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Depending on who you listen to, things are either recovering slowly, or we are slipping back into a recession. It can be argued that for most software companies, if you are selling a SaaS-based solution then it shouldn’t affect your business very much. In fact, as the economy gets tighter for buyers, SaaS solutions even make more sense for forward thinking businesses who are focusing on innovation and cost controls.
During the Great Recession we saw that traditional software companies experienced a net decline in their revenues and in some cases their revenues went down by nearly 50% year-over-year between 2008-2010. In big part this was because traditional software customers no longer had available the necessary capital dollars to spend on their perpetual license-based products and the banks were no longer lending.
These traditional software companies had also hastened their revenue decline by raising their annual maintenance rates, which put more pricing pressure on their customers at a time when they could least afford it. So their customers started taking a hard look at SaaS solutions as potential alternatives to traditional on-premise software.
Recession Accelerates SaaS Adoption
It wasn’t that SaaS solutions hadn’t been around for many years, it was that for many large software buyers, they hadn’t felt comfortable with software that was being managed by another companies. There were a lot of questions: Where was their data being housed, was it safe, what if they can’t handle our requirements? These were legitimate questions but many SaaS value propositions began to win over these large, skeptical customers:
- You could try their software before you buy it
- Get can get this software up and running quickly
- Only buy the functionality that you need
- If you don’t like their software, for any reason, cancel your subscription
- The software’s performance and availability is guaranteed
- Pay though a subscription, a big lump sum payment is not required
- No more upgrades, this type of software is always current
- Less or even no staff required to manage their software
- Lower total cost of ownership
These types of on-line solutions started resonating not only with the small and medium-sized company buyer but also with the very large, global enterprises as well. Over the last couple of years we have seen well-known organizations like Siemens, Walmart, Flextronics, Thomson Reuters and even the US government adopt SaaS and Cloud-based solutions.
It’s About Innovation Not Reducing Costs
Businesses during the last recession were primarily trying to reduce costs, which resulted in large scale layoffs. These firms were trying to ‘do more with less’. This was the reason that many of these companies continued to buy software because they not only wanted to streamline operations, but also they needed to continue to innovate their business.
By deploying the latest in software technology, these innovative companies are looking to move into new markets, provide state-of-the-art tools to their employees, and optimize their supply chains. This required them to get smarter about their businesses, markets and competitors, and solutions like SaaS-based business intelligence products were also really in high demand. Given the flexibility and affordability of SaaS products compared to their on-premise predecessors, it is no wonder that most SaaS companies grew at more than 30% year-over-year even during the worst part of the recession.
There are SaaS solutions for almost every enterprise need including ERP, Financials, CRM, Marketing, Human Resources, Talent Management and even specific specialized vertical solutions. Click on this link to access Montclair Advisors Public SaaS Index to see which firms offer leading SaaS solutions.
In the next 12-18 months we may be either headed for very slow growth in the economy or even another recession, but SaaS companies will continue to grow quickly because most companies are still looking for ways to lower their total cost of operations and improve their ability to innovate and increase their overall competitiveness. As long as SaaS providers continue to deliver on their Cloud-based value propositions, they will experience rapid growth even if the economy continues to be tight throughout 2012.
Company: Mint.com
Started: October 2006
Located: Mountain View, California
Geography: North America
Market: Online Personal Finance Management
Products: Money Management
Customers: Over 1 million users
Website: Mint.com
Blog: Mint Blog
Recent News:
Mint.com Adds 1 Millionth User
Mint.com Finds Savings for More Americans with Enhanced – and Now Public – “Ways to Save” Feature
Mint.com Partners with TaxACT to Simplify Online Tax Filing and Maximize Deductions
I asked Aaron Patzer, Mint.com’s Chief Executive Officer a few questions about his business and his view of the SaaS market in 2009.
Did you start out as a Software-as-a-Service company?
No, Mint.com started out as - and primarily is - a consumer facing website. Simply because of the way it is built - to scale to millions of users, open source platform, and web services backend - it is quite easy and natural to do SaaS.
Why do your customers use Mint?
Mint.com lets users see all their bank accounts, credit cards, investments, and loans together in one place. Without any data entry (or cost… because Mint.com is free), users can see how much money they have, how much they owe, where their money is going, get bill reminders and alerts, track their investment performance versus the market, find lower interest rates on their financial products and better prices on the things they buy most.
What do you see as the key trend emerging in the SaaS industry?
Almost all software will eventually move to the Cloud. Personal finance has been no different.
What is your outlook for 2009?
Good. Because of a bad economy, more people need to track and manage their finances. That means our sign up at Mint.com rate has tripled since the financial crisis hit.
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