Pandemic Drives SaaS and Pure Subscription Models

Whether you have heard of SaaS or not, you are very likely using it on a day-to-day basis. This is because SaaS, or Software as a Service, is a business solution whereby the service is located in the cloud and users can access it via an internet browser of their choice.

If you have recently accessed any CRM platforms such as Salesforce and Hubspot or even logged onto any of the Office 365 apps, you may be more familiar with SaaS than you think.

As a matter of fact, Microsoft was one of the first giants to embrace the potential of SaaS. Back in 2004, 82% of the company’s revenue came from licensing. But as Office 365 made the switch to SaaS, consumers could suddenly access Word and Excel remotely, while spreading out the cost of the software.

In numbers, as last reported, that switch now equates to 47.5 million subscribers and “commercial cloud revenue amounting to $16.7 billion, up 34% year over year”1.

A more recent example of a successful company revert to SaaS is the case of Nutanix, which moved away, back in 2017, from selling hardware appliances to providing integrated software services. The overall gross margins reported by the company are 82% in 2020, which is a whopping 16% increase from the company’s 2016 gross margins.

Similarly to the pure subscription model, SaaS operates on a pay-as-you-go basis, meaning that the customer brings in recurring revenue at regular time intervals. Not only does this help companies keep a steady cash flow – but it allows for creating a loyal customer base.2

Those who like the service and integrate it into their daily business operation will return every month, the convenience of which is two-fold: first, SaaS businesses need not have colossal marketing budgets, as their business is sustainable even without a constant stream of new clients; second, they can better estimate future income and manage ahead.

As more and more brands are pivoting to SaaS solutions, the market size is anticipated to reach $307.3 billion by 2026. This is a staggering projection, considering the market’s worth to date is estimated at around $123 billion.3

Apple, another market trend-setter, declared increasing subscription revenue as its top priority for the upcoming financial year. Their aim, quite impressively, is to double the 2020 figure of just under $33 in average per-user services. If successful, this could add at least another 20% to Apple’s valuation.4

Arguably, it was the pandemic itself that gave the sector a boost. As people were confined to their living rooms and business carried on remotely, SaaS businesses had the opportunity to fill in critical market gaps. DocuSign Inc, an E-Signing service provider, registered a year-over-year revenue spike of 58%, according to the company’s Q1 FY 22 reports.

But even if the pandemic brought about the change, the SaaS trend is likely to outlast the virus, with reportedly over 73% of companies using Software as a Service (SaaS) in one form or another in 2021.

1 https://www.microsoft.com/en-us/Investor/earnings/FY-2021-Q2/press-release-webcast
2 https://www.mckinsey.com/industries/technology-media-and-telecommunications/our-insights/hardwares-business-model-shift-finding-a-new-path-forward
3 https://www.statista.com/statistics/505243/worldwide-software-as-a-service-revenue/#:~:text=In%202021%2C%20the%20software%20as,approximately%20123%20billion%20U.S.%20dollars
4 https://subscriptions.finimize.com/content/Q29udGVudFBpZWNlOjMzODA=/which-megatrends-should-you-be-backing?email-

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