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The key SaaS and software trends of 2021
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Gartner expects the SaaS market to continue growing in 2021, reaching a total value of $120.9 billion. According to a widely cited projection by Cisco, SaaS applications will also account for 75% of all cloud workloads and computing instances in 2021. A significant portion of this growth is being driven by small and medium-sized businesses (SMBs).
These SaaS and software trends are the driving forces behind the key developments of 2021:
MICRO-SaaS
PEOPLE CENTRICITY
NET DOLLAR RETENTION
DOUBLING OF SAAS SPENDING
ML & SECURITY
HOLISTIC PLATFORM
These SaaS and software trends are the driving forces behind the key developments of 2021:
- MICRO-SaaS
- PEOPLE CENTRICITY
- NET DOLLAR RETENTION
- DOUBLING OF SAAS SPENDING
- ML & SECURITY
- HOLISTIC PLATFORM
Software Trends of 2020
Last Year’s Trends
Last year, we wrote that our economy was about to change—rapidly. But this? Even we didn’t see it coming. The trends we identified back then are still just as relevant and valuable as they were a year ago, but in many cases, they haven’t yet been implemented.
So take the time to explore what 5G can mean for your business. Read how mid-market tech is standing up to the big players by growing much faster. Enhance the interface with voice and conversational UI, or explore the possibilities of blockchain implementations.
5G Connects the World
5G is becoming a driving force in the development of smart cities, autonomous vehicles, smart manufacturing, and IoT. In other words: the value of 5G goes far beyond smartphones. Virtually every sector that touches our daily lives will undergo a positive transformation thanks to 5G. A great example is the energy sector, which is rapidly changing due to sustainability efforts.
Growth of Mid-Market Tech
When people talk about growth in the tech sector, they often fall back on reciting annual figures from Google, Facebook, Slack, and other giants. However, interest in the growth potential of mid-sized companies is rising rapidly. Investors recognize the innovations coming from this segment and are attracted to its relative stability and market potential.
Prescriptive Analytics
Unlike relatively simple extrapolation, prescriptive analytics provides you with options to take advantage of the results from descriptive analysis. Prescriptive analytics is already being used in the oil and gas industry and in healthcare.
SaaS and Machine Learning
Machine learning is having a highly disruptive impact on the SaaS landscape. Combined with machine learning capabilities, SaaS enables companies to get more out of their data, automate and personalize services, improve security, and augment human capacity.
Voice and Conversational UI
Comscore predicts that by the end of 2020, 50% of all online searches will be initiated by a voice command. That’s half—can you believe it?
Small but Mighty: The Year of Micro-SaaS
Micro-SaaS is exactly what the name suggests: a SaaS product, but smaller. A Micro-SaaS product targets a niche market with a small but dedicated customer base. It can be a standalone product or an add-on to another product. Boomerang for Gmail, for example, is a Micro-SaaS add-on, while Grammarly is a standalone Micro-SaaS product.
A Micro-SaaS product is highly focused. It is designed around the user’s needs and solves a clearly defined problem in a simple way. The development of a Micro-SaaS product is very similar to that of a minimum viable product (MVP).
The term “Microservice Architecture” was coined to describe a specific way of designing software applications in which components are built as independently deployable services. Although there is no strict definition of this architectural style, there are several common characteristics—such as organizing around business capabilities, automated deployment, and intelligent decentralized data control. Already have an idea for a Micro-SaaS product?
People Centricity: Putting People First
In people-centric or human-centered software, the focus lies on how technology affects all stakeholders within the ecosystem. Throughout the entire development process, the emphasis is on the behavior, experience, and privacy of the people using the software—and the lives the software impacts.
In this new “Internet of Behaviors,” we combine existing technologies to serve individuals in the most relevant and meaningful way. We use facial recognition, location data, big data, and behavioral information to make every experience valuable. This is how we build software that truly adds value to people’s lives—products your users wouldn’t want to live without.
SaaS entrepreneurs embrace NDR (Net Dollar Retention)
For years, SaaS entrepreneurs (and investors) have focused on MRR, monthly recurring revenue. This is changing in 2021. NDR is far more interesting and valuable. Think back to one of your first economics lessons. Nothing fancy—just in high school. We bet you were told early on that retaining a customer is much cheaper than constantly having to chase new ones. It’s an old piece of wisdom, but still just as true today. Maybe even more true than ever—especially for SaaS entrepreneurs. You probably have a very clear idea of how much it costs to generate new leads. Marketing can become very expensive, very quickly. And if you’re not able to truly engage the user with your product, all of that effort is wasted.
Most people evaluate the performance of a SaaS company based on its MRR, while evaluating it based on NDR can be much more meaningful. Why? Well, it’s not uncommon for a company’s MRR to increase while its NDR is actually deteriorating. In other words, you’re losing money.
