The Rise of the Software as a Service Industry

The software as a service industry went from an obscure concept only a few businesses used to a mainstream software option used by millions. Expensive software and the cost of implementing software keep many businesses from using the right tools. With SaaS, the game has changed and this industry continues to grow and thrive.

History of the Software as a Service Industry

The software as a service industry can be traced back as far as the 1960s. As technology changed and the Internet changed communications, the industry began to grow into the cloud computing solution that businesses use today.

At first, the cost of early computers in the 1960s made SaaS a requirement, as most businesses simply couldn’t afford computers. Over the next few decades, computer costs began to decline, but businesses still opted for the more affordable SaaS systems, which were usually basic text-based software options.

By the early 1990s, the industry started to decline as businesses were able to afford more computers and employees weren’t limited to sharing a single terminal. Businesses were able to install their own hardware and purchase software licenses. Dedicated IT teams┬ámanaged everything in-house.

During the late 1990s, the Internet was growing in popularity and becoming available on a larger scale. Computer and software manufacturers were eager to push extra software, also known as bloatware, on to computers. With limited hard drive space, businesses found themselves not being able to install the software they needed. This led to the resurgence of the software as a service industry.

RELATED: How SaaS Works

Slow Growth Due to Security Concerns

As useful as remotely hosted software might be, many businesses were skeptical and worried about security issues. It’s still a concern today, but more advanced security protocols are eliminating many of those worries.

Some of the top concerns that held back SaaS adoption (and still do to some extent) include:

  • Data access issues
  • Uncertainty on security protocols used
  • Potential for identity theft
  • Loss of control over data
  • Potential for outdated security

As businesses learned more about security and cloud computing, it became easier to determine which SaaS service providers were the most reliable and secure. For instance, Salesforce has become one of the top SaaS providers because they stay on top of emerging technologies and security protocols. By staying current and making security transparent to businesses, they were one of the companies that helped lead the rise of the software as a service industry.

The Industry Rises

Some of the first major SaaS providers started from scratch and built their entire business on the cloud computing model. While they were popular, some businesses still preferred their legacy applications, such as Microsoft Office. This still meant costly licensing fees and the need for in-house IT management to install and maintain software applications.

Gradually, legacy providers began to notice the popularity of SaaS and started offering their own cloud options to compliment their desktop applications. For instance, Microsoft Office 365 is hosted in the cloud, making it easier for businesses to simply add a new employee account versus having to install the software and keep it updated on a computer.

As businesses started to pay more attention to the software as a service industry, they were able to see the benefits, such as:

  • Easier scalability
  • Simple update/upgrade process
  • Pay only for what you need, equaling lower costs
  • Less reliance on an in-house IT team
  • Better customization of applications
  • Access from nearly everywhere

RELATED: How Small Business Software Reviews Can Improve Your Business

Modern SaaS Surpasses Early SaaS Solutions

The 1960s SaaS model was useful for its time, but today’s modern solutions are now far more advanced and address the needs of a wide variety of industries. With the ability to customize in most cases, SaaS solutions cater to a specific business’s needs and it’s easy for businesses of any size to buy just what they need, which better fits their budgets.

In the early stages of SaaS, the main focuses were on accounting and CRM. The software as a service industry has expanded to provide more solutions, such as:

The variety of solutions available is just spurring on the growth of this industry. Businesses are no longer limited to bulky in-house solutions. Instead, they can get the same features without the hassle of installing and maintaining. They can also save money by just getting the features they need.

Software as a Service Industry Changes the Game

It’s hard to fully understand the rise of this industry without looking at some of the companies that have contributed to its growth. This list of SaaS industry companies that have disrupted the industry and fueled its rise proves that SaaS isn’t a trend that’s going away any time soon. A few companies that have changed the game include:

  • Dropbox – The company drastically changed the way companies and individuals sync files.
  • Hubspot – They suddenly made inbound marketing easier to manage and most cost effective.
  • Intercom – The company is taking on CRM giants, such as Salesforce, and making customer communication more social.
  • Salesforce – It was one of the first modern SaaS solutions and has continued to be one of the highest grossing SaaS companies.

The Future of the Software as a Service Industry

It’s obvious that SaaS is on the rise, but where does it go from here? It’s expected that by 2020 SaaS penetration will be around 25%, with packaged software installations dropping to just 10%. In 2017 alone, it’s expected that cloud computing will account for 28% of the IT budget, with 45% of that being spent on SaaS solutions.

Due to the easy setup and scalability, many businesses already use multiple SaaS solutions. In fact, 56% of businesses use multiple vendors currently.

To continue to grow, the industry has to think about integration. The ability to integrate with different services is important to businesses. Over half of businesses that are looking for an SaaS provider want a solution that integrates with other services.

The industry is on the rise and it will continue to grow as businesses switch from traditional to cloud-based computing.

Leave a Reply