Everything as a Service (XaaS) is an umbrella term that refers to the service offerings of ‘anything’ as needed and financed over the internet. It encompasses technologies, tools, and products vendors use to deliver their service over a network. According to Inkwood Research, the global Everything as a Service (XaaS) market is expected to register a CAGR of 20.77% and garner a revenue of $3958.99 billion by 2032. One of our major findings with regard to the XaaS market is the declining sales of SaaS-based services and software during the forecast period, 2023-2032.
Accordingly, this blog attempts to understand the SaaS landscape as of 2023.
The SaaS Explosion
Businesses are adopting Software as a Service (SaaS) applications at an astonishing pace. As per BetterCloud, IT-sanctioned SaaS apps have increased ten times since 2015. Moreover, according to the same source, 85% of business apps will be SaaS-based.
2020 was a pivotal year for the SaaS market. The global pandemic forced companies to move from office-based to virtual teams. In this regard, SaaS services and applications were crucial in keeping businesses operational and workers employed during the pandemic. Thus, it is safe to say that the SaaS explosion has been real. In addition, it has opened up new buyer segments (for instance, small and midsized firms), attributed to the Operational expenditure (OpEx)-based subscription pricing.
Recession Clouds loom over SaaS
As per evaluations, SaaS enterprises will be the first causalities to the economic slump, given the vast outreach of the SaaS market and the plethora of industries it serves. Besides, most companies in the SaaS industry have never encountered a recession. The recession fears in the United States are attributed to the Russia-Ukraine war and its impact on supply chains, the US Federal Reserve’s aggressive interest rate hikes, and runaway inflation. Accordingly, there are concerns about expenditure on software, which would be unpleasant for SaaS companies. Moreover, prominent SaaS firms announced layoffs, including Chargebee, Freshworks, and SalesForce.
In a LinkedIn post, Krish Subramanian, Chargebee’s cofounder, wrote, “This difficult decision was driven by external market forces as well as our need to address the operational debt we have accumulated in the last few years.” (Source)
Whereas other companies adopted stringent cost-cutting measures like reduced marketing spending. A direct and immediate impact of the recent tech layoffs with regard to the SaaS industry is the declining seat licenses.
More vigilance regarding safeguarding business-critical SaaS applications in a down economy is warranted for an enterprise subscribed to SaaS services. Another major challenge the SaaS industry faces is the increasing customer acquisition costs (CAC). Additionally, given the budget constraints, several enterprises are cutting back on their expenditure on SaaS products and services. This has further decreased the demand for SaaS products, making it difficult for SaaS companies to acquire new customers.
Moreover, COVID-19 influenced the demand for productivity and remote SaaS products like Twilio and Zoom. At the same time, post-COVID has rendered lower dividends for SaaS firms, with several clients no longer requiring their services.
What does the future hold for SaaS?
While several founders and investors opine that 2023 will be rough for SaaS companies, certain trends are projected to govern the SaaS landscape.
Big Bets on Predictive AI
Predictive AI found use cases in ChatBots and HRTech, including climate change analysis. As a result, it is gaining the attention of many investors.
According to Krish Subramanian, Chargebee, “I think every company will have to build a predictive as well as embedded AI experience into their platforms and it is going to become table stakes through 2023.” (Source)
Deep Technology is a Favorite Bet
The top SaaS companies are betting on deep tech and amplifying their investments. The products built to enhance revenues, minimize costs, and improve operational efficiencies are slated to do well.
As per Zoho’s Praval Singh, “The focus is always on building products from the ground up instead of acquiring them, and investing heavily in R&D to gain the know-how and develop deep-tech capabilities like audio-video conferencing and AI frameworks.” (Source)
Data Security, Cloud Infrastructure, and Developer Tools will fare High
According to Singh (Zoho), “Data privacy and protection will remain critical and see a larger degree of technology investment. This may also push larger companies, especially in certain sectors, to consider on-premises cloud setups in order to retain more control over the software they deploy and their data.” (Source)
Future of SaaS: Innovations will hasten Resilience
Recessions foster real innovations. For instance, Microsoft was founded during a recession. So were payment giants Square and Venmo. Also, WhatsApp, Slack, Airbnb, and Uber were products of the recession. As a result, companies with real innovations have the potential to survive the recession onslaught. Similarly, given the budget constraints, the primary focus will be on SaaS applications that yield maximum value and minimal complexity alongside improving the consumer experience. In essence, product enhancements are the way to go for SaaS businesses to survive the down economy.
Inkwood Research’s segmentation analysis of the global Everything as a Service (XaaS) market includes type, business type, and organization size. The type segment includes UCaaS, DaaS, SaaS, AaaS, PaaS, and IaaS. As per our evaluations, SaaS had the largest revenue share in 2022 (31.26%). However, this blog was an attempt to understand the current landscape and future prospects of SaaS.
By Akhil Nair
Which is the fastest-growing business type in the global Everything as a Service (XaaS) market?
Business-to-Consumer (B2C) is the fastest-growing business type in the global Everything as a Service market.
Which country has lucrative prospects with regard to Everything as a Service (XaaS)?
India has lucrative prospects with regard to Everything as a Service (XaaS).