The year 2022 has been focused yet again on fine-tuning digital transformation in various sectors. Many businesses have acclimated to using online-based processes and managing remote or hybrid employees as part of their operations. However, like in the previous years, the adoption of SaaS is still increasing, albeit a little slower, as more organizations look to further improve the way they manage their digital workflows. With this, we can expect that newer technologies and trends will have an impact on the SaaS landscape as we move forward in the post-pandemic world.
To keep you abreast of the latest developments in the sector, this 2022 SaaS industry market report will discuss the current SaaS market size along with its growth trends and forecasts. In addition, significant operational challenges in terms of software implementation will also be tackled. In reading this post, you will get to know the key trends to watch out for as you continue to automate your processes and build your SaaS-powered workplace.
SaaS Industry Market Report Table of Contents
Digital transformation helps organizations deliver value not just to their employees but also to the society in which they operate. Navigating through extremely uncertain environments taught business leaders that data-driven management is the key to ensuring business competitiveness. SaaS applications empower companies to quickly migrate to the cloud and provide access to internal and external customers while still remaining relevant to their respective markets.
At a compound annual growth rate of 25.89%, the global SaaS market is expected to reach $720.44 billion by 2028 based on the 2022-2028 forecast by Skyquest Technology (Globe Newswire, 2022). One of the IT industry’s fastest-growing categories, the SaaS model is preferred by most companies as it facilitates scalability and allows any time, anywhere productivity.
Valued at $143.77 billion in 2021, the continued growth of the global SaaS market is fueled by organizations accelerating digitization as well as the ongoing cloud migration of companies. In 2021, the large-scale enterprise category led the global SaaS industry growth (Globe Newswire, 2022).
From 2021-2025, the SaaS market is projected to grow by $99.99 billion at a CAGR of 11%. With the increased use of mobile apps and API connections, the sector is expected to post an 11.71% year-on-year growth (Market Watch, 2022).
SaaS Growth Slowed in 2021
It is important to note that in 2021, SaaS growth slowed as a majority of companies were affected by the pandemic and only managed to maintain revenue. An average of 32% revenue growth was posted by SaaS companies during 2021, which is 46% lower than the previous year (PR Newswire, 2022). For 2022, 51% of businesses surveyed are expecting to achieve their annual recurring revenue (ARR) targets, though the outlook remains uncertain (PR Newswire, 2022).
The monthly subscription and pay-as-you-go pricing model of SaaS offers a cost-effective solution to customers as they do not have to make significant investments, In addition, it makes it easier to end service contracts for apps that companies no longer need. The SaaS provider is also responsible for continually improving the software and ensuring that the platform remains secure.
SaaS Market Outlook
As organizations around the world adopt SaaS solutions for a variety of business functions, the overall SaaS market is expected to continue growing steadily. Some of the specific functions that will drive growth are customer resource management (CRM) apps and enterprise resource planning (ERP) apps, including ecommerce and web hosting apps. As such, if you are looking to set your product apart, it is best to consider adding your SaaS or B2B product to a software review platform to significantly extend your reach to businesses that are on the lookout for new software solutions.
While revenue growth slowed in 2021, three key growth levers were identified which include dynamic pricing, embracing new growth models, and investing in true localization. SaaS companies that managed to maintain high growth rates experimented with their pricing models, bucking the traditional sales-led growth model, and invested in localizing their offerings to the specific needs of markets (Paddle, 2021).
Source: Silicon Valley Bank State of SaaS 2022
SaaS Landscape 2022: From Vertical SaaS to Industry Clouds
As companies looked for ways to scale up their digital presence, cloud services offered efficiencies, scalable solutions, and unique customization. Purpose-built for a specific industry, industry clouds offer capabilities at every layer of the stack—from the infrastructure layer to the platform layer to the software-as-a-service layer.
Industry clouds involve configuring custom solutions that will be compliant with related policies and regulations. As such, industry clouds are promising as they will provide quick time-to-value and enable business teams to focus more on how to differentiate products and services by using a mix of cloud services that will improve workflows and processes.
In an effort to modernize environments, organizations are turning to digitization and automation to make their teams more resilient during uncertain times. Vertical SaaS, which is niche-specific, will be pieced together by enterprises with other cloud approaches to create SaaS-powered workplaces that can free up more time for strategic planning and create value.
