An Analysis of B2B SaaS Markets

A key part of building a business involves identifying your ideal customer profile in order to have a deep understanding of who your customers are and to help build trust. However, for a new startup or product with limited customer data, this process can be difficult and unreliable. In these situations, it is important to take a step back and ask: Where are my customers?

This question is answered by selecting a target market and performing a deeper segmentation analysis to narrow down to the market segments that are most important. At RevOps, we recently ran our own market analysis to help us identify the markets for our DealDesk product. For our analysis, we selected B2B SaaS companies as our target market, which included companies across the SaaS, PaaS, and IaaS sectors; and then performed a deeper dive into multiple subsegments.

Our goal with this article is to share some of the information that we learned and outline our approach so that others can perform similar analysis for their own companies and products.

Our Approach

We began our market analysis by deciding on B2B SaaS as our target market and collected a list of companies that can be categorized as being a SaaS, PaaS, or IaaS. These companies were sourced from the usual suspects: Crunchbase, AngelList, Inc5000; and combined with lists from specialty sites.

This list of companies gave us a solid starting point for our analysis but isn’t of much interest on its own. Real insights come from enriching the list with information from a data insights solution, e.g., annual revenue and employee size information, and combining it with feature usage data from existing customers to understand how specific features are adopted across different customer segments.

During the second phase of analysis, we took concrete feature usage data and applied k-means clustering to categorize how features are used by existing customers. This algorithm takes usage data of a specific feature as input and attempts to find the set of data points that are close together — defined by the geometric distance between points. Collectively, a set of close data points are considered a cluster (or category) of interest.

Individual categories are then subdivided against the customer segments demographics determined earlier. This allows us to dig deeply into feature usage across individual customer and demographic segments. Unfortunately, we can’t publicly share the results from this part of the analysis but, if this sounds interesting, feel free to contact us for additional details.

B2B Market Analysis

TAM Summary

RevOps subscribes to a variety of third-party data vendors, including Clearbit and Crunchbase, and we continuously aggregate information to ensure that the most up-to-date data is used for each market analysis. We began by aggregating revenue estimates from B2B companies across SaaS, PaaS, and IaaS sectors and then sub-categorized them across a few broad sectors:

The chart above shows the estimated total addressable market size for each sector and represents a combined market value of $134 billion. Infrastructure-as-a-Service is the largest sector at $84 billion and contains the large cloud computing companies — Amazon and Salesforce. Sales is the second largest sector at $34 billion and includes companies such as Pipedrive, InsideSales, and Xactly. The third largest sector is MarTech at $5.7 billion and includes the companies GainSight and CallidusCloud.

Our analysis results are comparable to Gartner which estimates worldwide public cloud service revenue at $186 billion for 2018. Gartner categorizes public cloud services into a few major segments: Cloud Application Services (SaaS) at $73.6 billion; Cloud System Infrastructure Services (IaaS) at $40.8 billion; Cloud Application Infrastructure Services (PaaS) at $15.0 billion; and Cloud Application Services (SaaS) at $73.6 billion.

This suggests that our categorization definition for IaaS companies is broader than that used by Gartner.

MarTech Sub-Markets

We were interested in exploring growth opportunities within the B2B Marketing SaaS space, so we narrowed the search parameters to focus on Marketing Automation and next generation Marketing Technologies (MarTech) companies:

At the broadest level, the MarTech SaaS companies in our dataset uncovered 1,362 companies with a TAM of approximately $5.7B. Narrowing the search to Advertising resulted in $1.0B TAM; B2B Marketing, which ecompasses business intelligence, lead generation, and SEO companies, revealed $2.1B TAM; Digital Marketing companies represent $487M TAM; Email Marketing represents $611M TAM; Marketing Automation resulted in $876M TAM; and Predictive Analytics represents $495M TAM.

To further understand our market segmentation and TAM estimations, we compared our results to those performed by independent analysts: Chiefmartec estimates there are approximately 6,800 MarTech focused companies; Moore Stephens estimates the size of the MarTech industry for the combined US and UK markets to be $34.3 billion; IDC estimates the MarTech market size in the same range at $32 billion.

Our initial estimate of $5.7B MarTech TAM, based on a dataset representing 20% of the MarTech companies identified by Chiefmartec, is in line with the IDC estimate above (20% of $32 billion is $6.4B). This gives us confidence that our results are compatible with other recent results.

Conclusion

Having completed an in-depth analysis of the B2B market across the SaaS, PaaS, and IaaS sectors, we identified the three largest sectors for growth opportunities: Infrastructure-as-a-Service is the largest sector at $84 billion; Sales is the second largest sector at $34 billion; and MarTech at $5.7 billion. For a startup or organization with a new product and uncertainty around which markets to pursue, performing a similar exercise will provide you with concrete data to decide on which direction to take.

Moreover, having a full list of enriched companies for each market segment is extremely valuable as a starting point for building and prioritizing a potential customer list. It also lets us begin the process of defining our ideal customer profile to identify who our customers are.

What do you think about our results? Is there anything that we missed? Which other market deep dives would you be interested in? Let us know!