The SaaS story started with the IBM 360 model 67. With mainframes costing upwards of $9 million and requiring a quarter acre of climate-controlled space, the technology wasn’t accessible to anyone but governments and large institutions. In 1965, IBM released the 360 with “time-sharing” capabilities and sold its processing power to organizations like Bell Labs, General Motors, and Princeton University. While the tech firm wasn’t offering software per se, the process-for-pay model represents an early iteration of enterprise software-as-a-service known today.
Three decades later, many organizations were locked into notoriously restrictive software licensing contracts and struggled to manage increasingly complex, expensive onsite infrastructures. The trend continued with big businesses grappling with their large, unwieldy IT environments and smaller shops having to forgo the benefit of owning these costly systems. Companies soon rediscovered the benefits of storing data offsite, and SaaS started gaining ground as a business model.
In 2010, industry leaders like CRM provider Salesforce put SaaS on Silicon Valley's radar. Like its legacy counterparts, however, they only catered to the largest and richest enterprise customers and that system carried on until San Francisco upstart, Square, reinvented the rules. The premise was simple: take all the software tools that help Fortune 500 companies run well and make them available to everybody. Like a profitable Robin Hood, Square 'stole' the advantage of expensive software from 'rich' corporations and gave it to everyday entrepreneurs.
The tech industry was mostly content to leave Square to its small corner of the market sandbox, but that changed when the financial services company became a household name. Now, the days of inflexible software companies developing UI-as-an-afterthought applications are gone. Square's success story has come full circle, and SaaS is heralding in a new era of niche services. Enterprise organizations will start seeing less centralization and more specialization in software solutions. In turn, entrepreneurs will take those dedicated SaaS tools and build things that transform their industries.
These will create new verticals and disrupt traditional ways of doing business across some of the United States' most significant market sectors. Ten years ago, Blackboard was the leading provider of online learning technology for the education industry. Content to bask in their blue ocean, Blackboard's lack of competition made the company rigid and slow to adapt to user needs.
Currently, SaaS firms are making inroads into education, and companies like Instructure are closing the gap between service developer and user. The LMS provider has taken its customer feedback and incorporated that directly into the development of its platform. Consequently, the system smooths out the trouble spots and creates a better user experience for its clients.
Along a similar theme, employee training is a burgeoning field for SaaS-based businesses. Taking cues from companies like MasterClass and edX, leading online career networking site Linked launched its education platform. Called LinkedIn Learning, the service currently offers several certification programs widely recognized by employers. As education costs and demand for talent rise, it's expected that the 2020s will see an upsurge in SaaS-powered training platforms.
The healthcare industry is seen as another pool of untapped possibility for SaaS-providers, but change is likely to come slowly. As the sector is heavily-regulated and many-siloed, healthcare leaders tend to approach tech innovation with equal parts budget-consciousness and risk-avoidance. However, HRM provider Epic Systems is doing a brisk $2.7 billion in business every year ensuring medical records are easily accessed yet protected. Over the next decade, there will be substantial earning opportunities for startups that can streamline scheduling, payment processing, insurance benefits, prescription renewals, and preventative care.
Heavy-hitters like Apple and Google are entering the market, but most of the change will come in the form of partnerships between tech firms and hospital systems. Pharmacy companies like Walgreens and CVS will likely become more integral to the provision of healthcare services in the future.
For those with an eye on the future of SaaS, there is still great potential for startups keen to make history.