As the adoption of industry clouds unfolds in 2022, the growth in the adoption of SaaS will be relentless as driven by the intensified online-based processes. The pandemic became the catalyst for digital innovation, and organizations from various sectors are focused on migrating workflows online to remain relevant. Among the sectors undergoing a digital transformation by adopting SaaS are government, education, health, and the private sector.
Government
As cloud computing has transformed the global business landscape, several countries have also adopted cloud services to take advantage of its capability to create value through tools such as artificial intelligence, data analytics, blockchain, and 5G. A 2021 survey by Fujitsu established that fast-evolving digital infrastructure is a major pillar of a nation’s cloud capabilities.
When interacting with the public sector, citizens demand the seamless delivery of digital solutions. Boston Consulting Group (BCG) conducted a global survey in 2021, which found that 7 in 10 people are encountering issues when it comes to availing government services, while only three in five people say that they can complete an entire transaction online (BCG, 2021). The low satisfaction with the digital government calls for the adoption of software solutions that can improve the delivery of services to citizens.
Government leaders are now recognizing the advantages of SaaS solutions. As public agencies pivoted much of their workforce to telework status in 2020, the demand for cloud services to enhance productivity and economic progress increased. The global government cloud market reached a value of $27.6 billion in 2021 and with a forecast CAGR of 16.3%. The market is expected to reach a value of $71.2 billion by 2027 (Globe Newswire, 2022).
Public web portals ensure transparency and accountability. Digitizing and automating processes and workflows eliminate corruption practices. The cloud-based security services also fast-track decision-making procedures. As nations continue to adopt these integrated technologies, it will make them more responsive and efficient.
Source: MIT Global Cloud Ecosystem Index 2022
Education
The global school management system market is valued at $41.26 billion by 2028 and is expected to grow at a CAGR of 17.1% in the forecast period of 2021 to 2028 (Data Bridge, 2021). The growing emphasis on improving the quality of education led to increased digitization in the education industry, and the adoption of cloud-based software is driven by the need for accessibility.
The shift to remote learning caused a huge demand for SaaS and IaaS in the education sector. SaaS is a crucial technology and cloud-delivered applications have become the main tool of most districts. This is because SaaS platforms allow students to access their work on any device, which gives them flexibility.
School management software provides a single platform for student, staff, and faculty data. It allows schools to automate the admission process, class enrollment, and class schedule management. The school management software easily integrates with existing accounting software, enabling administrators to manage tuition payments and automate billing.
In the area of curriculum management, purchase intention through 2022 for digital curriculum remains high with over 63% of educators intending to use curriculum management software (The Learning Counsel, 2021). With 74% of teachers feeling overwhelmed, teacher-centric lesson planning, curriculum management software significantly unloads them of this burden as the platform empowers them to create personalized learning programs for each student (The Learning Counsel, 2021).
Health
Healthcare businesses are starting to see the benefits of healthcare SaaS as it provides an affordable way of deploying cloud-based electronic health records (EHR). While these apps initially faced a lot of resistance due to security reasons, safeguards are now in place and healthcare businesses are starting to see the advantages of digitization.
The rate of adoption of SaaS in the healthcare industry is growing at a rate of 17.8% per year. The healthcare cloud computing market, on the other hand, is predicted to reach $89.4 billion by 2027 (Markets and Markets, 2022). Within the healthcare industry, SaaS apps enable practitioners to collaborate easily while also allowing for quick scalability.
To be able to improve patient care outcomes, using SaaS in the healthcare industry will help healthcare organizations deliver quality care and treatment. This is especially true in the areas of telemedicine, the collaboration between medical professionals, getting access to medical information and patient information, the use of LMS for ongoing health training, and improving data security.
Private Sector
SaaS models are becoming the go-to solution for many private organizations due to their flexibility and affordability. It is widely accepted that SaaS companies can adapt to changes on the fly, and this is the core reason why businesses in retail, hospitality, aviation, real estate, construction, and financial services, among others, are rushing to digitize workflows to remain relevant in their respective markets.
