This post is part of our series covering the SaaS industry. To be kept informed of our next stories you can subscribe to our Point Nine Capital Channel
In 2015 during the whole year I’ve run a weekly newsletter exploring the trends which are shaping the SaaS industry and collected many data points (the searchable database is available on saasdatapoints.com).
In this post I’m listing 7 major trends which I think will continue to define the SaaS landscape in the year to come.
- Vertical vs Horizontal SaaS
- Messaging Apps Transitioning to Platforms
- Mobile First SaaS
- Software AI and Automation (Bots)
- Unbundling of SaaS
- Micro SaaS Businesses
- SaaS Based Marketplaces
1- Vertical vs Horizontal SaaS
There are two main ways for SaaS startups to approach the B2B software market:
- Vertical SaaS: software which answers the needs of a specific industry (ex: software for the healthcare, agriculture, real estate, finance industries)
- Horizontal SaaS: products which focus on a software category (marketing, sales, developer tools, HR) but are industry agnostic (ex: SalesForce, Slack, Zenefits, Workday)
The maturity of the different SaaS categories in these different industries is not the same and the maturation process is not developing at the same pace everywhere.
Horizontal SaaS: for many categories the “education” phase is behind us and we’ve entered a new phase characterized by:
- larger “educated” customer base: no need to educate customers on the benefits of SaaS vs on-premise + many SMBs are now used to buying SaaS. This is why the focus has shifted from “educating” customers to keeping them (the rise of “customer success”)
- highly competitive landscape: customers have the choice between many good products. In some categories it’s getting really hard to differentiate your product from the competition. New approaches in terms of product are emerging (see the “Unbundling of SaaS” and “Mobile First” sections below)
- more and more “category winners” are now established: SalesForce, Zendesk, Hubspot, GitHub, Slack, Docker… For new entrants it’s almost impossible to dominate these spaces by applying the same playbook, disruption will come with new approaches.
- … some of which are already, or becoming, “platforms”: SalesForce, Slack…
On the other hand the situation for many Vertical SaaS products is the same as what horizontal SaaS faced a couple of years ago (before it reached the the current level of maturity):
- market education: a lot of effort has to be done in order to educate the customers and to convince them to migrate from their traditional solutions or to adopt completely new ones.
- no clear category winners: in many verticals there is no clear category winner and no platform dynamics yet
- classical “full featured products” + classical “sales / distribution playbooks” are still what work the best in not, yet, crowded spaces.
In 2016 these two macro trends will continue.
Horizontal SaaS: the product / sales / distribution playbooks that worked well the past years and which are very well documented on the internet are becoming less effective and need to be updated to take into account the changing landscape (ex: effectiveness of traditional inbound marketing which is going down or the emergence of new product paradigms).
Vertical SaaS: more and more industries will get “SaaS-ified (ex: the legal industry), the key is to copy what worked in other industries and to adapt the rest. Execution speed will be crucial.
Market maturity evolution:
Vertical Software market:
The SMB segment is also maturing:
2- Messaging Apps Transitioning to Platforms
In 2015 / 2014 what had started as enterprise chat clients, Slack and Hipchat, transitioned to platforms on which third party SaaS can now build products and interact with users.
Same with consumer messaging apps like Messenger or Whatsapp which are becoming interesting places to interact directly with end users (for customer support or conciergerie apps / smart assistants for example).
2016 will probably see the boom of third party tools and an increasing number of VC rounds to fuel them. That said it’s still uncertain how the messaging platform operators are going to deal with their ecosystem and there’s always a risk that they end up doing what Twitter or LinkedIn did (and kill their ecosystem). Slack seems to be heading the good direction with its dedicated fund though.
In 2015 Slack really took off in terms of active users. This platform cannot be ignored by many SaaS startups:
3- Mobile First SaaS
When it comes to mobile I like to distinguish mobile first companies and the others.
In 2015 most of the successful mobile first SaaS companies were either:
- “Industry specific” products for which workforce mobility is important: construction, real estate, retail sales… (vertical approach).
- Productivity tools in the case of horizontal SaaS: calendar, team communication (messaging, video conference, project management…), expenses etc.
Apart from these two approaches it’s hard for ‘mobile first’ startups to come and compete on broader categories such as marketing, sales or support.
But in 2016 the game might change a bit. The transition of several messaging app to real platforms (Slack, Hipchat, Whatsapp, messenger, see above) might foster the birth of a new breed of mobile SaaS champions.
I’ve covered several interesting ones in the customer support space but I won’t be surprised to see more emerging in other categories (sales, marketing, finance…). Messaging platforms might be the catalyst that many startups needed on mobile.
For non “mobile first” SaaS, mobile experience (web or native apps) will, obviously, still grow in importance.
The mobile productivity category and vertical apps also dominate VC funding:
4- Software AI and Automation (bots)
AI and bots were very hot topics in 2015 and it’s sometimes hard to distinguish the real potential behind the hype. The truth is that we’re hearing a lot about AI but the vast majority of so called “smart apps” are still not that smart.
