Software-as-a-Service (SaaS) products are saturating even more business functions. Success in ‘business lite’ areas like CRMs has driven 50%+ adoption, paving the way for core business applications like ERP and supply chain management to go SaaS. Traditional barriers like security and reliability are being outweighed by benefits like no customization and effortless updating/software versioning.
Software-as-a-Service, or SaaS, has been used by consumers for a long time, but it’s been slower to take off in B2B software.
While organizations have been relatively happy to use SaaS for functions with a lower security requirement like sales (Salesforce), other systems like ERPs, PLM, and supply chain software has proven much more difficult to transition to the cloud.
The result is enterprise software that continues to lag behind its consumer counterpart, frustrating users and driving down productivity.
But this is changing. Here’s why.
The road towards SaaS has been pre-paved
First, consumers have embraced SaaS and cloud-based computing across all product verticals:
- SaaS is used for personal content creation via content management systems, multi-tenant web hosting, website management, or even creating your very own Netflix-like platform.
- SaaS is the business model of choice for endless tiny software products, like viewing PDFs without buying Adobe software or masking your location (HBO in Canada, anyone?)
Second, that deep consumer market penetration has also moved into what we call ‘business lite’ – auxiliary business functions that are not core business requirements. B2B SaaS examples include customer relationship management (CRM), marketing software (MailChimp, ZoomInfo), data management, and accounting software (FreshBooks, Xero) all fall into this category.
SaaS consistently out-performs traditional implementations
The reason that consumers have opted for SaaS products is they’re usually a lot better.
The same goes for businesses. According to a Forrester Report about this transformation:
in the categories where SaaS dominates, application functionality, usability, and analytic insight is clearly superior to on-premises alternatives, which are exhibiting lower levels of vendor R&D investment.
So why does SaaS perform so well?
It’s economics and incentives.
Software-as-a-service companies are usually based on a recurring revenue model: they only make money if customers stick around.
That means that they’re incentivized not to build a great product once, but continue to provide a great product over the long term.
Since technology advances so quickly, this continuous development is actually what you, the customer, wants. It means that your software will grow and change with you, rather than going through a normal software adoption curve, where the product works great for a while but eventually needs to be replaced.
Second, SaaS will generally deploy faster and cleaner than traditional software solutions. Because the recurring business model means that a client isn’t immediately profitable, SaaS vendors work hard to reduce any necessary customization, which has lots of spinoff benefits:
- It’s easier to get users up and running quickly
- Less customization reduces implementation costs and timelines
- Less customization allows for greater flexibility in the application setup post go-live
- Customers are less tied to their software vendor. If the product is no longer meeting their needs, it’s easier to switch to a different SaaS provider.
Traditional objections are less relevant now
Finally, SaaS is growing in core business areas because the traditional disadvantages of SaaS are simply not relevant anymore.
Cloud providers like Amazon, Google, and Microsoft offer security and a hosting quality that even large companies with ample resources struggle to match. Top-notch physical security, as well as best-in-class digital security, mean that even multi-tenant cloud hosting solutions (when lots of different clients sit on the same server) is fantastically secure.
The same goes for reliability. Building out reliable physical and digital infrastructure to the same spec created by cloud infrastructure as a service (IaaS) providers is almost impossible for most organizations.
A long history of incumbent subscription-based success in core business applications has made SaaS adoption slow. However, we think that this is changing.
Not only is SaaS a better business model for clients, in many ways it’s a better business model for software providers. It gives them the overhead and flexibility to reinvest in product improvements and features, as well as provides a simple mechanism for them to push those changes out to their customers. And for the businesses who purchase SaaS products, sure they increase their monthly costs, but they also get regular new features and a technology stack that’s constantly engaged with the latest and greatest.
These benefits are too good to pass up, and more and more core business processes are switching to SaaS providers as a result.
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