And How That Will Impact Your Sale Value
COVID-19 changed the world in some rather extreme ways. Businesses in multiple sectors and industries were forced down the road towards digital transformation as entire workforces were made to telecommute due to the pandemic. And with governments around the world clamping down on public gatherings, digital businesses saw explosive growth, including those in the Software as a Service (SaaS) space.
You’re doubtless already aware of some of the ways the coronavirus pandemic changed the SaaS market.
On the business side, we saw countless organizations relying on cloud apps for digital collaboration, workflow optimization, and remote connectivity. On the consumer side, streaming and entertainment apps experienced considerable growth, with at-home users logging more hours than ever online. And in industries like healthcare and the public sector, the cloud has proven instrumental in fighting the pandemic, enabling everything from telemedicine to collaborative research.
As we move into 2021, we’ll continue to see echoes of the pandemic in several noteworthy industry trends. As you might expect, these trends will have a significant impact on the purchase and sale of SaaS companies, yours included. Let’s talk about that.
A Booming Market
According to Cisco’s seventh annual Global Cloud Index, a report focused on data center virtualization and cloud computing, 75 percent of cloud workloads and computing instances will be via SaaS. Cloud traffic will also account for approximately 95 percent of all data center traffic this year. From marketing automation to eCommerce to project management, demand will explode in the New Year.
This massive upturn in demand can go one of two ways. On the one hand, it may turn SaaS into a seller’s market, with numerous investors looking to acquire new sources of revenue. On the other, we may see the market flooded with apps, meaning that even with more investors, there’s more competition.
Renewed Focus on Artificial Intelligence
Over the past year, artificial intelligence (AI) has grown considerably more advanced. Although it’s certainly not at pop culture levels of sophistication quite yet, it’s still evolved enough to fundamentally disrupt multiple sectors, changing how we both live and work. This has some very real applications in the SaaS space.
Through automation, a SaaS business can significantly streamline its operations. Machine learning can also be applied to a SaaS company’s marketing, improving both audience awareness and subscriber growth. Finally, AI can be leveraged to optimize customer-facing segments of a SaaS app, providing better personalization, security, and performance.
Each of these use cases on its own has a great deal of potential in terms of improving a business’s valuation. A business that’s able to effectively leverage AI in all of the above ways should see improvements across the board in subscribers, revenue, and interest from investors.
White Label & Vertically-Focused SaaS Takes Center Stage
It can be incredibly difficult to develop a working SaaS application, especially if you’re operating a smaller business lacking development expertise. White-label SaaS software provides a solution to this problem. With it, a vendor — usually working through a reseller — is able to provide businesses with the functionality they require, tailored to their specific branding and integrated into their portfolio.
As you might expect, although white label solutions are often quite specialized, they also have the potential to be extremely profitable from a business standpoint. Brand consistency is extremely important, after all, and it generally costs less to subscribe to an ISV application than it does to develop one’s own software from scratch. As such, if your SaaS business can develop an application (or a suite of them) that can be white-labeled, this can be leveraged both as a selling point and as a potential revenue stream.
Where white labeling is concerned, you have two options. The first is to develop horizontal software that serves as many clients and industries as possible. The second is to get specific with your software, targeting a particular industry, need, or profession.
That brings us to another major trend we’re likely to see in 2021 — an increased focus on vertical SaaS solutions, as more and more businesses demand a more focused than general functionality. Although zeroing in on a narrow vertical means a smaller addressable market, it also carries a number of considerable benefits. These include more upselling opportunities, better customer intelligence, and improved data governance.
And that, in turn, can make a properly-run vertical SaaS business extremely valuable compared to a general one.
Free Trials Are Key
Technically, this isn’t a trend unique to 2021, or even 2020. Over the past several years, we’ve seen a shift in purchasing habits amongst consumers. People have long tended to prefer free applications over premium offerings wherever possible.
The coming year, however, is when I suspect this will truly strike home. After a full year of dealing with reduced income and social isolation, people are far less willing to spend money on premium offerings. They’re either looking to try before they buy or angling for free software.
SaaS businesses would do well to be cognizant of this, either by offering a free trial or a tiered, free version. Not only does this allow for numerous upsell opportunities, but also the chance to potentially augment your business’s revenue through in-app purchases.
A New Year, A New Focus
Changes in purchasing habits. The growing prominence of AI. Surging market growth. A shift in focus for B2B software.
The coming year brings along with it some considerable changes to the SaaS space. What I’ve listed above isn’t even a comprehensive summary, either. There are many other trends, many other changes on the way.
Businesses that are keyed to these changes will likely enjoy a significant upturn in subscribers, revenue, and ultimately, sale value.