The focus on SaaS has grown over time, although the market has solidified, with notable leaders like Salesforce.com, Netsuite, Concur, Taleo and others commanding their share of the tech press coverage. As software M&A advisors, we frequently talk with buyers looking for that killer SaaS ap, and the predictable recurring revenue that accompanies a subscription model.
Looking at the landscape of application areas, weve grown beyond the early leading aps of Customer Relationship Management/Sales Force Automation and Payroll/HR, all big aps for cloud computing. Payroll was a natural from the get-go, as business owners long ago had grown accustomed to outsourcing payroll processing to the likes of ADP. CRM was a natural in a connected world to provide a highly mobile salesforce with an accessible ap that a user organization could grow both with new capabilities as well as user loads, as needed.
Where are the next big areas of growth for SaaS? Vertical markets are sure to see further growth, as the broader solutions like Netsuite seek new markets that are only addressable with industry-specific feature sets. Our research indicates the penetration rate of SaaS applications in the SMB market is less than 10%, although many of the legacy applications used in that space are aging and lack competitive functionality. The recession has hindered the acceptance of new SaaS applications as customers push off new solutions pending an uptick, choosing to retain their already paid for legacy aps. With better functionality from modern SaaS applications, many offering comprehensive platforms of easily configured customization, we should see explosive growth over the next two years. Well also see a surge in SaaS M&A as the legacy vendors wake up to the immediate advantages of acquiring a SaaS vendor vs trying to develop in-house. This will be fun to be a part of.stay tuned.