The software as a service market is oversaturated.
Every tech-savvy entrepreneur wants a piece of the SaaS pie. SaaS was the world’s fastest-growing industry for years, outpacing S&P-500 companies five times over.
But in 2021, the SaaS bubble began to burst. By 2022, investment by venture capital firms tanked to their lowest in ten years. So, why are we telling you this bleak and disheartening horror story?
Because 2024 is a new year, and SaaS companies are learning from past mistakes.
Growing a SaaS company in 2024 requires understanding growth drivers and emerging trends. It’s about meeting customer demands and innovating comprehensive solutions to business problems.
In this article, we’ll dive deep into what’s in store for SaaS companies in the coming year.
SaaS market growth projections for 2024
Ready for a brief history lesson?
Before we look at the future of SaaS, it’s essential to understand the past.
As a concept, software as a service has its roots in the first computer boom of the 1960s. It was a time when only wealthy enterprise companies could afford to own computers, which they would then rent out to smaller companies for a fee.
Yes, computers operated through a time-share system. Not unlike that ski chalet your grandparents “owned” in the 90s.
This system was developed in 1961 by MIT and was named the Compatible Time Sharing System, or CTSS.
In the 1970s, IBM developed the first ever virtual computer – a computer that acts as a host to other machines. This was the pre-internet days, and though computers were becoming more affordable, companies were still struggling to implement business-essential software at scale.
Then came the internet and, with it, a complete reshuffling of the enterprise software sales cycle.
Suddenly, software could be hosted, sold, and delivered to anyone with an internet connection. Cloud computing offered the power and infrastructure many businesses couldn’t afford to maintain in-house.
Software as a service was on the rise – and still is! And that’s down to demand.
Organizations continue to switch their operations to cloud-subscription services. Just like in the 1960s, computing power is expensive, and business operations require more and more of it.
History is repeating itself. Only this time, SaaS has come to save us from time-share Hell.
So, what are some of 2024’s growth projections for SaaS? Let’s find out.
Market
The SaaS market continues to grow, with a predicted 18% jump between 2023 and 2024.
According to Harvard Business Review, this growth is set to focus on sustainability, customer success, and quality over quantity.
Industries
The top ten industries expected to invest in SaaS in 2024 are:
- Fintech
- AI
- Analytics
- Enterprise resource planning
- Security
- eCommerce
- Development
- Marketing
- HR
- Customer relationship management.
Investment
After two years of decline, venture capital investment into SaaS seems to be on the rebound.
B2B software investment firms like Sapphire Ventures predict that a “growth mindset” will return to the SaaS industry.
Earlier years brought stagnation due to rising costs, saturated market conditions, and general pandemic uncertainty. But funding is returning to pre-pandemic levels.
Growth drivers for SaaS companies
Considering all of this, how does a SaaS company actually grow?
Customer acquisition strategies
Like any business, SaaS companies require new customers for growth.
A study conducted by First Page Sage examined the customer acquisition strategies of 46 SaaS companies from 2021 to 2024.
They found that email marketing and utilizing SEO to attract more organic web traffic offered the best ROI.
Onboarding new customers is especially important for SaaS companies. The industry is highly product-led, with new customers trialing software before they make a purchase.
If the software onboarding process is awkward, frustrating, glitchy, or missing essential features, customers will not hesitate to go elsewhere.
Customer retention and expansion
Speaking of customers going elsewhere…
Yes, you knew it was coming. Existing customers provide more ROI than new customers. We’ve all heard it; we’re all unsure where the oft-touted statistics come from.
But it seems to hold true.
McKinsey and Company’s research into growth through customer experience showed that customer experience leaders had more than double the growth of those who did not prioritize customer retention.
SaaS companies have even higher stakes in this game. Operating on a subscription model means that a negative customer experience will get you canceled.
To retain customers, SaaS companies need to provide:
- Smooth onboarding
- A service that works
- Excellent customer service
- A way for users to give feedback
- Strong and ongoing security
- Regular updates and innovations to keep up with competitors.
Technology and innovation
Updates and innovations, you say?
SaaS providers are perfectly poised to leverage new technological innovations for growth.
SaaS businesses require the creation, adoption, and integration of emerging technology to provide their customers with the most up-to-date tools.
Tools like artificial intelligence, low or no-code services, cutting-edge data intelligence, and vertical SaaS are streamlining SaaS customers’ operations.
Anything that creates a smoother, more comprehensive customer experience is essential to attracting and retaining customers and improving growth.
We’ll get into more technology detail in our emerging trends section below.
Emerging SaaS trends in 2024
So what does 2024 hold for SaaS companies?
And how can you jump on these emerging trends to grow your own SaaS business?
Platforms are expanding to incorporate holistic functions
Productiv’s State of SaaS series found that businesses used, on average, 371 SaaS apps – around 87 per department.
That’s too many apps.
Going into 2024, SaaS providers are looking to go vertical rather than horizontal.
That means developers want to capture niche markets by industry and provide all the tools that the industry needs in one app.
One business might need marketing automation, call center software, unified internal communications, social media management, data collection and analytics, and apps for a hundred other operations that make the company tick.
