Show notes
In this episode, we start our Primer on SaaS - Software-as-a-Service - a trilogy on everything you need to know about SaaS. We will give an Overview of SaaS, as well as discuss the intrinsic Business Models. Please look out for our next episodes that will deep-dive into Sales, Pricing, Financing, Benchmarking/KIPs, Lessons Learnt and Predictions.Navigation:Introduction (01:24)Section 1 - Overview (04:39)Section 2 - Business Model (17:59)Conclusion (45:19)ResourcesPlease check below to download our SaaS Primer PDF deck, serving as reference for our episodes 15-16-17Our co-hosts:Bertrand Schmitt, Tech Entrepreneur, co-founder and Chairman at App Annie, @bschmittNuno Goncalves Pedro, Investor, co-Founder and Managing Partner of Strive Capital, @ngpedroOur show: Tech DECIPHERED brings you the Entrepreneur and Investor views on Big Tech, VC and Start-up news, opinion pieces and research. We decipher their meaning, and add inside knowledge and context. Being nerds, we also discuss the latest gadgets and pop culture news.
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Full transcription: may contain unintentionally confusing, inaccurate and/or amusing transcription errorsIntro (01:24)Bertrand: Welcome to episode 15. In today's episode, we will talk about SaaS. What is SaaS?What does SaaS mean? SaaS means Software-as-a-Service. This is, and we will talk more about that later on, but this has become over the past decade, one of the most successful way to distribute and monetize software. Why is that? We'll talk more about that, but in a nutshell, SaaS is really a new philosophy and approach to software, that emerged around 20 years ago, as a way to deliver, a centrally-hosted application over the internet, as a service.In the past, you had to have your own server. You have to install your server. You have to upgrade and maintain your server, and you have to install software on every user laptop or desktop. It was very complex to maintain, to manage, but also on the pricing side, in the past, you would pay a very big license fee for your server, for your desktop license, and you would keep paying, a smaller amount, a maintenance fee, every year, usually for technical improvement. But you will have to keep managing your software server and clients side, for years. And it will become very difficult and complex, and you would have to keep up with improvements in the software. And it was difficult to keep up.What SaaS enabled, software-as-a-service, was, you don't have to manage the server side anymore. It was pioneered by companies like Salesforce, like Netsuite. So no more central IT costs to manage all of this, and the software would be distributed on the internet through your browser, so no need to install a specific software. And pricing was also changed as a result, no need for a big upfront license cost. You would pay every month, every quarter, every year. You could stop any time, or once a year, using the service, suddenly become much easier to consider trying a new service. It would become much easier to distribute that new service, and more important, much more alignment, between customers and supplier.Why? Because suddenly, the customer can leave anytime. Or at least once a year in most cases. And what this means is that it pushed suppliers to make sure their software was of really good quality. And on top of it, usually, much more focused on satisfying end user and consumers, not just making sure they check boxes with central IT.So it has been an evolution. It started 20 years ago. It started to ramp up with the last financial crisis in 2008, when companies decided it's time to give it a try. There was at the time, still some worries around storing your data somewhere else, not controlling your server equipment, infrastructure, and while there is still that worries, there is probably an acknowledgement today that these guys, the SaaS providers, are more certainly doing a better job than your own IT to manage this type of service at scale, and safely. That's in a nutshell what is software as a service.Section 1 - OverviewNuno: Today's primer, we're going to go through a variety of slides, which we will publish. These slides are coming from a variety of sources. So we're acknowledging all the sources we're taking this from, well known venture capital firms that have been looking at this space for quite a long time and a few other sources.So please do take attention to our resources where we will find some of the background around our discussion. Around software as a service actually, my time and in development as a computer engineer in developing systems and as an engineering manager was in the early days of what we then called application service providers, wireless application service providers, and some of these actions mutated into what we know as software as a service today.And it's funny cause some of the systems I developed are still in production today two our products and one was a custom made system. And if we were to really deep dive, around some of the pain points, Bertrand as you mentioned, actually even installing something like this was a pain in the neck, sometimes the drivers are missing in the computer, et cetera.So the world of the internet, and the sandbox of the browser has really brought us, a very appealing, unified way to deploy software, which is very powerful. So maybe moving agenda a little bit to the overview of software as a service in the space and what we're seeing happening, today.Bertrand, do you want talk to us a little bit about, and this is based on Battery slide on the five forces of software's accelerating role.Bertrand: Yes, let's start with a big overview about what's happening, why is it happening, let's focus first on the big picture of SaaS. And why is SaaS accelerating in term of growth?One first point, that's true that over time software markets are growing. There was this famous saying from Marc Andreessen, that software is eating the world, and that's true, software is eating the world, everywhere for the past, few decades.Two, when you keep growing so fast, and going everywhere, at some point you start also getting into every niche market possible. Every niche market is having more software involved.Three , software is actually displacing hardware, we used to have to run internet services for instance in the past, very complex advance servers, but this has changed. Now, the approach pioneered by Google, has been actually to put very basic hardware, and put all the smartness in the software, because your software is much easier to change over time.So we have a situation where software has also been displacing hardware.Fourth point, software is also displacing services and labor, software is replacing human work, usually it also creates new opportunities for human work, but definitely the most basic part of what was human work, is now being replaced by software.And maybe one last point, every company is becoming a software company, even very traditional businesses, are moving on the software side of things to improve their business.Nuno: If I were to move around, Software as a service and cloud, and what's happening in this space over the last two decades. one really powerful slide is a slide that shows us we had really one private cloud unicorn around 2010 and hundreds of private cloud company.Whereas around 2020, we now have by any accounts, close to a hundred private cloud unicorns and thousands of private cloud companies. And if we look at this movement, it's really coming from two angles, we'll discuss them a little bit later. We'll talk about horizontal versus vertical SaaS, whereas horizontal in many cases is more functionally driven "software as a service" companies. So companies that are trying to serve a specific need across industries or sub industries. So for example, a company like Gusto and a disclaimer, I'm an investor in Gusto, is a company that focuses on HR management, payroll, et cetera, and does so across industries. Whereas vertical companies normally are very focused on a specific industry that they're serving. Either with a specific functional focus or, normally more broad appeal to that industry. And we see, for example, companies that have done really well in software as a service in very old industries, like oil and gas, healthcare, I call it an old industry, certainly in certain parts of the world seems like an old industry energy and others.Bertrand: Yes, it has been a fantastic rise of what could be considered the successful cloud companies over the past 20 years. So one reason we have seen an acceleration is, actually, the time it takes to go from one to a $100 million in ARR, has actually been shortening. We have these interesting slide that shows that it used to take 10 more years, 15 more years, to go, from one to $100 million ARR, while some of the most recent companies, like Twilio, took only five years, Slack took only three years, to go from that one million to $100 million ARR.There is an acceleration, and this acceleration is due to a few things. So first, every professional has access to a desktop or a laptop with a powerful web browser, there is wide acceptance in term of business model to use a software as a service provider, there is no more question about, "Does it make sense? Is it safe enough?" And so that means that, basically, there has been an opportunity to accelerate. And the last point, around that, has also been the financing. In the past, it used to be difficult to get financing for a SaaS business, either a private SaaS business, or even to be understood by the public market. Acceleration of financing has helped a lot to move faster and to achieve these growth rates. So that's the combination of all these points that make it that we are moving from what used to take 15 years, to now it can take just a few years,...
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