differentiate yourself.
You need to make your customers feel like the second they buy from you, they’re going to become better at the thing you’re promising. You want to give them inspiration and aspiration, not just tools. And you'll achieve this goal by investing in your online marketing strategies.
Compete on value, not price.
In a crowded market with big players holding the majority of the market share, you can't compete on price.
The cheaper you price your product, the more your business model will have to change.
You’ll need to raise more money, spend more on acquiring users, and operate on razor-thin margins.
In the end, you won’t be able to focus on what’s really important, which is your product.
Instead, compete on value. Offer a premium product and charge a premium price.
By being profitable from the start, you can talk with users, build and grow with them, and continually provide value to them.
Thank you, Marcelo!
Looking to build a market-leading SaaS solution? Get in touch with UruIT via https://uruit.com/contact.