The majority of businesses in North America have a sizable SaaS portfolio with 79% of tech leaders saying that more than one-quarter of their business applications and platforms are SaaS (Productiv, 2021). The finance sector tops the list of sectors that plan to invest more in business process automation at 86%, followed by manufacturing at 85%, and healthcare and transport both at 80% (Productiv, 2021).
The rise of vertical SaaS significantly benefits the private sector as it is designed to specifically cater to the workflow nuances of every industry. In niche industries, customers enjoy lower customer acquisition costs with the unbundled, all-in-one solution offered by vertical SaaS companies. Vertical SaaS platforms offer integration without developers and also helped businesses reduce and rework operational capacities to cope with the economic downturn induced by the pandemic.
SaaS Spending in the Post-Pandemic World
In the post-pandemic world, resilience is a top priority. Due to the pandemic, many organizations have realized the importance of being agile enough to respond to major changes and uncertainties. Business process automation, or having the right digital muscles in place, emerged as the most important capability that every organization should have to remain relevant, which will enable them to provide a seamless customer experience and perform data-driven management.
By 2025, 44% of business leaders that currently lead offline organizations project that more than half of their workflow processes will be automated (Fujitsu, 2021). In the same manner, 78% of these business leaders believe that offline and online customer experiences will be seamless with the use of SaaS platforms (Fujitsu, 2021). While there is an ongoing campaign to return to offices, most leaders believe that the hybrid work model will stay and will continue to increase the demand for SaaS apps. Spending on digital transformation is expected to reach $2.8 trillion by 2025 (SVB, 2022).
Cloud Penetration Across Verticals
In certain US industries and across the globe, cloud penetration is still low. This state of adoption only shows that the cloud economy can still surpass the record high growth it has posted since the introduction of this business model. The potential for cloud adoption is huge. As of 2021, public cloud spending is only 10% of the $4 trillion total IT spending across the globe (BVP, 2022).
In the US alone, only 6% have adopted restaurant management SaaS. In the public transport sector, the cloud-native AI platform that makes public transportation smarter, better, and more efficient has only less than 1% of the total public transit software market. As with other verticals such as SaaS for home services, auto repair, and laundry services, there is at least a 2% penetration (BVP, 2022).
The region with the highest rate of IT spending on public cloud is North America at 15%, which is equivalent to 55% of the global public cloud spending. Europe with cloud spending at 20% represents 26% of the global cloud market, while Asia Pacific is ranked third, with just over 15% spend on global public cloud or 4.7% spend on local IT (BVP, 2022).
Source: Fujitsu 2021 Global Digital Transformation Survey
Current State of SaaS Security
The SaaS sector as part of the IT industry is transitioning from basic automation to security-focused practice. The overall demand for SaaS is likely to continue to rise. However, as the demand for SaaS increases, users are beginning to see the need to organize the use of SaaS in the workplace by formulating policies that will manage downloads and subscriptions.
The Rise of the Shadow IT
The current state of SaaS management, which involves the lack of organizational policies on app visibility, employee productivity, and risk governance has, in most situations, led to decentralized SaaS management. Add to this the numerous SaaS downloads and purchases outside of IT and the result is SaaS sprawl, also known as the growth of shadow IT, which is more prevalent in high-growth businesses.
Due to the mass shift in remote and hybrid work, employees enhanced their tech stack individually. Solving their problems on their own resulted in too many apps in use that are now affecting productivity. As of 2021, one survey highlighted that employees have higher engagement with shadow IT than the official apps provided by the IT team (Productiv, 2021).
Vulnerability to Data Breach
Another area of concern identified with the growth in the adoption of SaaS apps is file security violations, which increased drastically by 134% from March 2021 to June 2021 (BetterCloud, 2021). The top five most common sensitive data stored on cloud apps include US passport numbers, social security numbers, driver’s license numbers, security codes, and login keywords. In 2021, only 18% of IT organizations consistently monitored their SaaS environment (BetterCloud, 2021).
Based on a 2021 Data Breach Report, the US had 1,108 data compromises in 2020, which cost $3.9 million. These numbers increased in 2021 with 1,862 cases of data breaches costing approximately $4.2 million (SVB, 2022). Globally, a 10% increase in the average total cost of breaches was recorded from 2020 to 2021, which is the largest single-year cost increase in the last seven years (IBM, 2021). It is important to note that remote working and digital transformation due to the COVID-19 pandemic increased the average cost of data breaches by $1.07 million (IBM, 2021).
