Enterprise adoption will accelerate B2B SaaS companies
Early cloud adoption was driven by advantages of operating expenditure (OpEx) over capital expenditure (CapEx) and outsourcing advantage of infrastructure & infrastructure management. Platform & infrastructure services spending contributed majorly into cloud spending for enterprises.
However, with the application modernization & entrant of new players & emerging business models, SaaS is playing a very important role in cloud growth journey. Multiple reports are available in public domain, and almost all reports project SaaS as the highest contributor in overall Cloud spend, with more than $234 billion projection in 2024 (Gartner Report).
SME (Small & Medium Enterprise) are early adopters of B2B SaaS, largely driven by many advantages like – OpEx, low exit cost, pay at scale model, wider solution options, less entry risk, and many other operational benefits.
However, B2B SaaS is no more a model that’s adopted for operational efficiency. Today, the cloud has become a platform for innovation. Be it large enterprises or digital native businesses, they need solutions like IoT, Blockchain, Big Data, Analytics, Machine Learning, or likes of recent solution of Large Language Models driven Generative AI. These needs are driving Enterprises towards cloud and adoption of B2B SaaS. This very reason is leading proliferation of B2B SaaS companies and it’s just a tipping point. As per a public report, the US alone as 17,000 B2B SaaS companies almost doubled 50% of worldwide B2B SaaS companies. This number may look big, but still very less compared to total ISV or Software Product Companies that exist in the market. Lot of traditional companies are still using Cloud as a distribution channel or using a dedicated hosting environment, meaning they are not SaaS ready or not offering SaaS solutions.
In the coming time, I expect a big shift by ISVs transforming to B2B SaaS and industry disruptors developing B2B SaaS solutions leveraging DeepTech. NASSCOM released a report in August 2023, and as per this report,99% of Indian B2B SaaS companies are leveraging DeepTech for customer use cases, possibly the highest percentage worldwide.
Innovation & low entry barrier, key driving factor for SaaS transformation
Given product engineering being driving force in last 23 years, we are witnessing trends & shifts of software product companies in growth markets. B2B SaaS growth is exponential globally especially in markets we operate across North America, Europe & ANZ. We have witnessed more than 20 SaaS journeys or SaaSificaiton. Every business need is unique, so is the solution. However, a common objective is to transform to bring innovation in solution, lower entry barriers to accelerate sales & growth, and focus on brand instead of operations.
My father always says “don’t trouble the trouble until the trouble troubles you”. We have a client in North America with an industry leading ERP system renowned for its rich features and resilience. So, what’s the trouble? Why SaaSification? There were many reasons for transformation like user experience, technology refresh, etc. However, the primary catalyst behind the B2B SaaS strategy was the escalating operational costs associated with each new customer acquisition, numerous installations that resulted in challenges related to data management, the complexity of implementing the strategy in new markets, and, crucially, the competitive pressure from emerging players who could provide solutions in data analytics and artificial intelligence & machine learning by harnessing cloud solutions. SaaS is a journey, not a lift and shift. Journey paid well in terms of business scalable solution & offering capabilities for business growth.
Another customer we worked for SaaS transformation had a huge number of installations in the European & North America market. They had B2B & B2B2C offerings leading to installations in size of more than 10,000 over past many years and more than 10s of millions of users. Data management, Software version management became a big problem and with every new day it was further worsening. On top of it, they had challenges in upgrade management with a sizable team working along in operational management. We worked on B2B SaaS strategy to address these issues and make solution future ready to leverage analytics and data management & isolation capabilities. Journey was not simple & quick like lift & shift but involved deep technology solutions, cloud capabilities and more than two years’ journey. It may look long, but a complex transformation of this scale can take such time.
Technology Strategy for SaaS
Extending thoughts on SaaSification or building SaaS solutions. One needs to plan not just technology strategy, but business strategy. If it’s a cloud migration, workload migration or lift & shift type of work, I feel Technology Strategy can come first. However, for B2B SaaS, it’s the business strategy that comes first, and then technology strategy.
At core, B2B SaaS is also an application catering to users. So, a lot of technology principles around availability, performance, scalability, automation, and integration remain the same, obviously taking into account cloud infrastructure considerations. However, there are few important technology strategy that needs special attention in case of B2B SaaS like –
- Multi Tenancy – Single instance of application serves multiple customers (tenants) and it can extend to single instance of database with multiple tenants. Security is the primary concern by SaaS companies, as multiple tenants share a common infrastructure posing a risk to data. Solution must take data security & integrity as the most important requirement.
- Data Management – Wherever there is a common data store, multiple tenants access it. Database size will keep expanding with tenants & transactions and can impact database performance. Data management strategy plays an important role especially isolating issues from one tenant to another.
- Alignment of Cloud Resources – You will need to strategize your billing models, whether it would be one model across tenants or could be variation. Accordingly, your application solution, identity governance and cloud billing model shall be aligned.
- Release & Patching Process – Given your single instance of SaaS is serving multiple tenants across time zones, uptime & availability becomes very crucial. Release & patching cadence can’t have downtime. Although containers & microservices come very handy for these needs, still the release & patching process shall be thought through.
- Cloud Unit of Economics (FinOps) – With the growing tenant and growing transactions, cloud cost also increases. A business works for profit, unless it’s a non-profit organization. Unit of economics are important to forecast cloud cost with change in business demand & usage. Unit of economic also act as guidance for pricing the product and ascertain margins doesn’t diminish with growth.
DeepTech & AI/ML will drive SaaS use cases
As I mentioned, SaaS adoption is driven by the need for innovation and not the OpEx model. Going by recent experience, I have seen artificial intelligence & machine learning being a big driving factor for B2B SaaS companies or companies to move towards B2B SaaS. We have seen a lot of use cases being implemented in prescriptive analytics leveraging NLP capabilities, predictive analytics is also catching up fast in business use cases. Lot of customers are looking for a solution in customer analysis and customer management, it could be a machine learning solution in customer operations or conversational AI, or pricing strategy for competitive pricing. Computer vision is also driving significant uses cases, especially in large industries, industries with health hazards or industries that need hyper automation.
AI/ML is having a wide spectrum, and I am sure all types of AI/ML are being implemented world-wide. No technology is a silver bullet. Applying it for the right use cases is the magic formula. I strongly see AI/ML, Data Analytics and emerging technologies like AR/VR will be driving the success and growth for B2B SaaS products in days to come.
Written By: Sameer Mohta
