Over the last few years Software as a Service or SaaS, has grown massively and in turn, investment in providers who deliver their software in this way has exploded, with both private equity firms and larger businesses recognising the potential profit this sector offers.
Today, SaaS applications dominate the cloud computing market, with global forecasts for 2017 predicting the market being worth around the $37.7 billion mark. Fast-growing and high value, SaaS ticks all the boxes when it comes to being an attractive market for investment and acquisitions.
In 2016, large software acquisitions made the headlines globally and 2017 looks set to eclipse this as the market grows and attracts even more interest from investors.
Why is SaaS Such Big Business?
SaaS is big business and the market for software delivered as a service is expanding rapidly, both in B2B and B2C markets. Below are a few of the key reasons it has proven to be so popular for businesses:
> You can pay monthly – moving from CAPEX to OPEX is preferable for many businesses and makes your software an option for many more potential customers. Making payments monthly and removing the large upfront costs associated with traditional software purchases makes it broadly accessible.
> It allows you to be flexible – essentially, you’re renting rather than buying the software. This gives you the flexibility to try products out, often on as little as 30 day rolling terms, removing concerns about being locked into a solution that doesn’t work for you.
> It’s quick and easy to get started – pure SaaS is accessed online with no requirements other than an Internet connection and device, so it’s quick and simple to implement across a business.
> Developers can respond rapidly to customer needs – SaaS development is fast and delivered incrementally as developers respond to customer needs and requirements. This constant cycle means there is no two year wait for a bug to be fixed or feature to be added.
> Handy, remote access and integration – you can access apps and services remotely for even greater convenience and integrate with other online services.
> The World is now online – businesses and consumers demand 24/7 access, convenience and instant response from the services they consume, favouring software providers who deliver their business services in this way.
As SaaS adoption grows, its popularity for investment and acquisitions expands with it. In 2011 Microsoft took over Skype in a $8.5 billion deal, while AWS more recently picked up emerging tech companies NICE, Elemental Technologies and Cloud 9, to name just a couple of high profile examples.
Investors have long recognised the huge potential for profit as SaaS companies continue to gain dominant market position when they establish themselves in B2B markets, with enormous successes in CRM, finance and HR.
Their reliable, consistent recurring revenue streams are appealing for investors, as is the global trend away from traditional on premise software, to the flexible, on-demand consumption of SaaS.
Cloud, and the on-demand delivery model it enables, is not going away and developers are creating more and more ingenious, efficient and profitable ways to harness technology for businesses – and investors want in.
In the UK, like many other global markets, SaaS continues to grow in popularity, particularly in the financial sector and UK software developers are attracting major investment.
In the UK and Ireland alone we rack up around 2/5th’s of Europe’s fintech investment, with businesses like Algomi, Currency Cloud and DueDil attracting significant investment from private equity.
SaaS businesses are also attracting attention from other businesses looking to quickly and easily bolt-on functionality to their existing offering.
Amazon Web Service’s previously mentioned acquisition of NICE is a good example of this; the Italian company gave AWS a high performance, technical computing string to their bow, effectively expanding their product portfolio and the services they can offer their customers, overnight.
A recent tactical acquisition that hit the headlines in the UK was Zoopla’s purchase of Hometrack for £120 million, made to help expand its data services.
It is naturally the large investments and sales that make the headlines, but there are many smaller, more niche SaaS companies that attract investment and buyers in the UK.
And like any other sector, there are SaaS businesses that do not have the impact they hoped for, fail or have major issues after being driven through the marketing and PR hype-machine that often surrounds tech businesses.
But the SaaS market continues to grow, and grow strongly, because SaaS delivers real advantage to businesses in the functionality it offers and the way it can be financed, consumed and developed.
It is an exciting time for software developers working with the cloud, who are seeing their products achieve real sustained success. Large SaaS investments and purchases in the UK are likely to become even more commonplace as exciting new products are developed and cloud delivery becomes the norm for UK business.
As Secura’s CTO, Dan is responsible for the team that design, build and maintain our cutting edge cloud hosting infrastructure. He is also the dishwasher police – stack it or else.
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