The Cost of Misconfigurations
There is an existing burden on IT security teams to monitor SaaS security. At least 42% of organizations in the US encountered more than a single incident on security due to SaaS misconfiguration (Adaptive Shield, 2022). When too many departments have access to SaaS security settings and there is a lack of visibility into changes in SaaS security settings, the risk of data leaks becomes higher.
One key study finding is that manually detecting and remediating SaaS misconfiguration leaves the organization more vulnerable. Since only 46% of organizations check their systems monthly, misconfigurations could go undetected for a month or longer (Adaptive Shield, 2022). To be able to address this security concern, organizations use SaaS Security Posture Management (SSPM) in reducing the time that it takes to detect and remediate SaaS misconfigurations.
Among the recommendations to address SaaS security concerns are automating the management of SaaS operations, centralizing subscriptions, building efficient SaaS-powered workplaces, and having the right set of tools by using a SaaS management platform.
Source: Adaptive Shield 2022 SaaS Security Survey Report
How SaaS Is Reconfiguring the Modern Workplace
SaaS has undoubtedly reconfigured the workplace. Businesses experienced new levels of productivity in using SaaS, including scalability, cost savings, and corporate agility. SaaS apps enabled organizations to reduce capital expenditures, simplify employee collaboration, and facilitate the quick deployment of mission-critical tools.
SaaS Management
Companies are trying to identify the best way to manage the SaaS apps they use in everyday operations. In the United Kingdom, 33% of companies have already centralized SaaS subscriptions and purchasing with IT, while a further 52% are considering implementing this system (Cledara, 2021). Among the organizations surveyed, 70% say that a simple tool to see all their subscriptions in one central platform would be helpful.
Centralizing SaaS subscriptions is important, with 28% of organizations doing this to avoid losing money due to lack of visibility over how much is being spent on SaaS, and difficulty in keeping track of subscriptions. Among organizations, 43% say that manual tasks such as reconciling spend across subscriptions prevent them from doing more strategic work (Cledara, 2021). To get the most out of SaaS subscriptions, these tools should be strategically managed.
SaaS-Powered Workplaces
The proliferation of SaaS in organizations has paved the way for SaaS-powered workplaces. Compared to traditional workplaces, SaaS-powered organizations automate a much larger percentage of their operations. In 2021, a typical SaaS-powered workplace had 45% of its operations automated, and almost 80% of its routine tasks. Contrast that with the traditional workplace that automates only 25% of its IT operations (BetterCloud, 2021).
Automation frees up IT teams to work on meaningful, higher-value initiatives which encompass improving employee experience, being more involved in strategic planning, and focusing on security and modernization. By 2025, it is projected that every organization will become a SaaS-powered workplace (BetterCloud, 2021).
The Shifting Role of IT
From its functional role, the use of SaaS apps enabled IT teams to shift into having strategic roles in the organization, with 57% agreeing that their role has become more strategic in 2021 (BetterCloud, 2021). In the past year, IT has become more proactive and involved in driving customer outcomes, participating in strategic planning, and becoming trusted strategic partners to the business (BetterCloud, 2021).
Data-driven management is a key factor in ensuring business competitiveness. In using SaaS apps, companies gained immediate access to large amounts of customer data and were empowered to modify and shift strategies on the fly. IT teams have come to play strategic roles within organizations. Without prioritizing automation, IT teams will be stuck in reactive mode and spend at least 20% of their workweek performing repetitive tasks (BetterCloud, 2021).
SaaS completely changed the role of IT. Amid the explosion of SaaS adoption, IT leads the way in transforming the traditional workplace into a resilient digital workplace that has the agility to quickly shift operations by equipping the modern workforce with tools that will enable them to thrive in any type of environment.
Source: Fujitsu 2021 Global Digital Transformation Survey
SaaS Trends: Moving to the SaaS-Powered Workplace
Every organization will eventually become a SaaS-powered workplace. The trends in the SaaS sector show that digitization will equip organizations with the right tools to become resilient. While companies continue to adopt platforms to automate and digitize operations, the technology behind these software continues to evolve. The following are the most significant SaaS trends that will deliver unprecedented improvements in the way we interact and apply technology in the workplace.
