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What is SaaS product – A Welcome Guide to Cloud Software

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7 min read

Software-as-a-Service or SaaS product is a widespread business model for the world of digital products.

As Bessemer precisely notes, nowadays, there are 55 private SaaS companies

that cost equal to or more than $1 billion. That proves that it’s not just a hype on the market of cloud-based products. 

It’s a sign of rapid growth from the current $500 billion market evaluation to hit a $ trillion mark in the next few years.

Thus if you are interested in joining the club of successful founders, let’s break into and clarify what the SaaS app is and why launch an MVP in this field is a good idea.

What is a SaaS product?

I didn’t mean to write an article like SaaS for dummies. But still, I want to explain what SaaS is in simple terms.

SaaS product is an internet software that all users have access to. Many of your favorite internet platforms are SaaS – Google Apps, DropBox, or Canva.

The idea of the SaaS app began to spread by entrepreneurs in the 90s. And to date, it is one of the most relevant business distribution models. At least, 51% of companies already operate every process in the cloud. By 2020 this number is to increase to 73%.

To use SaaS platforms, you do not need to install anything on your device. A server provider hosts the application. Both the maintenance and updates are performed on the host side and are invisible to the user.

The best thing about SaaS software is that you don’t need any special equipment or specialists to use it. Go to the site – use the product – grow profit. What could be easier than that?

As a result, SaaS has rapidly developed as a model for delivering value to the user. And the market reacted.  Large corporations like to absorb SaaS companies along with their products. 

For example, in 2018, Microsoft acquired GitHub for $7.5 billion, Adobe acquired Marketo for $4.75 billion and Magento for $1.68 billion.

In short, the SaaS product market has great potential. It provides an opportunity to become a participant in the “cloud” wars and choose any niche in its trillion-dollar market. 

Thus, to become a successful player, you need to understand the basic concepts and dynamics of SaaS.

Microsoft acquired GitHub

Key characteristics of SaaS product

Entrepreneurs always keep an eye on the features and characteristics of SaaS. It is not surprising since it’s an excellent opportunity to move into the big league. Therefore, to learn what is SaaS sales and how they work.

The numerous advantages of SaaS relative to the traditional software business model have certainly been a factor. But is everything truly so smooth? Let’s find out the pros and cons of SaaS products.

Advantages of SaaS

  1. Accessibility. It is a client-centricity basis, which defines a cloud software model. The availability of your service is only limited to an Internet connection. Your customers can entertain or work being as mobile as possible.
  2. Endless integrations. The number of cloud apps used is constantly growing. Thus, in 2020 the software integrations have become a must-have requirement. It is an advantage of SaaS for organizations, because:
    1. On average, organizations with over 250 employees use 100 SaaS products.
    2. Organizations that have up to 50 employees use around 50 SaaS products
  3. Easy scaling. At the heart of any growth are a bunch of metrics and complex calculations. Yet, in a technical context, only cloud-based software allows for smooth growth in the number of features. It is crucial for any MVP product.
  4. Data safety. The cloud security standards are so high that through 2025 99% of cloud security failures will be the customer’s fault.

the main advantages of saas

Disadvantages of SaaS

  1. Security challenge. Paradoxically, security is both a strength and a weakness of SaaS apps. Why? Because technical solutions like ISO / IEC 27017 standard don’t guarantee the avoidance of user data leakage. Anything can be the cause – from weak passwords to phishing attacks.
  2. Government regulations. Many SaaS solutions deal with data that is under state regulations. Thus, there may be a tech challenge to meet state requirements, whether it is compliance with GDPR or HIPAA.
the main disadvantages of saas

Types of SaaS

SaaS model is singled out as a separate market direction for a reason. The diversity of all the possibilities of the market for cloud solutions is astonishing. 

Let’s consider some of the available options. Here are the main types of SaaS:

  • The CRM or customer relationship management software. In 2019, 91% of small business players used CRM. The goal of such systems is to automate the sales and marketing processes. The core features include lead’s pipeline and analytic dashboard. Salesforce and HubSpot are one of the most significant trendsetters in this area.
  • The ERP or enterprise resource planning software. It’s a management system to manage every business process in real-time. The data shows that customer satisfaction with ERP software increased to 68% in 2019. On the background of the market growth to $79 billion by 2026, your SaaS would be beloved from the day 1. Oracle and Acumatica are the famous players at this market.
  • The Project management software. This type of SaaS product helps PMs to collaborate with their teams. This niche is expected to grow to $4.33 billion by 2023, so there is an excellent spot to start your own project. The strongest competitors in this field are Jira and ProWorkflow.
  • The billing software. In simple words, this niche contains SaaS products to cover all payment procedures. It makes a payment and after-payment reports the single-click processes. This market is predicted to reach $20 billion by 2026. It’s great news for such SaaS providers as Xero or Tipalti.
  • The collaboration software. Usually, this type of cloud soft includes features for communication and sharing the information. The size of this market is expected to be worth $16 billion by 2025. It is large enough to carve your own piece of the pie. The good examples of collaboration software are Miro and i done this.
  • The eCommerce software. This kind of software includes everything you need to do business on the Internet. The core features include goods management and payment integrations. The e-commerce market is forecasted to reach $21.4 billion by 2020. It creates synergy with a Internet-based shopping, since by 2040 95% of customers will make purchases via Internet. To understand the eCommerce trend better, you can analyze such trend-setters as Shopify or BigCommerce.
  • The vertical SaaS. It’s a specific SaaS product for a particular niche. It can be anything – a comic store, martial arts dojo, grooming salon, or any other business. Vertical SaaS is a generic name for the niche products made, especially to optimize specific business processes.

