5 ways COVID-19 has transformed the SaaS landscape

The pandemic has proven to be a transformational opportunity for SaaS businesses to grow and evolve. Unlike many other sectors, the SaaS industry is at a good vantage point, set out to help businesses make this new normal work to their benefit.

5 ways COVID-19 has transformed the SaaS landscape

Thursday July 29, 2021,

6 min Read

As the COVID-19 pandemic unleashes its wrath on millions of people around the world, we’re witnessing a rather unprecedented restructuring of the socio-economic order as we gravitate towards what’s being called a “new normal”.

The spread of the virus has dramatically expedited the move to digital spaces with virtual work, online retail, distance education, and telemedicine, all driving up the demand for digital solutions.

According to a study by McKinsey & Company, the pandemic accelerated business’ digitisation of customer-facing and internal operations by four years, and the adoption of digital products in their portfolio by seven years.

In this virtually-driven landscape, it’s only natural that SaaS (Software-as-a-Service) companies are experiencing a transformational change, along with a surge in demand for their products.

Today, several businesses across the world are dependent on digital meeting and cloud-based collaboration solutions to connect with their employees and customers. The SaaS industry, as a result, has reached a tipping point, faced with both challenges and opportunities.

Why cloud-based SaaS businesses are thriving in the current scenario

The pandemic has resulted in the widespread adoption of SaaS products, but companies’ migration from legacy systems to the cloud is a change that was only waiting to happen.

Back in 2008, only 12 percent of companies had deployed cloud-based apps. This year, however, 73 percent of businesses want to move almost all of their apps to SaaS, a study reports.

Incidentally, Gartner has predicted the global end-user spending on public cloud services to grow by 23.1 percent in 2021 to $332.3 billion, up from $270 billion in 2020.

And there's a good reason for this spike in interest and investments in SaaS.

For starters, these solutions can be deployed without any need for physical installation or distribution. Upfront investments on them are also significantly smaller.

According to a study by Microsoft, 82 percent of companies have reported a significant reduction in their costs as a result of utilising cloud technology. Additionally, 70 percent of small businesses report reinvesting the cloud cost-savings back into their business.

And those are just its economic advantages.

With more and more companies compelled to improve their work-from-home capabilities, increased investments in cloud-based systems now form a critical aspect of their strategy and goals. The biggest reason for this is that these systems not only make remote multi-user access a breeze, but also do away with the need for physical storage and warehousing.

Acceleration of digital transformation across legacy industries

COVID-19 propelled many traditionally-run companies to re-imagine their digital transformation strategies. Unprepared for the chaos in the first quarter of 2020, organisations had to rapidly adopt a remote work structure.

In case of many companies, however, existing technology infrastructure acted as a hindrance to this development. Firms that were majorly dependent on on-premise solutions, and archaic pen, paper, and excel technologies, were the first ones to lose out as the pandemic spread across the world.

Companies that were quick to adapt, however, sustained and grew their business, despite the economic upheaval. According to market research company, Vanson Bourne, companies adopting cloud technologies see a 19.63 percent increase in company growth.

Today, SaaS businesses are cashing on this existing gap in a huge way. They’re attracting business even from old-school companies that have long been apprehensive about investing in digital transformation initiatives.

However, despite the big boom the industry is experiencing right now, it’s important that SaaS companies don’t get complacent or take their customers for granted in an attempt to save on costs. Now, more than ever, SaaS firms need to realise that focusing on customer success and retention is pivotal for pure survival.

Economic uncertainty drives SaaS growth

Owing to the growing economic uncertainty caused by the pandemic, most companies are making careful and prudent investment decisions to ensure they get good returns on them. Needless to say, they are more comfortable with rolling costs of subscription-based solutions, which prove to be cost-efficient in the long run.

Also, unlike traditional on-premise models, cloud-based solutions don’t require additional investments on purchase of servers, software licensing, and maintenance. Clients can simply select their subscription plan, create an account, and start using the software.

Having said that, SaaS businesses must remember that once the clients have had a taste of the SaaS advantage, these benefits will be taken as a given, and businesses will soon start seeking new standards from vendors.

Businesses increasingly demand data security, flexibility, and scalability

If there’s one thing that COVID-19 has brought home, it’s the unpredictability of the world we live in. As a result of this unpredictability, companies are prioritising the need to avoid unforeseen data security threats. They’re increasingly turning to SaaS cloud products for their best-in-class data security.

Further, SaaS allows for excellent options to store, backup, and retrieve data, which becomes significant in remote-access scenarios. As a large number of companies move to remote or hybrid working models on a permanent basis, their demand for scaling these systems is bound to grow as well.

Most top-of-the line SaaS firms have shown agility in adapting to these changing business needs, but others need to be prepared to offer bespoke solutions. If a small startup grows into a bigger conglomerate, the SaaS solution should grow with it.

COVID-19 will drive the need to develop critical solutions

Once again, driven by the pandemic, CEOs and CFOs will be looking to cut costs envisaging a precarious economic outlook.

SaaS firms will have to focus on delivering mission-critical software over ‘cool-to-have’ solutions. Engaging with clients, and understanding their biggest pain points is critical for SaaS firms that want to offer solutions to help businesses grow and thrive in this changing landscape.

Defining winners

According to a recent report by Bain & Company, over the last five years, the number of funded SaaS companies has more than doubled. Further, the number of SaaS companies drawing Series-C or later stage capital has quadrupled.

Some reasons for the increased large-scale investment in the space could perhaps be the huge number of successful exits, the industry’s fast growth, the ability to easily expand to global markets, and high gross margins.

COVID-19 has reduced the demand for traditional technology platforms. Even though global markets struggle to rebound, speculation is rife about increased investor interest in enterprise software, especially in higher-rated SaaS companies.

The current scenario is likely to fast-track the demarcation of winners from strugglers in the SaaS market. The ones focusing on mission-critical software should be able to make their way out of the slump and stay in the race for the long haul.

The pandemic has proven to be a transformational opportunity for SaaS businesses to grow and evolve. Unlike many other sectors, the SaaS industry is at a good vantage point, set out to help businesses make this new normal work to their benefit.

At this point, however, what’s key for most SaaS firms is that they are adaptable and prompt – not just in addressing the current needs of their customer base, but also in foreseeing their needs for the future.

Edited by Megha Reddy

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)