2021 SaaS Outlook, What’s Changing in SaaS This Year?

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If 2020 is remembered as the year of COVID-19, 2021 will be remembered as the year of change. Putting aside everything else that may change, let’s just focus on SaaS in 2021.

Cloud and SaaS companies overall benefited from the dramatic shift to digital and remote work in the US and around the world since March 2020. That doesn’t mean that 2020 wasn’t hard to manage through, but overall as a sector, SaaS companies grew revenue and valuations skyrocketed. The global shift to digital goods and services was accelerated beyond anyone’s wildest expectations back in January 2020.

According to predictions in the IDC FutureScape 2021 report, by 2023, 65% of global GDP will be digitized. The lessons from the coronavirus pandemic will lead 80% of enterprises to put mechanisms in place to shift to cloud-centric infrastructure and applications twice as fast as before the pandemic. And according to Cisco, 75% of all cloud workloads and computing instances will come from SaaS applications.

So, the opportunity for SaaS is huge, but the landscape is expected to shift as rapidly as the global shift to digitization. Here’s a few of our thoughts about what 2021 will look like.

Industry M&A and IPOs Expected to Continue at a Fast Pace

One of Tom Tunguz’ predictions for 2021 is that “M&As and IPOs continue at torrid rates.”

  • Large tech companies are expected to be very active in M&A in 2021, as they build out SaaS offerings and platform strategies, especially given high stock prices.
  • Fast-growth SaaS will take advantage of investor attention to SaaS, and SaaS IPOs will be strong.

Product-Led Growth Drives Vertical SaaS to Next Generation

Is this the year of vertical SaaS break-out? Business users are becoming less willing to adapt horizontal applications to the specifics of their segment. New competition and expansion in vertical areas from more vertically targeted SaaS companies will increase competition in vertical SaaS.  After a year of remote work, business customers, even in slow-to-adopt SaaS markets have higher expectations of consumer-like experiences, and competitive offerings will be marketed with great products customized for specific industries and customer groups. Many of the current vertical SaaS companies started as traditional software and transitioned to SaaS without much competition, will have to evolve quickly to stay on top of their game.

Let the Competition Begin

A bigger SaaS market and lots of capital mean more competition.

  • From the top: large tech companies are buying SaaS companies and entering markets where they weren’t competitive before.
  • From the middle: traditional tech companies, even hardware companies, are entering SaaS markets with new offerings and models.
  • From the bottom: VC, PE, and angel investors are expected to continue strong investment in SaaS.

SaaS Management and Operations

The experience of 2020 has changed management and operations in some dramatic ways. Companies and individuals embraced new ways of hiring, managing, and communicating at a pace no one would have believed at the beginning of 2020. SaaS companies are at the forefront of adopting some of the changes. Here are a few areas that are continuing to evolve.

  • Impact of the Remote Workplace
    • Hiring— reduced requirements for in-person work expected even post-pandemic open up recruitment beyond physical locations, but competition for talent will remain tough in tech.
    • Company culture:
      • Remote work opens some of the barriers to increased diversity.
      • Greater recognition of work/life balance for all employees.
    • Company communications:
      • When all employees are working remotely or only a certain percentage are in person, companies have to up the game in terms of communications about mission, business targets, expectations, issues, and culture, to ensure everyone is on the same page. 
      • Usage of communication and collaboration tools is expected to evolve rapidly; everyone is drowning in Zoom and Slack. 
    • Management skills have to be updated across the board to manage, communicate and compete remotely and in a fully digitized world.
    • Security investments and attention to data privacy will increase. 
    • Management structures will change and evolve to handle new requirements.
    • Information systems will have to be evolved to support new structures.
  • Customer Retention
    • Companies will place greater follow-through on retention metrics and retention activities.
    • New focus on Customer Success KPIs and productivity.
    • More focus on building customer communities around products, services, and customers.
  • B2B Sales and Marketing
    • Sales organizational changes: no more big rooms with 50+ inside sales.
    • Sales tools will continue to evolve for the new normal:
      • More video
      • More testimonials
      • More personal interaction to win prospects’ trust
    •  Sales methodologies will standardize toward more contactless and frictionless selling.
    •  Buyer behavior will continue to change and demand a more consumer-like experience.
    •  Companies will execute omnichannel communications with customers and prospects. 
    •  Trust is more important as a brand attribute, since selling is contactless.

Overall, SaaS companies will have to be even more data-driven to handle the fast pace of change internally and externally.

As OPEXEngine launches its 15th year of benchmarking software and SaaS companies, we are seeing new benchmarks as companies adapt to the new normal. As we’ve said before, SaaS isn’t so much a product innovation as an ongoing business model innovation. The only way to stay on top of evolving business models is through peer benchmarking. We are excited to serve the industry in 2021!

 

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