Vertical SaaS providers can instead focus on the needs of one industry and provide holistic tools that cover a business’ every need.
This can make a single SaaS company necessary to a business’s entire operation, and that SaaS provider could be you.
AI onboarding tools personalize and accelerate user adoption
We already mentioned the importance of onboarding to SaaS companies; now let’s look at which 2024 trend in particular can improve the process.
AI, machine learning, and natural language processing dominate conversations around tech.
They stand at the forefront of the current technological landscape, poised to solve every problem.
It sounds like a fantasy, but AI can do a lot of things – like streamlining and accelerating the SaaS onboarding process.
Using machine learning, AI can analyze a person’s needs and tailor the onboarding process to meet those needs.
Think accessibility, work requirements, how someone uses the platform, the features a person might overlook, how much tech education a person might need, and more. Things a SaaS company can’t afford to have human beings assess on an individual basis.
Each customer gets their own automated onboarding process built around them, increasing engagement and turning potential customers into pro-users faster than ever.
Dynamic pricing based on customer needs is becoming the norm
SaaS is flexible by nature.
Its driving features are its modular nature and price tiers which suit every business and budget.
As SaaS becomes the norm (371 apps per business, remember?), businesses will demand even higher levels of flexibility.
They want a unique stack that suits all their needs, the scalability to grow their business, and dynamic pricing that reflects what they’re paying for.
There is no one-size-fits-all solution for most businesses. As a result, SaaS providers will have to increase their flexibility.
Co-creation communities is influencing platform development
Co-creation means recognizing that the market is not static.
Creating applications is no longer a long, drawn-out, insular affair. Companies have adopted an agile software development method, with short development cycles and constant feedback driving continuous improvements.
Software as a service – emphasis on service – is primed to leverage community co-creation.
SaaS providers will need to deepen their understanding of their audiences and industries. Co-creation involves creating a community of users around your software and allowing that community to drive your platform development.
Users want input into the service they use; they want to feel heard. Developers need to create a space for users to offer feedback and then prove that they’re listening by implementing that feedback.
It’s all about creating a more personalized experience for the user, turning customers into stakeholders and loyal advocates for your business.
Predictive churn models simplify risk management
To sustain growth, SaaS providers need to retain customers. This involves predicting churn.
Understanding churn allows you to preempt customers canceling subscriptions and abandoning your service. It can help you create better customer retention strategies.
A growing trend in churn prediction is using AI to create predictive churn models.
Machine learning algorithms can analyze the behavior of unengaged and unhappy customers, finding patterns that predict churn.
Once predictive models are in place, you can create tailored outreach to preemptively solve user issues and re-engage at-risk users.
Predictive churn models give you the foresight to simplify risk management.
Experimentation frameworks enable A/B testing for optimization
Remember the days when a software company released a long-awaited demo?
Developers remember – the long development cycles, the hype, the release, the inevitable bugs and glitches, the complaints from users, the slog back to the drawing board.
Modern SaaS companies do not have time for that.
A/B testing allows SaaS developers to test multiple versions of software simultaneously. User group A gets one version, user group B gets another. Each group of users is monitored and data is collected on usage, usability, glitches, and abandonment.
This framework allows developers to experiment with different features before a full release. It also allows them to gather data based on real user interaction and make decisions that improve the customer experience and drive growth.
A/B testing is a cost-effective and low-risk solution to letting developers run just a little bit wild. Without spurring creativity and innovation, SaaS providers risk stagnation.
Conversational AI enhances support and lead engagement
We’ve all dealt with a chatbot. Sure, we’d rather speak to a human being, but they’re helpful enough.
But what if you couldn’t tell the difference? What if your chatbot was so conversational and insightful that you could mistake it for a person?
This is the future of natural language processing.
Customer support can be a real drain on tech companies. Similarly, lead engagement has grown into a mammoth task as businesses cut costs and take more time to make purchasing decisions.
Read more: Drip Marketing Campaigns for Lead Engagement
Automating these processes can save SaaS companies time and resources.
The more machine learning algorithms learn about tone, context, and interpretation, the more useful they become in engaging users.
Using conversational AI platform software, SaaS companies can spare the resources required for interacting directly with customers whilst still maintaining connections that feel personal.
Bottomline
Free to use image sourced from Pexels
SaaS companies are at a precipice. The gold rush is over, leaving realistic expectations in its wake.
Instead of the mythical infinite growth, SaaS providers are wrestling with how to grow sustainably in a saturated yet in-demand market.
2024 opens up a new horizon for the SaaS industry. With the revolution of new and innovative technology, SaaS providers can leverage customer data and emerging trends to focus on what matters:
- Improving the customer experience to attract and retain customers.
- Understanding churn and the importance of customer loyalty.
- Utilizing technology to experiment and innovate.
- Listening to user feedback to improve and grow.
Ultimately, SaaS growth comes down to being more customer-led. SaaS providers are perfectly positioned to adopt a customer-led approach.
Leveraging short development cycles, experimentation, cutting-edge technology, and user feedback can give your SaaS company an edge in 2024.
