Software as a service (Saas) is experiencing significant growth and transformation in 2024. SaaS allows users to access cloud-based apps over the internet, such as email, office tools and calendaring services. This industry report highlights key information from the global SaaS market for our early-stage investor readers – i.e. market capitalisation, key players, rising stars, trends, risks and opportunities. We conclude with our thoughts about how investors can best integrate this exciting sector into their wider strategy.
Market Overview: SaaS
Last year, in 2023, the global SaaS market was valued at $273.55 billion. It has now grown to $317.55 billion in 2024 and is expected to reach $1,228.87 billion by 2032, representing a compound annual growth rate (CAGR) of 18.4%.
North America comprises the bulk of the global market capitalisation, accounting for $131.18 billion in 2023. However, other regions also boast impressive growth. Europe, for instance, is expected to reach US$197.00 billion in market size by 2029 (19.09% CAGR). Asia is also growing, albeit at a slower pace – i.e. $191 Billion by 2031 (8.63% CAGR).
In addition to geographic region, the SaaS market can also be divided into other important segments. By application, SaaS offers distinct solutions in Customer Relationship Management (CRM), Enterprise Resource Planning (ERP), Human Resources (HR) and more. By enterprise type, SaaS is largely bifurcated into large enterprises and SMEs. By industry, SaaS leans heavily into BFSI (Banking, Financial Services, and Insurance), IT & Telecom, Retail & Consumer Goods and Healthcare. However, it is also making great strides in other sectors, such as Healthcare and Education.
Features, benefits and trends
Undoubtedly, the rise of machine learning and artificial intelligence (AI) has played a key role in driving growth in the global SaaS market. AI (a branch of computer science) is empowering SaaS firms in analytics, predictive modelling and data-driven insights. Machine learning (a subset of AI) facilitates these firms in learning from data and improving over time. Essential features and operational efficiency are improving as a result across many verticals.
More enterprises are also moving to a “hybrid cloud” model. Not only does this offer a way to overcome issues with legacy network attached storage (NAS), but it combines the best of both worlds – i.e. locality and performance from on-site storage, and scalability and cost-effectively from cloud storage. Indeed, the flexibility of SaaS solutions allows for endless possibilities to create diverse digital ecosystems – e.g. using API integrations often managed via a robust API gateway platform.
Another emerging trend is white-label development. Here, a provider offers unbranded software to other firms, which can then rebrand, reprice and resell elsewhere. This can be invaluable for many SaaS startups, allowing them to storm into markets quickly with a ready-made solution. This route also mitigates many traditional software costs, such as testing, trademark registration and app development.
Key players and new entrants
Large enterprises dominate most SaaS segments. These include familiar names like Microsoft, Adobe, Amazon, Alphabet and IBM. Yet, the bifurcated market also features some interesting startups. Many serve niche customer bases and can more easily create predictable, recurring revenue streams via subscription models. SaaS models are also highly scalable – e.g. achieving growth by acquiring new subscribers and/or strategically adjusting pricing models. However, SaaS startups typically need to invest heavily in marketing and sales to gain traction and stand out in crowded marketplaces.
A range of UK case studies can be highlighted in 2024. Teya (trading as SaltPay), for instance, is a London-based payment processing company. Founded in 2019, it has already finished two funding rounds totalling £358m of investment. Another example is Improbable, a SaaS firm enabling other industries to create their own virtual worlds and simulations in the metaverse. Established in 2012, the company has achieved £664m in funding over seven rounds. A third case study is SeeChange, which offers retailers an AI-powered platform to visualise data and prevent loss. In November 2023, it raised over £8m in a single funding round.
Opportunities and risks
One advantage of SaaS startups is that they mitigate many country-specific risks due to their inherent potential to scale globally. If that startup’s native economy experiences troubles, customers can still be found elsewhere. The steady revenue streams from subscription models also assist with investor cash flow stability and predictability, thus mitigating liquidity risks. Rising demand for smart devices and applications is also driving the global SaaS market, especially as businesses seek to future-proof themselves against other Covid-style lockdown scenarios.
There are restraining factors to consider, however. Personal data and sensitive business information are stored on SaaS platforms, raising security risks. SaaS misconfiguration can be an issue for enterprises, leading to service disruptions and even data breaches.
The main cause for misconfiguration issues (the leading cause of security incidents) is a lack of clarity over changes in security settings. For instance, if several departments have access to these settings, it may just take one team member to act unilaterally and mistakenly to cause major problems. Fortunately, this risk can be spotted and planned for in advance if SaaS founders (and their investors) identify it early on.
Invitation
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