2021 SaaS Industry Market Report: Key Global Trends & Growth Forecasts

A new edition of our annual report is available. You can get find the latest trends and statistics in our 2022 SaaS Industry Market Report.

The year 2021 has been eventful. Reeling from the wide-ranging impact of the COVID-19 pandemic, many nations and industries have started on the road to recovery. Previous projections on SaaS adoption turned out to be true as the global workforce leaned on software to improve collaboration.

In addition, SaaS trends indicate the emergence of vertical SaaS and the growing adoption of AI-powered software and mobile-first platforms. And the view that SaaS is a digital transformation enabler has pervaded more business functions than ever before.

In this SaaS industry market report for 2021, we provide you with a clear picture of the current state of the industry and where it is headed. We include key figures and trends from authorities in the industry and our in-house experts. In this way, you get an up-to-date and a future-forward view of the SaaS market.

The COVID-19 impact on SaaS spending in the last couple of years has been tremendous. Organizations like schools, government agencies, and of course, private businesses have moved a significant chunk of their operations online to minimize disruptions. Around 30% of companies worldwide have increased their SaaS spending because of the pandemic.

As a market, SaaS appears capable of achieving even greater heights in the coming years. The Digital Economy Compass 2021 report expects the SaaS industry market size to be worth $280 billion by 2026 (Statista, 2021), a significant, steady increase from the 2021 projection of $184 billion.

As 2021 comes to a close, significant changes to the SaaS market and consumer adoption will likely come about. In the next sections, we’ll discuss changes in the landscape of SaaS and the public cloud in the past couple of years. We’ll also outline key projections, including trends that we’ll witness in 2022 and beyond.

Key Areas of Development for Digital Transformation in 2021

In our published SaaS Report 2020, we laid out three major areas for SaaS development and adoption. These stand out in the greater ocean of general SaaS use. We’ve identified these areas as (1) health, (2) education, and the (3) economy or income. And in 2021, industries and educational institutions started to build digital resilience.

Health

A study by Avasant found that the COVID-19 pandemic severely affected healthcare operations (Avasant, 2020). On a scale of one (minor) to five (severe), the overall assessment score was four. A high degree of disruption also occurred in the areas of supply chain management and revenue.

Restrictions caused by the pandemic have also changed the way providers deliver healthcare services. In one survey, researchers found that only 31% of US healthcare practitioners (eMarketer, 2020) see patients in their offices. About 24% see patients both through virtual and face-to-face visits, while 23% only see their patients virtually. Moreover, they found that 53% of US healthcare practitioners started using telemedicine because of restrictions.

As such, companies have come up with new ways to help the healthcare and life sciences industry to deal with these disruptions. New technologies have made it possible to efficiently screen and treat COVID-19 patients. These technologies also include how to coordinate such efforts across different public and private institutions around the world.

The situation, for enterprising tech companies, called for a reimagining of how to marry new and legacy technologies. Improving efficiency and intelligence are the goals. And, a significant load for these improvements has been outsourced to SaaS and machines.

The health sector remains focused on finding new ways to serve patients more efficiently. Market reports show that the health sector has heavily invested in research and development in the past couple of years. Similarly, digital health initiatives in patient empowerment and wellness have received significant investments. Amwell, Ro, and Zwift rank at the top of the list of top-invested companies in healthcare.

Education and Income

In 2019, the Internet had reached only about 53.6% of the world’s population. An estimated 3.6 billion people (ITU, 2019) continue to wait for the ability to connect to the world wide web. With pandemic restrictions put into place, face-to-face interactions became scarce. And, roughly, because of less-than-ideal internet penetration, many lost the ability to study or work from home. This continues to be the case in 2021.

According to the latest information on the Avasant Impact Index, universities and colleges worldwide had an overall assessment score of four (major impact). Personnel impacts have a score of five or severe while a moderate impact on operations and a minor impact on the supply chain were also registered.

The pandemic also hit other industries hard, especially those that require on-site or face-to-face interactions, including manual labor. The top industries affected include manufacturing and travel and transportation. In the Avasant Impact Index, they scored an overall assessment of five (or severe). Severely affected areas include personnel, operations, supply chain, and revenue.

This is why many called for an increase in digital resilience. Of course, there are educational institutions and workplaces that have put online tools powered by SaaS in place. In the Worldwide Digital Resiliency Investment Index, the overall benchmark was set at 125. As of the most recent version of the index, global digital core investments, including security and remote-working tools, placed 83 while innovation investments for accelerating business scored 98. The overall index against the benchmark for the same month clocked in at 91, way higher than the ratings back in March.

