SaaS Market Breakout, The Usual Suspects

There’s no denying the attractiveness of the SaaS business model. From the ease of onboarding new customers to the predictability of the revenue stream, SaaS has taken over the hearts and minds of those in the software industry. Yet, the portion of total enterprise software spend that SaaS accounts for is below 25% and it’s mostly the large traditional software companies that dominate in SaaS.

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According to Synergy Research Group, Microsoft leads the pack and owns about 17% of the enterprise software as a service market; it has been growing nearly 35% annually. In second place is Salesforce, which has nearly 12% of the market and is growing just over 20% per year. Rounding out the top 5 are Adobe, SAP and Oracle.

In aggregate the SaaS market generated $23 billion in Q1 of 2019. And while overall growth was slower than what’s typically seen in the PaaS and IaaS markets, there are some fast growers in SaaS, namely Google, Workday and ServiceNow. Notably, Adobe grew by 29%, SAP grew by 39% and Oracle by 25%.

Salesforce’s growth is the slowest compared to the largest players, coming in at 21% year-over-year. It had major influence in the early days of cloud computing and since then has become the major and perhaps most significant player in the CRM market. Workday, meanwhile, is a force in HR software.

The SaaS market, when looked at on a vertical basis, has more than a few dominant verticals. They include BFSI (banking, financial services, and insurance), information technology and telecommunication, manufacturing, retail, healthcare, and education. And on a geographic basis, North America has the largest market share while Asia-Pacific is the fastest growing given the increasing number of SaaS vendors who provide marketing, support and sales services to businesses.

As we look to the year ahead, SaaS will continue to increase in market size and represent a higher percentage of the overall enterprise software market. The incumbent players will transition their traditional software customers to the SaaS model while an increasing number of new software companies will provide SaaS from the start.