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How SaaS companies changed the internet

 

In 1999, a former Oracle executive and some colleagues launched a little website that would change the way people used the internet. The site was called Salesforce.com.

On paper, there was nothing particularly unusual about Salesforce. It sold CRM systems to medium businesses, just like existing enterprise behemoths, Oracle and Siebel. But there was one big difference: Salesforce was a software company that didn’t believe in software. (They even ran a widely-publicised “No Software” campaign in February 2000, including fake rallies outside Siebel HQ)

Instead, Salesforce went to market with something weird. A web-based CRM that was easy to use, cheap, available anywhere, and paid via subscription. Centralised hosting itself wasn’t new (IBM had been running data centres since the 1960s), but it took Salesforce to see the consumer-facing potential. They were betting the future didn’t involve licensing fees and bulky CD-ROM downloads. People shouldn’t have to manage and update their own software.

Nobody knew it, but founders Marc Benioff, Parker Harris, Dave Moellenhoff and Frank Dominguez had just invented Software as a Service (SaaS).

Their timing was perfect. By the late 2000s, cloud-based computing was gathering steam, with Amazon Web Services and Google Apps For Work (now known as G Suite) offering businesses simple cloud storage and consumer-friendly web tools. Microsoft jumped on-board with their Azure cloud platform in 2010.

In some ways, the new SaaS breed were doing what ASPs had promised to do ten years ago – build low-cost software with fast deployment and upgrades that didn’t require an IT degree. The difference was cloud computing.  SaaS companies could scale on the cloud in a way ASPs never could. Better hardware had opened up a new world of software.

Fast-forward to 2018, and SaaS is now the driving model behind pretty much every software company on the planet. Estimated global value: $206 billion. Forbes Technology Council expects overall SaaS spending to double by 2020, and companies are now paying 20 times more on SaaS subscriptions than they were five years ago.

What began with web-based CRM and marketing teams wanting more autonomy has grown into a global movement, changing the tech stack of nearly every department, from Sales and Finance to Administration.

These days, Microsoft is the SaaS kingpin, having locked down 17% of the market – most experts reckon they overtook Salesforce around 2016. But companies like Amazon aren’t far behind: in fact, Amazon Web Services (the company’s B2B cloud service) accounted for 40% of Amazon’s entire revenue in Q1 last year. A lazy $6.1 billion.

Interestingly, SaaS didn’t just change the way people use the internet. It changed the fundamental relationship between businesses and their customers. Because software was now based on subscriptions, not licenses, there was no such thing as a ‘finished’ sale. Customers had to be won continuously, retained over and over again, which (combined with growing competition in the SaaS space) put pressure on software providers to iterate and improve their product. Suddenly customers were holding all the cards.

This lead to the rise of Customer Success Managers, an entire organisational paradigm dedicated to helping the customer get what they want. To using customer-driven data to better inform overall business decision making. For companies to learn so much about their customers that they can almost pre-empt expectations.

CSM has boomed so quickly that universities have started offering dedicated Customer Success qualifications, and job growth is sitting at 91% year-on-year. Not bad for a profession that didn’t exist 10 years ago.

Salesforce understood this before anyone. As Lincoln Murphy, a well-known Customer Success proponent, told Forbes, “The majority of your revenue from your relationship with a customer happens post sale.” Instead of enterprise companies shipping a product, collecting cash and moving on the next sucker, developers now had to interact with their customers. Learn from them. Listen to them. Iterate products to create better products, to lock in new subscribers and boost customer retention.

It’s important to temper SaaS expectations a little. Subscription companies still only account for 20% of the world’s enterprise software market. But according to experts like Jason Lemkin, CEO and founder of investment firm SaaStr, that proportion is growing rapidly.

“We will have at least 100 companies top $1 billion in ARR [Annual Recurring Revenue], probably many more,” he told TechCrunch. “The only questions is when.”

 

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