Given the benchmark, there is still a long way to go for worldwide digital resiliency. In 2021 and the following years, institutions are expected to work hard on closing the gap.

IT and SaaS Spending: Post-Pandemic Recovery and Forecasts

IT spending has understandably increased over the past year as several industries experienced an accelerated digital transformation. This increased investment in IT services and technology will likely continue until 2022, with overall IT spending expected to reach $4.5 trillion by next year (bmc.com, 2021). Enterprise software, communication software, and data center systems all play a significant role in IT spending growth.

SaaS Continues to Dominate the Public Cloud Market

According to a Technology Market Outlook (Statista, 2021) report, the SaaS segment accounts for 59% of the global Public Cloud market. This amounts to a revenue of $156 billion, which dwarfs the combined revenue of the other two segments (Infrastructure as a Service and Platform as a Service). SaaS sales will grow even more as more companies continue to digitalize their operations.

Tech enterprises such as Oracle, SAP, Salesforce, and Microsoft dominated the SaaS market in the previous year. Forecasts indicate an 11.5% growth for SaaS sales from 2020 to 2026.

(To compete with the established players, SaaS vendors need innovative marketing solutions without breaking the bank. For instance, you can list your software product on FinancesOnline for free. By doing so, you get exposure to 2.5 million monthly readers who are likely looking for SaaS solutions.)

SaaS Spending and Digital Resiliency by Region and Country

The latest numbers on SaaS sales also indicate that countries all over the world have continued to increase SaaS spending over the past year. So far, US companies have the highest per-employee SaaS spend, clocking in at $521 per employee (Statista, 2021). This amounts to a total revenue of $86.9 billion.

SaaS sales will likely achieve global growth through 2026. In Europe, for instance, SaaS sales are expected to grow at 19.1% annually over the next four years, reaching a total revenue of $81.1 billion. The Swiss also rank behind Americans when it comes to per-employee spending on SaaS ($481 per employee).

The outlook remains similarly positive in Asia, Africa, and Australia and Oceania. Compared to other countries, China’s revenue in the SaaS market is expected to see the highest growth, from $6.6 billion in 2020 to $21.3 billion in 2026.

Digital Resiliency in 2021

In the Digital Resiliency Benchmark report that came out in December 2020, the US leads the pack with a score of 93, still short of the benchmark 125. The next region that followed closely is the Asia Pacific (AP) with 91. Europe, however, lags with a score of 87. These, though, are higher scores than when these countries were rated back in March 2020. At the time, the US had a score of 83 and AP and Europe had scores of 77 and 72, respectively.

The greater trend here shows the improvement of digital resilience over the past year. Unfortunately, European firms remain affected by the reintroduction of lockdowns, which has forced a renewed focus on business continuity and crisis response. The trendline, however, tells us that digital resiliency will improve in the coming years.

Tech Investments: Business Continuity in Post-Pandemic Era

Previous data imply that many organizations have prioritized business continuation over business acceleration. Increasing investments in IT and SaaS in particular also reflect these changing priorities.

The top IT priorities in 2021 (Flexera, 2021) include digital transformation (56%), cybersecurity (50%), and cloud/cloud migration (48%). These are essential to business continuity and increasing risk avoidance. They serve as the top investments for building resiliency in the post-pandemic period.

Technologies for video conferencing, enterprise social and remote access/learning, and virtual workplaces remain crucial to ensuring minimal disruptions to business operations. These include SaaS packages like remote work software and collaboration tools, which have proven to be useful in the midst of changing lockdown policies.

Other areas of increased SaaS spending include automation and smart analytics. However, because institutions put continuity and resilience first, spending on the third platform has slightly gone down. Third platform spending is projected to go down mostly for robotics, blockchain, and big data. However, there will be a significant or moderate increase in the demand for advanced analytics, IoT, and AI.

The New Face of Work: A Post-Pandemic Future

The state of work has changed significantly from 2020 to 2021. Thanks to ongoing vaccination drives and less strict lockdown policies, many employees have returned to on-site work. As a result, this year saw many organizations shift from purely remote work to hybrid work arrangements.

In a hybrid-remote environment, employees can choose between working at the office and working remotely. According to GitLab’s The Remote Work Report 2021 (Gitlab, 2021), 42% of companies have a hybrid-remote work policy.

