{"id":5515,"date":"2016-10-05T16:17:01","date_gmt":"2016-10-05T14:17:01","guid":{"rendered":"https:\/\/chartmogul.com\/blog\/?p=5515"},"modified":"2023-08-17T10:09:22","modified_gmt":"2023-08-17T08:09:22","slug":"understanding-saas-gold-rush","status":"publish","type":"post","link":"https:\/\/chartmogul.com\/blog\/understanding-saas-gold-rush\/","title":{"rendered":"Understanding the “SaaS Gold Rush\u201d"},"content":{"rendered":"

I\u2019m going to preface this article by stating that we should all be skeptical of industry commentary like this. They have a tendency to generalise and imply that we\u2019re unable to set new precedence, which is not the case. Anyone fortunate enough to work in our industry has the potential to do great new things, regardless of any wider industry trends.
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Salesforce is 17 years old<\/h1>\n

From the birth of SaaS, we\u2019ve seen three generations take shape, and we\u2019re currently in the third.<\/p>\n

Even in the second generation, founders sometimes didn\u2019t realize that there could be such a huge opportunity ahead of them. Here\u2019s an early email exchange between Zendesk co-founder Alexander Aghassipour, and Zendesk\u2019s angel investor Christoph Janz, discussing their Series A round. The first message is from Aghassipour, the second from Janz.<\/p>\n

\"SaaS
Source: Christoph Janz\u2019s blog, The Angel VC. And disclosure: both Christoph and Alexander are investors in ChartMogul.<\/figcaption><\/figure>\n

This is a founder of Zendesk, at the point when the company has ~1,000 customers, doubting that they could grow to be a huge company. Now, in hindsight, it seems inevitable of course. We’ve seen Zendesk grow to having over 80,000 customers, all while SaaS steadily takes over the software industry.<\/p>\n

But it seems, at this point in time, we\u2019re questioning the opportunity in SaaS again. Nearly all new business software being built today is SaaS. But in conversations amongst peers and in articles on Medium<\/a>, people are asking, \u201cIs the SaaS gold rush over?\u201d<\/p>\n

The answer is no. There are still enormous, unrealised opportunities ahead for SaaS.<\/p>\n

\"SaaS
[Source: Bessemer Ventures]<\/figcaption><\/figure>Spending on on-premise software has been contracting at 3%, while SaaS has been expanding at 18%. This leaves an aggregate growth rate of about 15% for enterprise software \u2014 it\u2019s all being driven by SaaS. Growth in the future may well be more aggressive.<\/p>\n

\u201cIDC expects cloud software will grow to surpass $112.8 billion by 2019 at a compound annual growth rate (CAGR) of 18.3%. SaaS delivery will significantly outpace traditional software product delivery, growing nearly five times faster than the traditional software market.\u201d – IDC<\/p><\/blockquote>\n

So you could say the gold rush in SaaS can\u2019t be over \u2014 we\u2019ve only got 30% of the market and it\u2019s growing like crazy. We\u2019re definitely not at peak SaaS. So the more apt question is: How much of the market that\u2019s still up for grabs is going to be taken by new SaaS companies, rather than soaked up by existing SaaS players? E.g. public companies such as Salesforce, Zendesk, HubSpot or Workday, or some of the larger private SaaS companies<\/a>?<\/p>\n

Will SaaS companies being seed funded today be able to go big?<\/em><\/strong><\/p>\n

The answer here is yes, but it\u2019s tricky. The dynamics are completely different from what came before. To understand our current environment and the opportunities on the horizon, let\u2019s look at the evolution of SaaS through these three generations.<\/p>\n

First Generation SaaS<\/h1>\n

What drove it?<\/h3>\n

The technology and business model of Software-as-a-Service was brand new and disruptive. It allowed upstart companies to encroach on territory held by on-premise giants. The value proposition was clear: SaaS removed the need for on-premise installations and ongoing maintenance.<\/p>\n

Who were some of the players?<\/h3>\n