June 18, 2021
3
MIN READ

The Dark Side of SaaS - Part One: 20 Years After Salesforce

SaaS Insights

In this two-part blog, we tackle a topic 20 years in the making: Has all this SaaS piling up around us actually holding businesses back now?

by
Rob Glickman

In February 2000, a little-known company called Salesforce.com launched a campaign announcing the “End of Software”.

The campaign (which included an anti-software protest and a military-themed ball) was to promote their cloud-based CRM. It pitted Salesforce head-to-head against the established, enterprise solutions of multi-billion dollar market-leaders Siebel and Oracle - and it worked.

Over twenty years later, SaaS has revolutionised the way we work and Salesforce, the company the Business Insider initially called “the ant at the picnic”, is now worth over $200 billion.

The transition from expensive, on-premise tech stacks to cheap, flexible, easy-to-integrate cloud software has been a game-changer for scaling businesses. Thanks to the rise of SaaS, every team across every business is now able to work faster, smarter, and more efficiently, with point solutions to optimise every link in the value chain. In 2021, SaaS is indispensable; the skeleton, circulatory system and soft tissue of businesses small and large. 

But the SaaS explosion has a dark side, too – one that’s only just becoming apparent to businesses.

Products and vendors are multiplying, and businesses are finding themselves with more and more integrations to manage. Without proper processes for doing so, admin and costs are spiralling. SMB tech stacks are becoming bloated, full of disparate products which either overlap or don’t talk to each other at all. And with no centralised oversight or control, it’s taking more time, effort and money to make the constituent parts work in unison.

SaaS is starting to block the scalability it was bought to enable, and causing tension between teams.

In short, SaaS swell is overwhelming SMBs. And with more SaaS coming to the market every day, and more companies accelerating their transition to the cloud, that threat is getting bigger. As we enter our third decade of SaaS, we urgently need new strategies to make SaaS work for us again. 

Salesforce and the birth of SaaS**

Salesforce’s cloud-based CRM was revolutionary for a market in the choke-hold of costly on-premise solutions. 

While cloud technology goes back almost as far as computers – born in the same military-funded labs of MIT that would create the ARPANET, the original iteration of the internet – its scope before 2000 was limited.

The cloud certainly wasn’t understood by businesses, let alone being used by them. Instead, the market-leaders in the CRM space were the heavyweight, on-premise solutions of SAP, Oracle and Siebel. 

Not for a long time.

Those solutions came with tremendous price tags. Thanks to the cost of the product, the hardware needed to run it, the software support and implementation, and employee training, the total cost for 200 people to use a low-end product could exceed $1.8 million in the first year alone.

These price tags made on-premise solutions into albatrosses: the sheer expense of ripping out and replacing them meant businesses were lumbered with whatever they’d bought for years, whether it worked well or not. And because they were controlled by the IT department, they often didn’t work well for specific teams with specific functionality needs. Instead, workers used what they were given.

In fact, the disconnect between the employees needs and the software was such that people simply didn't use it. It’s actually estimated that as much as 65% of the average business’s Siebel licenses went more-or-less unused. Software was expensive, and it was barely even being used.

But change was coming.

When Marc Benioff launched Salesforce, he harnessed the power of the internet by moving CRM into the cloud. While Salesforce wasn’t the first SaaS company, it was the first to be completely cloud-based, without any offerings on CD-ROM.

Salesforce could be accessed by anyone, from any internet browser. It could be used by large numbers of customers simultaneously and at low cost. And it didn’t require the installation and maintenance of expensive on-premise servers.

Thanks to flexible subscription-based fees, companies could experiment, and start to compete with enterprise giants. 

How SaaS revolutionised the world of work**

The shift was revolutionary. Today, we live in a Salesforce world.

Salesforce is the de-facto CRM used by over 150,000 businesses worldwide. Siebel folded, while Oracle copied Salesforce by bringing more of its product offerings into the cloud to keep up. But even more impactful than Salesforce’s individual success is the SaaS economy it gave rise to.

Salesforce opened the SaaS floodgates, creating a global market that accelerated fast. In the 2010s, the SaaS market started the decade worth $77 billion and was projected to finish it at $411 billion. By the end of 2023, it will exceed $600 billion. SaaS is now the way we do business: 94% of CFOs say cloud is critical to business growth.

