Software as a Service companies are growing faster than Software as a Product (SaaP) companies, according to reports.
The Software Equity group has announced that in 2014 SaaS companies grew at a staggering 28%, compared to an 8% rise for SaaP businesses. Private SaaS companies grew even faster, with a median rate of 37%.
Cloud strategies suggests that there are four reasons for this growth:
End user trends
The growth of the SaaS industry is largely attributed to the change in how end users want to access software. There is a full blog on the end user benefits of software hosting here, however as a brief recap, here are a few key benefits discussed:
- As long as the end user has an Internet connection, they can access services anywhere.
- As the software is typically paid for on a subscription basis, end users can benefit from reduced capital expenditure.
- Increased collaboration capabilities – share files and information on the move.
Deferring revenue to accelerate growth
Revenue from a SaaS customer is initially less than SaaP revenue, as it is paid for on a subscription basis, but the overall revenue for SaaS overtakes SaaP as long as customer churn rate is low. The lower the churn rate, the better the revenue.
SaaS sales create incremental growth
If a SaaP business was to sell £6,000 worth of software in one quarter, it must sell at least the same amount next quarter or it will have negative revenue growth. If a SaaS business was to do the same, it would continue to grow because the contracted revenue is added to the previous recurring revenue. This difference would attribute in a dramatic SaaS growth rate, over SaaP.
SaaS companies have more expansion revenue
For a SaaS business, once partnered with a company, it’s much easier to continue to sell internally and expand growth. This is due to the fact that there are fewer barriers to the selling process; customers can usually ‘try before they buy’, are not tied into any long contracts and don’t have to install the software manually themselves.
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