A Net Dollar Retention below 100% means that churn and downgrades outweighed the growth you achieved with your existing customers. You’re either losing users or they’re spending less on your product. Your product just doesn’t play a significant enough role in their lives.
NDR is becoming one of the most important metrics of 2021. It’s the favorite metric of investors—and therefore, it should be yours too. Smart SaaS entrepreneurs are shifting their focus from a conversion funnel to a retention funnel. In many cases, this simply comes down to prioritizing “Human-Centered Design.”
For years, SaaS entrepreneurs (and investors) have focused on MRR, monthly recurring revenue. This is changing in 2021. NDR is far more interesting and valuable. Think back to one of your first economics lessons. Nothing fancy—just in high school. We bet you were told early on that retaining a customer is much cheaper than constantly having to chase new ones. It’s an old piece of wisdom, but still just as true today. Maybe even more true than ever—especially for SaaS entrepreneurs. You probably have a very clear idea of how much it costs to generate new leads. Marketing can become very expensive, very quickly. And if you’re not able to truly engage the user with your product, all of that effort is wasted.
Most people evaluate the performance of a SaaS company based on its MRR, while evaluating it based on NDR can be much more meaningful. Why? Well, it’s not uncommon for a company’s MRR to increase while its NDR is actually deteriorating. In other words, you’re losing money.
A Net Dollar Retention below 100% means that churn and downgrades outweighed the growth you achieved with your existing customers. You’re either losing users or they’re spending less on your product. Your product just doesn’t play a significant enough role in their lives.
NDR is becoming one of the most important metrics of 2021. It’s the favorite metric of investors—and therefore, it should be yours too. Smart SaaS entrepreneurs are shifting their focus from a conversion funnel to a retention funnel. In many cases, this simply comes down to prioritizing “Human-Centered Design.”
Protect Your Data and Users with Machine Learning
As an entrepreneur, you learn every day. Thanks to machine learning, your software does too. You’re probably already familiar with some applications in the field of machine learning. In 2021, more and more companies are using machine learning to protect their data and users.
Machine learning continuously learns from data and identifies patterns. This allows you to better protect yourself against malware, abuse, and cybercriminals.
The ever-growing threat of cybercrime forces organizations to constantly monitor millions of data points. It’s simply not feasible to manage this volume of information with just a team of people. This is where machine learning excels—recognizing patterns and predicting threats within vast datasets, all at machine speed. By automating the analysis, teams can quickly detect threats and isolate situations that require deeper human review.
Machine learning uses sets of training data, known as the “ground truth,” which contain correct question-and-answer pairs. This training helps classifiers—the workhorses of machine learning analytics—accurately categorize observations. A good example of this can be found in our work for SimpledCard. Machine learning makes the application even more secure. It’s used in multiple ways to save end users time, such as transaction monitoring and fraud detection.
Cloud Services Spending to More Than Double by 2023
Global spending on public cloud services and infrastructure is expected to more than double between 2019 and 2023, according to the latest update from International Data Corporation (IDC)’s Worldwide Semiannual Public Cloud Services Spending Guide. With a five-year compound annual growth rate of 22.3%, public cloud spending will rise from $229 billion in 2019 to nearly $500 billion in 2023.
SaaS is the largest category overall, accounting for more than half of all public cloud spending throughout the forecast. SaaS spending is dominated by spending on applications. The most purchased SaaS applications will include customer relationship management (CRM) and enterprise resource management (ERM). SIS (System Infrastructure Software) spending will be led by investments in security software and system/service management software.
Three industries—professional services, manufacturing, and banking—will account for more than one-third of all public cloud services spending during this period. While SaaS will be the leading investment category across all industries, the share of IaaS (Infrastructure as a Service) will grow significantly. In 2023, IaaS will represent over 40% of public cloud services spending in the professional services sector, compared to less than 30% in most other sectors.
It is the very large businesses, those with more than 1,000 employees, that will account for more than half of all public cloud spending. Meanwhile, mid-sized businesses (100–499 employees) will contribute about 16% of the global total.
Transforming SaaS into a Holistic Destination
Many companies use different software for various business tasks. Using multiple SaaS products—with separate passwords, data sets, and data processing agreements—doesn’t exactly make life easier. In fact, a company’s efficiency can ultimately suffer from using too many SaaS applications. In response, SaaS providers are increasingly offering integrations—either through third-party APIs or by equipping their own software with integration capabilities.
Slack is a clear frontrunner in this area. The platform is currently rolling out a major update and has announced new integrations with other SaaS providers as part of that release. Zoom, too, is opening up its platform for integrations from other SaaS providers.
What integrations would be valuable for the users of your product? What integrations would make them never want—or need—to leave your platform?
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