Do you have an idea for a cloud software?

Talk to us and we will help you to start a SaaS product off the ground

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Examples of SaaS companies

G2 made a list of the best software companies in 2019. The list is based on reviews of real users. Let’s take a look at the top 5 SaaS companies.

The list of best SaaS companies in 2020

Google

It needs no introduction. Google has developed 137 Internet-oriented products. We enjoy using their products every day. Google’s product list includes search engines, maps, software for advertising, analytics, and documents.

The company started as a little startup in 1998. Today, 21 years later, it has $136 billion revenue.

Google's annual revenue - $136 billion

 

Adobe

Each of us knows what Photoshop, Illustrator or Flash Player are. Adobe owns more than 50 software products in the field of photo and video editing, printed media and marketing.

What can I say – with their help, users open 200 million PDFs annually. In turn, the Adobe users helped the company to earn $9 billion last year.

Adobe's annual revenue - $9 billion

 

Slack

Started as a massive multiplayer game that failed, the company managed to morph into Slack, we all know and use today.

Slack was born in 2013 and currently develops three products. Their main product is Slack messenger, which mostly used for business purposes. Slack is easy to integrate with many third-party services.

That is the reason why Slack has 9 million active users per week and has generated $401 million revenue.

Slack's annual revenue - $4.1 million

 

MailChimp

When Darwin’s theory met email marketing, the world saw MailChimp (and after that many Mailchimp alternatives). The company now owns three products.

The main one is MailChimp, an email marketing tool for developing and analyzing the email-oriented marketing companies. The number of the letter sent by MailChimp is 15 billion per month.

As a result, the company earned $400 million with just 550 employees.MailChimp's annual revenue - $400 million

 

Shopify

Do you want to start your business? Use a credible tool. Shopify is an eCommerce platform that owns four products. Its main product, Shopify, is an eCommerce platform for online stores and retail Point Of Sale – POS.

Over  800 thousand entrepreneurs use this tool for their business purposes. It helped Shopify to generate $1.3 billion in revenue last year.

shopify's annual revenue - $.3 billion

SaaS learning center

If you want to build a successful SaaS product, permanent and validated learning is essential.

Therefore, I highlighted 5 best resources to let you make your own SaaS Knowledge Base:

  1. SaaStr should become your daily reading. Being credited as “the world’s largest community for business software”, it’s a great resource to upgrade everything you know about SaaS. Or find something you always wanted to learn. Also, I recommend you to check Twitter of the founder of SaaStr, Jason Lemkin .
  2. ForEntrepreneurs by David Skok is another example of in-depth analysis and top quality content. If you want to improve your marketing and sales skills, you certainly need to check this out.
  3. PredictableRevenue’s blog focuses on the best sales strategies for SaaS. Do you want to know how the author reinvented the cold call strategy? Take a look at this blog and find out how to scale your SaaS business.
  4. The most data-driven content in the SaaS industry is Tomasz Tunguz’s blog. It nails the SaaS concept using in-depth data analysis. It is a useful and enjoyable read.
  5. And finally, SaaStock podcast. The SaaS Revolution Show has 60+ episodes. The topics cover every SaaS issue and are very informative to listen to. Enjoy it.

Summary

What is SaaS product? It’s a cloud-based computing software with a subscription basis and online access only. This type of software provides customers with smooth mobile access to speed up their productivity.

It’s a trend in the world of digital products. The statistic shows that 37% of all projects fail because of the lack of clearly defined objectives. That is why I always recommend to validate your idea first.

I hope you enjoyed this article. Feel free to write down your questions, feedback, and comments.

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Posted by

Max Babych

Max Babych

I am CEO of SpdLoad

I launched SpdLoad almost 7 years ago and now it has 20+ successful products in SaaS and Marketplace industry and several own products. I am an expert in Marketing, Lean Methodology and Customer Development approach.

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