SaaS subscriptions bouncing back as enterprises seek innovation

Enterprises worldwide continue to migrate from proprietary, licensed software to software-as-a-service (SaaS) subscriptions as they seek innovation, better user experience and lower cost, according to a report published by Information Services Group (ISG).

SaaS subscriptions

The report on the global market finds enterprise SaaS demand rebounding from a slowdown caused by the COVID-19 crisis. A 21 percent growth in combined SaaS and infrastructure-as-a-service (IaaS) annual contract value is predicted in 2021.

“Enterprises in all industries are adapting their systems to take full advantage of digital capabilities,” said Bill Huber, ISG partner, digital platforms and solutions.

“SaaS has been gaining traction for several years as companies use it as the launchpad for new digital initiatives, and we believe demand will keep growing this year as a solution for both back-end and front-end applications.”

Copanies increasing their spending on core enterprise apps

Companies are expected to increase their spending on core enterprise applications such as enterprise resource planning (ERP), human capital management and customer relationship management, which increasingly are being delivered and billed as SaaS subscriptions, the report says. These types of applications help enterprises keep operating during disruptions such as the COVID-19 pandemic.

Over the next 12 to 18 months, enterprises are expected to launch major projects aimed at business continuity, centralization, cost optimization and greater collaboration and visibility. They are expected to adopt SaaS solutions for an even broader range of applications.

Demand is surging for vertical SaaS solutions aimed at specific industries. Providers are focusing on developing pre-built integrations for specific sectors and meeting each industry’s key performance indicators (KPIs). The pandemic has sparked especially strong demand for vertical SaaS solutions for supply chain management and ERP, the report says.

Major drivers of SaaS growth

One major driver of SaaS growth is the availability of modern application programming interfaces (APIs) for easy integration. APIs enable channel partners and integrators to easily combine sets of applications to meet the needs of specific customers. This shortens the time to market for new offerings, allowing providers to focus on their core capabilities and develop functions that set them apart.

The report also sees mobile app personalization as a key trend for SaaS providers looking to offer superior user experience, with integrated machine learning and artificial intelligence to deliver greater insights via mobile dashboards.

While the SaaS market has a growing number of players, including small niche providers, industry consolidation to increase scale is expected to continue, the report says. Nearly all companies covered in the report have acquired smaller vendors in the last three years.

When considering SaaS providers, customers should consider the chances of the company being acquired and be mindful of support options.

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