Worldwide, many employees expect companies to provide them with resources for a hybrid work scenario. The majority of employees expect companies to provide technology devices (72%), including computers and mobile devices. Around 68% of employees also count on employers’ financial support to set up their home offices (Capgemini Research Institute, 2020).

According to the Capgemini survey, about 47% of executives also projected that 30% to 69% of their employees will be working offsite. More than a quarter (28%) of these executives expected 70% to 100% of their employees to work remotely in the next two to three years. And, of course, these changing work policies will be supported by SaaS technologies.

In addition, employees’ attitudes towards hybrid work have been positive, with 42% of workers stating that they’re thriving with hybrid work (Accenture, 2021). Over 80% of workers also believe that a hybrid work setup would be optimal for productivity in the future.

How Hybrid Workers Fared in 2021

With over 70% of US workers now doing in-office work at least once a week, studies have explored the impact of hybrid work arrangements on employee performance. According to 40% of employees themselves, they maintained the same levels of productivity wherever they worked. A study by Quantum Workplace supports this, saying that 79% of employees felt that remote work doesn’t significantly affect their daily performance.

Findings of the same study also reveal that hybrid workers show higher employee engagement (81%) compared to remote employees (78%) and on-site employees (71%). More hybrid workers also feel like their opinions matter at work.

All these findings dispel the myth that hybrid and remote work have a negative effect on employee engagement and productivity. As evidenced by these studies, hybrid workers remain productive and engaged despite their new work arrangements. These findings spell good news for businesses looking to restore pre-pandemic efficiency.

Top SaaS Trends: Navigating Through the Pandemic and Beyond

With no end in sight for the COVID-19 pandemic, industries must adjust to the new normal or get left behind.  Companies and government institutions see the need to better equip themselves against disruptions. Some even have pivoted in many aspects of their businesses.

Embracing Emerging Technologies

Many companies have embraced emerging technologies (Oracle, 2020) like chatbots, AR, IoT, and AI. These have been used to discover products, generate insights, and plan business or consumer actions accordingly. Finances and operations still have some catching up to do, but they are catching on fast.

Key Emerging Technology Statistics in Finance and Operation (Oracle, 2020)

• 91% of organizations consider SaaS as an enabler of emerging technology adoption
• 84% of organizations, in the Oracle Survey, use at least one emerging technology in production
• Organizations that use the most emerging technologies grow their annual net income 80% faster and their annual revenue 58% faster.
• Organizations are two to three times more apt to purchase prebuilt solutions than actually build their own (of course, the statistics vary by technology).

With this, we can tell that SaaS investment continues to be crucial for many organizations.

Today, reporting addresses both the “what” and the “why.” However, one CFO of an 18,000 employee healthcare organization predicted that data processing will be reduced in the future. Only 5% of the time will be spent on it while 95% will be on analysis. Furthermore, 81% of finance professionals surveyed believe that reporting should be transformed to focus on the reasons for the data, not just the data itself.

Emerging Technologies

According to Oracle, key emerging technologies for finance and operations include:

1. Artificial Intelligence (AI). AI can soon simulate human intelligence to analyze data. This will use machine learning to help humans find patterns. Uses include predicting equipment malfunctions, assessing inefficiencies, and recommending products to consumers.
2. Internet of Things (IoT). IoT-enabled devices connect to each other and provide users with faster information gathering and analysis. These can also be used to set up triggers for automation.
3. Digital Assistants. Users will be able to rely on AI and natural language processing to mimic human conversations. In this way, users can interact with software more intuitively with voice rather than just physical user interfaces.
4. Blockchain. Instead of traditional centralized databases whose contents and files can easily be changed, organizations will soon deploy blockchain technology. This will enable them to maintain immutable records with a set history. This opens the door for more trust among parties, especially in the finance industry.
5. Augmented Reality (AR) and Virtual Reality (VR). These tools provide interactive experiences and make complex information become more intuitive. AR can provide contextual information through superimposed data on mobile screens. VR, on the other hand, can embed users into three-dimensional representations, lending some concreteness to abstract data like construction plans and other visualizations.

Expected Rewards

Findings of the Oracle survey found that finance professionals highly anticipate the future benefits of adopting emerging technologies.

• 83% expect financial close processes to be completely automated through AI.
• 78% expect a decrease in fraudulent incidents in the supply chain by half or more in the next five years.
• 77% expect that the majority of financial approvals will be completely automated in the next five years.
• 74% believe that their organizations won’t be able to keep up if they don’t extensively use intelligent automation.

