In the 10-15 years since the birth of SaaS as an industry, it’s now been planted firmly in the mainstream of conversation, but it’s disruptive wave is still getting started. When we look into Compass data we see that nearly half of SaaS startups have received funding, which indicates a significant amount of investment capital being channeled into the category. There’s a clear reason why. Gartner forecasts the SaaS market will grow at 20% through at least 2020, almost 3 times as fast as software overall, and there remains ample opportunity for greater global penetration over time. Salesforce represents the shining star of possibility, consistently growing at more than 30%. At the same time, at just 17 billion dollars, the SaaS pool is still relatively small and the field is very crowded. While Compass data indicates that half of SaaS companies are profitable, the statistic also measures a push for profitability over growth, often limiting size. Of all SaaS companies in Compass, only 7% achieve even 10,000 users. The biggest challenge is distribution. Our data shows SaaS companies rely heavily on direct sales — at nearly twice the rates of every other channel, but can afford only modest sales teams of 1 or 2. The vast majority pay nothing for marketing or advertising. This means many salespeople out there fighting, one by one, client by client, for the same turf. These crowded market challenges are also driving a push away from SMB audiences and into more lucrative enterprise markets. But it is primarily the packaged software industry titans that dominate SaaS revenue — Intuit, Oracle, Adobe, Microsoft, Google, SAP. One can think of this as a David versus Goliath scenario, except that the David’s are fighting each other. The Goliath’s may not be as nimble, in many cases their products are inferior, but they have the support of an entire distribution ecosystem — from resellers to channel partners to consultants and trainers — who are dependent on the horse they bet on winning. Enterprises, then, aren’t just larger small businesses. Their needs run far deeper. Any software solution must integrate effectively with multiple legacy systems. Security is a tremendous concern. Training programs must be rolled out. A small business may make decisions for the moment, but enterprises must have confidence in the long-term viability of the vendor. All of this goes to reinforce the fact that history tells us, sometimes painfully, that the best product does not always win. The best distribution method does. So returning to the David side of the equation, what can SaaS businesses do to beat the Goliaths? Learn more in the presentation and at blog.startupcompass.co

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State of SaaS
18 February 2014
Bjoern Lasse Herrmann
Small Business Summit

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Good news

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First successful SaaS Players

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The combination of SaaS, cloud
services and mobile “has the
potential to topple nearly every major
enterprise software incumbent.”
- Scott White, Andreesen Horowitz

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Easier than ever to launch a great SaaS
product

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A lot of funding is pumped into Saas
Nearly half of SaaS
startups are funded

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The SaaS market is growing
3x faster than software
7%
Software
18%
Cloud
20%
SaaS
Source: Gartner, 2013 !

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Growth will continue throughout the
decade
20% growth forecast through 2020
Source: Gartner, 2013 !

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Global markets
$10B
N. America
$3.5B
Europe
$1B
Asia
Source: Gartner, 2013 !

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Salesforce is a shining star
+30% growth in 10 of the last 12 quarters

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But

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The SaaS pool is still very small
Less than 6% of the
overall software market
$2,700B
IT
$326B
Software
$131B
Cloud
$17B
SaaS
Source: Gartner, 2013 !

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Everyone wants in

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Saas is very Competitive
Half of SaaS startups
either are choose growth
over profitability

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The SMB market is fragmented

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And crowded with competitors

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Scale is hard to achieve
Less than 7% achieve
10k users

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Distribution is the #1 challenge
No existing distribution ecosystems

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Companies rely on direct sales

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With small sales teams
Only the largest
companies have teams
of 5+

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And without marketing funds
Only the largest
companies pay for
advertising

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So companies fight for turf

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And push from SMB
into lucrative
enterprise markets

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Aiming to join the SaaS leaders
But is this really the competition?
$20-25B market cap
$5-20B market cap
$1-5B market cap

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This is who really dominates
Most SaaS revenue comes from industry titans

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This is David versus Goliath
Except the David’s are fighting each other

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Why do Goliath’s dominate?
They may not be as nimble,
but they have the support of
a whole distribution
ecosystem
Technology
Resellers
Channel partners
Consultants
Licensed trainers
System integrators

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Enterprises have deep needs
SMBs change software after reading a blog post
Enterprises require a change management plan
Integration
Security
Training
Data portability
Long-term
viability

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The best product does not win
The best distribution does

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So how can the Davids beat the
Goliaths?

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Start with the right segment
CRM is fastest growing enterprise market
SaaS still only 40%
Source: Gartner, 2013 !

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Start with the right technology
Mobile is new for
Goliaths
Web is accessed
27% more on mobile
than PC
Source: Gartner, 2013 !

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Start with the right channel
Partners are 10x less expensive than other channels
Strength in numbers

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Cross-sell
Not just for additional revenue
But to build distribution networks
Consultants
Licensed trainers

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Scale fast, build a platform
Worry less about product, more about distribution
3rd party APIs stabilize and feed Salesforce

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Band together
Channel partners increase distribution
Stability & portability increase attractiveness to enterprise
buyers
Consultants
Saas Companies

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Alone The Davids
have a hard time to Compete

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Together they can win
Consultants
Saas Companies
Bjoern@compass.co!