SaaS: A Complete Beginner’s Guide to Software as a Service

If you’ve been thinking about launching a SaaS product, now is your time to make it happen. Many companies are …

If you’ve been thinking about launching a SaaS product, now is your time to make it happen.

Many companies are adopting the Software as a Service model. In fact, today, 51% of organizations run most of their operations using SaaS applications.

Currently, 38% of IT companies work almost entirely with SaaS.

Experts predict that in the next two years, that number will go up to 73%, and the SaaS product market will reach $76 billion.

While this may seem like good news, it does come with some bad news as well.

Due to so many companies becoming involved in the SaaS market, the SaaS market is quickly becoming saturated. Many new businesses will face challenges as they compete against established brands.  The saturation is expected to get so bad that if a new company achieves a staggering annual growth of 60%, its chances of becoming a multibillion-dollar giant are no better than a coin flip,” according to McKinsey & Company.   The SaaS market offers incredible opportunities, but to succeed, you need the knowledge to understand basic dynamics and intricacies.

This guide will provide you the information to be successful.  We will help you understand how the SaaS industry works.  You will also discover what you need to launch and start your own SaaS product.

What is SaaS?

The first question you need to fully understand is, What is Software as a Service (SaaS)?  It is a new software distribution model that provides customers access to internet applications rather than requiring physical media and custom installation requirements.  SaaS products are hosted by a provider, and this provider is also responsible for maintaining and updating the software automatically.  The ease of SaaS is that customers can access them via the web and mobile browsers.  In recent years, SaaS has revolutionized the software delivery model.

Before the popularity of SaaS, it was difficult and time consuming to introduce a new application to an organization.  The process usually went something like this:

  • A lengthy sales process;
  • Complex on-site installation;
  • Custom software development; and
  • Staff training,

The process could easily take weeks before employees could initiate using the new application effectively.  With SaaS, this can happen in a matter of days.

As a result, SaaS is rapidly becoming the model for delivery of core business applications. In fact, even traditional software vendors are building SaaS products, and they often expand their offering by acquiring other SaaS companies. Some examples of this include Microsoft Teams, Amazon Chime, or even Oracle buying Opower for $532 million.

What is a SaaS Company?

A SaaS company is a business that focuses on creating, developing, hosting, and maintaining proprietary products. The core benefit of running a SaaS company includes instant access to an unrestricted, global market, and creating the product to scale without raising product delivery costs.  While they may share the same name, SaaS companies are not synonymous with the products that they create.

A typical SaaS company will develop and maintain their own products. Since they are developing it on their own, a significant percentage of their time is focused on sales, marketing, and customer success.

Types of SaaS Products

SaaS applications come in different sizes, shapes, and purposes. Most, however, fall under one of three categories:

  1. Packaged SaaS. These are products that help manage a specific process in an organization — improving employee engagement, strengthening customer relations, or boosting marketing effectiveness, for example. An example of a packaged solution is Hubspot. They offer services that companies can use to manage sales, marketing and customer relationships.
  2. Collaborative SaaS. These applications help teams work together. They can include things like messaging, video conferencing, and collaboration on documents. The platforms support collaborative efforts, such as Zoom, Paper, and Basecamp.
  3. Technical SaaS. These applications offer tools to manage or improve development or technical processes.  These platforms include Cloudsponge, which allows developers to include a contact importer in their products effortlessly. Another platform, Algolia, offers a search API that helps other apps improve their search experience.

Venture investor Tomas Tunguz categorizes SaaS products in three different categories by the value they deliver.

Tunguz finds that some products fall into Category 1.  These apps assist in increasing a company’s revenue. HubSpot helps companies to market, sell, and service customers. This leads to higher growth and revenue.

Category 2 applications focus on reducing costs. Basecamp, for example, offers multiple tools in a single package, eliminating the need for using additional products.

Category 3, productivity software, falls somewhere between the two. These products help increase revenue or reduce cost. However, their effect is less obvious. One example, Zoom.us, allows companies to run conference calls and webinars over the Internet. While using the product reduces costs and provides a platform for revenue-generating ideas, this result is not as evident as it is in the other two categories.

As you can see SaaS offers incredible business opportunities. Adoption of the software as a service model continues to grow rapidly. However, with high demand and competition, founders must understand the dynamics of the market and work to stand out by providing unique solutions and immense value to users.