Prevalence of Micro SaaS
With the majority of companies in the SaaS sector finding it challenging to offer unique services, the market has become increasingly competitive. One strategy that was implemented by SaaS companies to increase revenues is offering micro SaaS solutions. These companies target narrow markets and adopt a vertical approach by catering their products to the needs of specific industries, or even a single industry.
With 80% of SaaS-powered workplaces estimating to fully automate their processes in three years, micro SaaS is poised to grow (BetterCloud, 2021). Compared to their larger counterparts that offer full-featured products, micro SaaS businesses typically offer specific add-ons to SaaS platforms. As most organizations have existing software solutions that are already in place and only require specific connectors, micro SaaS offered a cost-effective solution and has since built a notable market share in the SaaS market.
Quantum Computing
Quantum computing has the potential to revolutionize the world by making use of quantum bits. While the typical computer makes use of binary bits, quantum bits in quantum computing have the capacity to handle far more complex data. Compared to traditional computers, quantum computers can solve issues quicker and has the capacity to sift through huge amounts of information.
From 2021-2030, Allied Market Research estimates that the worldwide enterprise quantum computing market on average, would grow at a CAGR of 29.7%, reaching $18.3 million by 2030 (Allied Market Research, 2021). Process optimization, machine learning, and pattern matching are just some of the applications that quantum computing can significantly improve with its capacity to quickly execute complicated computations.
SaaS Unbundling
This trend refers to a new generation of SaaS businesses that offer primary services as APIs instead of providing the typical SaaS packages to consumers. Rather than offering a full-featured SaaS solution, the unbundling allows customers to mix and match the features of a product to reinforce their existing tech stacks. SaaS unbundling is growing in popularity simply because customers pay for just what they use, with most offering pay-as-you-go pricing.
While this may appear as a new trend in the SaaS market, unbundling digital products is not a new concept. After all, cookie-cutter software solutions do not always work for every company. Each organization deals with different pain points and has work processes that are unique to each. SaaS unbundling allows organizations to buy an API that contains all the essential tools while at the same time giving them the freedom to design their own tools for various functions such as customer service. SaaS unbundling provides flexibility and solves very specific problems. According to 37% of SaaS companies, flexibility is one of the most crucial components in adopting a cloud system (SVB, 2022).
Source: BetterCloud 2021 State of SaaS Ops Report
Key SaaS Adoption Challenges for Enterprises
Enterprises adopting Software as a Service (SaaS) solutions often face several key challenges that can impact integration and overall effectiveness:
- Vendor and Contract Management: Managing multiple SaaS vendors can become complex, especially with different contracts, service levels, and renewal cycles. This fragmentation often results in challenges with cost control, compliance, and support consistency across vendors.
- Data Security and Privacy Concerns: Storing data on external servers raises concerns about security and privacy, especially with sensitive business data. Compliance with regulations like GDPR or CCPA adds an extra layer of complexity, requiring robust measures to prevent data breaches and protect user information.
- Cost Management and Budgeting: While SaaS can reduce upfront costs, ongoing subscription fees may lead to budget overruns if not managed carefully. Hidden fees, unplanned expansions, and additional costs for premium features can also strain budgets.
- User Adoption and Training: Transitioning to SaaS platforms often requires user training, especially if they involve new workflows. Resistance to change or insufficient training can slow adoption, reducing potential efficiency gains.
- System Integration and Customization Limits: Integrating SaaS with existing on-premise or legacy systems can be challenging. Additionally, customization options in SaaS solutions might be limited, potentially hindering their alignment with specific business needs.
Reinforce Your Business Strategy with These Market Insights
Every day, the SaaS products being built on the ever-evolving cloud technology fabric grow more powerful with the data, bandwidth, advancements in AI, as well as new APIs available today. There is no stopping SaaS from transforming how modern businesses operate.
But as mentioned in this article, every industry experiences challenges and growing pains. SaaS management platforms will be needed to manage subscriptions and eliminate SaaS sprawl and shadow IT. Leveraging top security software is crucial so as not to compromise sensitive data.