And, most importantly for the SaaS market, 92% of finance professionals surveyed believe that SaaS is an enabler for the adoption of emerging technologies. Thus, expect an uptick in adoption.

Retail’s Not Dead: Hybrid Selling

Online retail channels have begun a slow yet steady climb in terms of revenue. By 2025, online channels will make up 25% of retailers’ total revenue. We’re likely to see this happening in the US, where online revenues may comprise up to 37% of total retail revenues by 2025.

In the US, Amazon, Walmart, and eBay top the list of leading retail ecommerce companies. Notably, Amazon alone accounts for 41% of the market share for retail ecommerce.

SaaS-based ecommerce solutions and the public cloud have made a significant impact on the online retail industry. For instance, through SaaS applications, businesses can personalize the customer experience and boost customer engagement.

Niche Solutions Through Vertical SaaS and Micro-SaaS

Many SaaS solutions aim to serve a wide variety of industries and provide a core range of business features. However, the past year has seen the rise of a different type of SaaS: vertical SaaS. Highly tailored vertical SaaS solutions serve the specific needs of industries such as healthcare and logistics.

Many vertical SaaS solutions recorded impressive growth from 2020 throughout the first three quarters of 2021. For instance, industry workflow software companies included in the Fractal Vertical SaaS Index (Fractal, 2021) have achieved a market cap of $441.4 billion by the end of Q3 2021.

Vertical SaaS providers will likely continue their growth and expand into private markets in the coming years. Drivers for this expansion include businesses’ need for high-quality software that addresses their niche’s specific needs.

Micro-SaaS solutions are also expected to invade the SaaS market in the coming years. Similar to vertical SaaS, micro-SaaS focuses on providing niche functions and solving specific problems for businesses. In many cases, these solutions serve as add-ons that enhance larger SaaS platforms. Solopreneurs or small teams often run these micro-SaaS platforms, which often receive no external funding.

Low Code to No Code Revolution

The low-to-no code revolution is upon us. The use of automation can make businesses efficient. However, coding can be tedious and expensive. Not every company has the resources. For this reason, SaaS developers are filling this gap.

Low code is a visual approach to software development. In fact, many SaaS software already offer these features. Highly-customizable platforms like monday.com provide users with tools to essentially create their own automation and applications without knowing an iota of code.

Moreover, low-code and no-code platforms allow users to create enterprise-grade applications tailor-made for their particular needs. These platforms also allow for multiple-user development. Thus, companies can get rid of information silos.

Many SaaS applications have been created using this visual approach (Mendix, 2021) to development. These include B2C mobile applications, IoT-enabled smart apps, customer portals, core systems, and many others. In the next decade, low-code and no-code platforms or software with low-code app development modules will rise, a development that organizations cannot afford to miss.

Challenges to SAAS Management in 2021

SaaS solutions have played a crucial role in businesses’ pandemic recovery. However, organizations still encounter challenges in managing SaaS applications. According to one survey, IT leaders in 2021 find it difficult to streamline their tech stack of SaaS applications. Likewise, 14% of IT leaders face the challenge of minimizing unmanaged spending on SaaS solutions (Austin, 2021).

These challenges are understandable considering the recent emergence of numerous SaaS applications. Trends of increased spending on SaaS may have also contributed to application sprawl for many organizations. For many businesses, analyzing SaaS spending and usage will be crucial to ensuring efficient use of these solutions in the future.

A Long Way to Resiliency

The pandemic has forced digital transformation onto many industries in 2020, accelerating the adoption of SaaS solutions to facilitate new ways of doing business. As this 2021 SaaS industry market report shows, SaaS solutions continue to gain traction as the year rolls over to 2022. SaaS adoption has become critical to businesses as they recover from the pandemic’s effects. By using SaaS, especially for remote work, businesses save money and increase productivity.

There is no question that as economies heal from the pandemic, further investments will be made into SaaS technology and other solutions that promote resiliency. The perception of SaaS and technologies such as blockchain, AI, and IoT is becoming more favorable among professionals. Vertical SaaS and micro-SaaS will also see an increase in adoption as businesses realize the need for niche-specific software.

SaaS adoption drivers today, however, are not confined to business acceleration and keeping up with competitors. SaaS can help build a more resilient economy with a high level of efficiency. Moreover, digital transformation is seen by the United Nations as a means not only for recovery but to recover into a green economy (UNDP, 2020). As such, it is inevitable for the SaaS industry to play a big role in this endeavor.

By Sebastian Lambert

CEO of FinancesOnline and our company’s guru on SaaS growth hacking and lead generation strategies.