My point of view is that, like with many things, there’s no revolution but evolution. Crazy smart AI in every software we use won’t happen overnight, many steps need to be completed before that, and I believe that in 2015 we’ve progressed well on education and infrastructure.
- Education. More and more people got in contact with software bots thanks to messaging bots (like Slackbots) or smart assistants (Clara Labs, Siri, Facebook M…). People start to get used to the concept and to learn how to interact with them. Soon we’ll have more and more lightweight “companion bots”, and messaging platforms are a perfect medium to distribute them.
- Infrastructure. It’s unrealistic to think that AI can become mainstream in SaaS products without proper AI infrastructure. Not every startup can hire a team of high level AI specialists, so democratization of AI will be possible only once developers have access to enough AI blocks ready to use “out of the box”. Several big players are open sourcing AI libraries (Airbnb, Google, Facebook) and more and more startups offer AI available as APIs but we’re not there yet.
In 2016 we’ll probably witness the continuation of both trends. We still need more education and more easy to use / developer friendly APIs before AI really becomes ubiquitous (who will be the Stripe / Twilio / Algolia of AI and automation?).
In the meantime the really impressive apps will still come from the big players like Google, Facebook, Tesla… or research projects which have the resources to push the limits of this field.
Here are several landscapes covering AI and software bots. Keep an eye on the “infrastructure” layer this year.
5- Unbundling of SaaS
By “Unbundling of SaaS” I’m referring to a new breed of startups which don’t offer traditional “full featured” SaaS products to their users but rather package their core service as an API and a suite of small tools. Let me take Clearbit as an example to illustrate this trend.
Clearbit is an API which enables you to enrich users / contacts data. The concept of enriching contact data is not new and is available in many traditional SaaS products such as sales, CRM or contact management tools.
But instead of offering “yet another traditional contact enrichment tool” Clearbit has packaged it as an API and a suite of addons (for Google Spreadsheet) to let users create their own experience. No need to provide UIs that users won’t use, Clearbit let them create their own UX tailored to their own needs.
I believe that it’s a really promising trend and that in 2016 we’ll see plenty of these services emerge in many categories (unbundling of support, sales / marketing, finance tools). This trend is mainly driven by:
- Overcrowded categories. As I mentioned in the “vertical vs horizontal” trend above, some SaaS categories start to be overcrowded with very similar products. People don’t want other “traditional” products with the classical UX paradigm (set of features packaged in rigid UIs). They want more flexible products.
- Market maturity. Many businesses are so used to SaaS now that they know exactly what they want and need. They want to build their own custom UX because they have the knowledge to do so (but don’t want to reinvent the wheel and code everything from scratch).
- APIs are getting easier to use for more people than just developers. Reasons? Because more and more “non tech” profiles (marketing, sales, support) know how to use scripting languages, because more and more products (like Blockspring or Zapier) let people easily use APIs, because API providers offer more diverse ways to play with their API (like Google spreadsheet addons, Slack bots) and they offer better visual programming interfaces.
The “API first” startups will go far beyond the classical API approach (usable only by developers through pure text code) and is probably the next step in the SaaS evolution.
6- The Rise of the Micro SaaS Businesses
With an increasingly mature SaaS market in terms of customer base, tech infrastructure and distribution channels, two trends seem to contradict each other: on one hand it’s getting harder to build a scalable business due to the increasing competition but on the other hands we’re seeing an increasing number of “micro SaaS businesses” emerge.
By micro SaaS businesses we mean businesses run by a limited team (very often solopreneur or max 2–3 person), bootstrapped, with revenue in the $1k — $20k MRR range and with no will to grow bigger with VC money. These products are very often either:
- niche products for very specific needs which might not represent a big enough market to create a high growth company (which is good in this case as there is less competition). A good example is Storemapper.
- complementary products which aim is to improve a missing / a particular feature of an existing SaaS (ex: better graph for intercom)
We’ll probably see plenty more in 2016.
Here are the MRR and active customers evolution from 2012 to 2015.
7- SaaS Based Marketplaces
More and more SaaS products integrate marketplace dynamics in their business model. And it doesn’t need to be huge horizontal marketplaces as this trend concerns a lot of of vertical / industry focused players.
Let’s take the example of “booking marketplaces”. These marketplaces enable users to book local services directly online (an appointment at the doctor, a sport court, an appointment at the hairdresser…) and at the same time provide the tools for businesses to manage and optimise these bookings. [Disclaimer, all of the examples given are Point Nine investments :-)]
Market and tech maturity are also the main drivers behind the emergence of more and more of these players and I think that this trend won’t stop in 2016, quite the opposite actually (and existing marketplace operators will also offer new SaaS features to their power sellers).
If you want to be kept informed of our next posts subscribe our P9 Medium Channel