As enterprise spending on SaaS continues to climb, micro SaaS and SaaS unbundling also see high growth in their niche markets. The SaaS industry is poised to grow rapidly as both public and private sectors continue to realize the benefits of automating processes. With the growth of SaaS, we have yet to fully see the promise and potential of the cloud economy.
Key Insights
- SaaS Market Growth: The global SaaS market is projected to reach $720.44 billion by 2028, growing at a CAGR of 25.89%. This growth is driven by the ongoing digital transformation and cloud migration across various sectors.
- Post-Pandemic Resilience: Organizations are focusing on resilience by adopting SaaS solutions for business process automation, which is crucial for remaining competitive in a post-pandemic world.
- Sector Adoption: Significant SaaS adoption is seen in government, education, health, and private sectors, each leveraging cloud solutions to enhance efficiency, transparency, and service delivery.
- Security Concerns: The rise of shadow IT and SaaS sprawl has highlighted the need for better SaaS management and security measures to prevent data breaches and misconfigurations.
- Trends and Innovations: Key trends include the rise of micro SaaS, quantum computing, and SaaS unbundling, each offering specialized solutions to meet the unique needs of different industries.
- Centralized SaaS Management: Centralizing SaaS subscriptions and management is becoming a priority for organizations to maintain visibility, control costs, and ensure efficient use of software tools.
- Strategic Role of IT: The adoption of SaaS is shifting the role of IT from functional to strategic, enabling IT teams to focus on higher-value initiatives like improving employee experience and driving customer outcomes.
FAQ
- What is the current growth rate of the SaaS market?
The global SaaS market is growing at a compound annual growth rate (CAGR) of 25.89% and is expected to reach $720.44 billion by 2028. - How did the COVID-19 pandemic affect SaaS adoption?
The pandemic accelerated the adoption of SaaS solutions as organizations needed to quickly digitalize their operations and support remote work setups. This led to increased investment in SaaS applications to ensure business continuity and resilience. - Which sectors are seeing significant SaaS adoption?
Significant SaaS adoption is observed in government, education, healthcare, and private sectors. Each sector leverages cloud solutions to improve efficiency, transparency, service delivery, and overall operational effectiveness. - What are the main security concerns with SaaS adoption?
The main security concerns with SaaS adoption include the rise of shadow IT, SaaS sprawl, data breaches, and misconfigurations. Organizations need robust SaaS management and security measures to mitigate these risks. - What is shadow IT and why is it a concern?
Shadow IT refers to the use of SaaS applications and other software tools by employees without the knowledge or approval of the IT department. It is a concern because it can lead to security vulnerabilities, data breaches, and inefficiencies due to lack of centralized control and visibility. - What are micro SaaS and SaaS unbundling?
Micro SaaS refers to small, niche-focused SaaS solutions that cater to specific industry needs or provide add-ons to larger SaaS platforms. SaaS unbundling involves offering primary services as APIs, allowing customers to mix and match features to suit their specific requirements, rather than providing a full-featured SaaS package. - How can organizations manage SaaS effectively?
Organizations can manage SaaS effectively by centralizing SaaS subscriptions, using SaaS management platforms, automating SaaS operations, and implementing policies to control downloads and subscriptions. This helps maintain visibility, control costs, and ensure efficient use of software tools. - How is the role of IT changing with SaaS adoption?
With SaaS adoption, the role of IT is shifting from functional to strategic. IT teams are now more involved in driving customer outcomes, participating in strategic planning, and becoming trusted partners in the business. This shift allows IT to focus on higher-value initiatives like improving employee experience and enhancing security. - What trends are shaping the future of the SaaS industry?
Key trends shaping the future of the SaaS industry include the rise of micro SaaS, the integration of quantum computing, and the popularity of SaaS unbundling. These trends offer specialized solutions, faster processing capabilities, and flexible pricing models to meet the unique needs of different industries. - Why is centralized SaaS management important?
Centralized SaaS management is important because it helps organizations maintain visibility over their software usage, control costs, and prevent inefficiencies. It ensures that all SaaS applications are used effectively and securely, supporting overall business goals and strategies.
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