SaaS solutions have resonated with scaling companies thanks to its ease of integration and access, its flexibility and its pricetag. Subscription models and low (or no) integration fees mean it’s cheap to buy, quick to set up and easy to replace. SaaS has moved software out of the IT department; now, anyone in the company can try and buy, experimenting with new tools to achieve their targets. Individuals and teams can buy best-in-class point solutions that work for them, instead of struggling against monolithic master-of-none tech stacks.

It’s no surprise that today, companies have an average of 66 SaaS subscriptions

And that’s set to grow even more. The pandemic has only further accelerated SaaS takeup. As the world was forced to work from home, SaaS became the singular way to communicate and collaborate with colleagues - what would the last year have been like without Zoom?

In a Mastercard study of small businesses, 76% said the pandemic prompted them to become more digital. Looking ahead, the IDC FutureScape 2021 report states that COVID-19 will lead 80% of companies to move to cloud-centric infrastructure and applications twice as fast as before the pandemic. 

The dark side of SaaS**

SaaS is now crucial to every aspect of our work, and we’re only becoming more dependent on it. But is SaaS perfect as it seems? Or is it a double-edged sword?

This is the very question we will explore in Part Two of this blog series.


Contents

Contents

Subscribe to our newsletter

Receive the latest insights in your inbox

Rob Glickman

Rob is a software veteran with executive experience from some of the world’s leading technology companies including eBay, PayPal, Symantec and SAP.

Share this post

Subscribe to our newsletter and stay informed on the latest SaaS insights

Explore more

Explore more

The Top SaaS Tools for 2023 based on data from 1,000+ companies

According to Cledara’s world-leading data on software purchasing, these are the 20 top SaaS tools for 2023—by spend, by usage and by growth.
Read more

The Software Stack Guide for Startups

All you need to know to set your software stack for scale. Including insights from 400,000+ software purchases and renewals.
Read more

Market Insights From our Worlds Leading SaaS Dataset

Leveraging our world-leading dataset on SaaS purchasing, usage, renewals, and churn we look at the health of the SaaS market, the purchasing differences between small and large organizations, new annual purchasing trends, and churn insights.
Read more

Ramp vs Brex: A Comprehensive Analysis

Which is best for your business, Ramp vs Brex? Our ultimate rundown can help you decide.
Read more

SaaS Market Defies Turmoil

Cledara can reveal that overall spending on software by companies has increased by 25% over the past 12 months. Uncover more spending patterns in the software market, the evolving role of finance teams, and the top emerging software applications.
Read more

What is SaaS?

Software as a Service (SaaS) is a cloud computing model that allows users to access applications over the Internet. But there's far more to it - find out here.
Read more

The Great Flattening

Jason Lemkin, founder and CEO of Saastr, discusses the shifts and challenges in the SaaS market at Saastr Europa 2023. He reveals how the market is experiencing a 'flattening' with a slowdown in growth and tightening fundraising landscape.
Read more

Avoid $65m Cloud Bills with a Cloud Management Platform

Wondering if it's time to adopt a Cloud Management Platform? Here's everything you need to know before investing.
Read more

The Top SaaS Companies in 2023 According to Our Data

We dug into our data to see what we could learn about the 300 most successful SaaS companies in 2023.
Read more

State of AI in B2B

Discover the latest insights on AI adoption in the business world, as Cledara reveals the top 150 AI-powered SaaS products used by startups to improve efficiency and drive growth.
Read more

Q1 2023 SaaS Market Insights

Discover the latest insights into the Q1 2023 SaaS market, including the growth in software spend, top growing software categories, and the most popular new software applications in March.
Read more

The Future of SaaS - Five Predictions from Bessemer

Cledara is recognized as a top player in the fight against inefficiency and sprawl in the SaaS industry in Bessemer Venture Partners' State of the Cloud 2023 report.
Read more

3 Reasons Why SaaS Vendors Are Raising Prices and What You Can Do About It

Fight software price rises and stay proactive in managing your SaaS subscriptions to get the most bang for your buck.
Read more

Software Spend Slumps Despite Modest Annual YoY Growth

In February 2023, software spend decreased by 3.7%, despite a 21% yearly increase. Cledara found that IT and security software had the highest increase.
Read more

What is SaaS Operations?

SaaS Operations (SaaSOps) is a new field that's quickly becoming essential for companies of all sizes.
Read more