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

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

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.


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Jenny Liu
Finance Leader @ Marshmallow