- Software business models get smarter every decade.
- Software is democratising at a lightning speed, driving startup growth.
- Bottom-up sales has been arguably the most successful distribution model to date, with a new model in the making.
Since the dawn of the personal computing age in the late 70’s and 80’s, software has gotten smarter, more efficient, specialised and more complex. The user experience, though, has been simplified to the point that the distinction between personal and business software has blurred beyond recognition. Today, we’re going to look at this evolution from a yet new angle: how the business model of software distribution continues to get smarter over time.
Every decade or so we’ve seen an inflection point in software distribution and selling. From the rigid, top-down on-premise days of the 1970-90’s...to the rise of the Internet in the 90’s towards the dawn of SaaS in the early 2000’s...through the dramatic acceleration of SaaS via bottom-up (freemium, trials, team adoption) adoption in the 2010s...software selling strategists have reinvented the industry over and over again.
Thanks to these new models of distribution, software (in the name of SaaS) broke out of the back-office and into the hands of the front line teams like never before. Better designed, and easier to use it gained adoption across organizations large and small, organically.
Democratisation of software
Yes, that’s right: software continues to devour the world. The past two decades have not only proven that the world runs on software, but that everyone - from consumers to business users, from the C-Suite, to SDR’s, depend on great software to drive growth and success.
We are firm believers in this democratisation, and find it equally fascinating that thanks to the cloud and these new distribution models, small companies now have access to the same amazing technology, just like the big players. That’s what SaaS is about: Levelling the playing field.
SaaS distribution evolution
No doubt the on-premise days are coming to an end. What may surprise you though is that legacy companies like SAP and Oracle still distribute more than half of their software on-premise. Interesting topic for another day.
So what’s the best business model? On-premise, traditional SaaS, bottom-up SaaS or is there a new trend emerging that may eclipse all the previous ones?
We were also curious to know, so we analysed our data at Cledara for inspiration.
Looking at the data, the most used SaaS tools used by our customers were from companies founded between 2011-2015. Oracle, SAP and the other legacy on-prem providers make up just 6.7%, a number that will continue to dwindle over time, eclipsed by the SaaS era which has been in turbo mode since the ‘bottoms up’ era took off.
We’d like to think that this graph is a bell curve and not an upwards and onwards one because companies founded in the past years have not had time to scale yet. But don’t worry, it won’t take some of them long. Just check out the blistering pace of Hopin, the virtual events startup founded in 2019 and now valued at over $5 billion.
So do we conclude then that bottom-up SaaS has been the most successful software business model so far? We’d say yes...for now.
It looks like there’s a new model that has the potential to outperform even bottom-up SaaS. Let’s call it fintech vertical SaaS. Adding a fintech layer to a SaaS business, if done properly, can add tremendous value to the customer as well as open additional revenue streams for a business. In fact, Andreesen claims that by adding a fintech layer to their business, SaaS companies are able to increase the revenue per customer by 2-5x and open up new markets, previously inaccessible due to a smaller software market or inefficient customer acquisition. This is precisely because software users derive much more value when they have their financial needs met at the point of need - i.e. in the SaaS app they use. These customized, tailored fintech experiences drive both value to the consumer, and value to the business allowing for a deeper customer relationship.
It’s safe to say that we will continue to witness the proliferation of smarter, better and easier to use software across the business landscape. SaaS as a delivery model is mostly a given by now, but the unexplored territory as we enter this decade is the scaling effect of fintech integrated into the context of the user journey. We believe this will be a tectonic shift. Let’s pick this up on our next blog.
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This post was inspired by questions from readers like you. We love receiving new and interesting questions that help us think about our data in new ways. If you found this post interesting and would like to keep yourself updated on big trends in the SaaS industry, subscribe below for original SaaS insights like this one :)