History of SaaS: Its Challenges and Bright Future

History of SaaS: Its Challenges and Bright Future
Updated date:
Feb 10, 2022

Table of Contents

Comparatively to the history of the Roman Empire or Greek poetry, the history of SaaS is almost short.

But it's rich and fascinating and full of unexpected twists and turns. Developments that never took off but served as cautions about the types of flops to avoid.

Since the 1960s, new terminology and seemingly groundbreaking ideas have appeared every year, but most of what established the foundations for today's software business has become obsolete.

What is Software as a Service (SaaS)?

It is a software distribution technique that allows consumers to access cloud-based apps via the internet. Platform-as-a-service (PaaS) and infrastructure-as-a-service (IaaS) are two other cloud-based concepts (IaaS).

History of SaaS: Its Challenges and Bright Future

With SaaS, businesses don't need to invest in expensive gear or software because everything is accessible over the internet via a web browser. The users’ data is stored in the vendor's data center.

When users sign into their online account, they can use the software on the client-server from any device. And as long as they have an internet connection.

Customer relationship management (CRM), human resources (HR), office and communications, process management, content management, and antivirus software are all examples of SaaS apps.

While there are many different price structures, it is a subscription-based service in which users pay a monthly or annual charge to access the software.

It has exploded in popularity, with a recent poll predicting that by 2023, about 86 percent of businesses will be entirely reliant on SaaS-based cloud services.

History of SaaS

What is the History of SaaS?

History usually does have a wacky beginning that you wouldn't imagine, and SaaS is no exception.

IBM: a 1960s SaaS company

Here is the closest thing to a graphic representation of IBM's 1960s SaaS:

IBM: a 1960s SaaS company

The IBM 360 Model 67 is the machine in question. It dates from 1965, and IBM used these and the computers they created over the next decade to give processing capacity to businesses such as banks and government agencies.

To give you an idea of how powerful these machines were, the most sophisticated IBM 360 (the Duplex) had 2MB of RAM, and a GB of hard drive capacity cost about $200,000 in 1980. Buying your computers was no longer an option when you could rent power and space for a fraction of the cost from a dedicated provider. Time-sharing was the name of the service.

By today's standards, computers were still large and inefficient. Still, this advancement enabled them to be located or have data and power hosted at a different physical location than the one they were being utilised.

Organisations in the 1960s were focused on developing their software with the help of mainframe providers such as IBM. While time-sharing isn't software as a service, it is an early location-independent breakthrough in workplace computing that can be considered a precursor to SaaS.

In 1970s & 80s: The Growth of Pre-SaaS Architecture

Time-sharing's popularity rolled out into the 1970s. However, the personal computer industry allowed businesses to provide each employee with their computer with its challenging drive application.

In 1970s & 80s: The Growth of Pre-SaaS Architecture

More compact and more powerful computers like IBM PC ended the need for mainframe behemoths and time-sharing. SaaS progression took a backseat, and the rage and hype were concentrated on having one’s office applications and disk spaces.

However, during the 80s, the first-ever Pat Sullivan and Mike Muhney developed the ACT!, a DOS CRM marketed as a digital Rolodex that allows businesses to store contact details and sell more efficiently and effectively to their prospects.

During the 1990s, graphical SaaS came into the limelight, led by the company that developed the most globally successful product.

In 1990s: The Dot Com Boom

The complexity of software accelerated at a rate faster than the hardware’s capability of handling it, more notably for big businesses running hundreds of thousands of computers. Managing systems and applications of employees’ personal computers became a challenge, with IT teams contending to get the inefficient networks up and running.

Those days, hard drive space was still expensive, and companies needed solutions to get the applications on PCs without using up too much space. It means that technological developments in operating systems have to become more prominent. Then came along, Salesforce. The 1990s saw Salesforce as the first pure SaaS superstar.

Salesforce never messed around with physical products — its app was delivered entirely over the internet, with access in the browser. Going all-in on SaaS gave Salesforce a tremendous head start, setting the company to become the single most valuable company ever founded.

In 1990s: The Dot Com Boom

SaaS vendors were gaining success by the early 2000s to keep the market up and going ever since. Companies either went out of business or lost a large portion of their market value. Cisco's stock dropped by 86%. As a side note, many of the early adopter internet business ideas, such as web-based groceries and pet e-commerce businesses, are experiencing a rebirth today.

With Salesforce at the forefront, SaaS decisively became a proven business model. 

The SaaS Pervasiveness of 2010

With Salesforce leading and forging the way, SaaS gained a proven and tested business model reputation. 

During those years, the SaaS market was predicted to be worth $22.6B in 2013 and $50.8B in 2018. As the table below shows, the result was much higher, and so undoubtedly it will be for the next year, 2022.

The SaaS Pervasiveness of 2010

While Salesforce was the first, other companies developed early SaaS software on floppy disks and CD-ROMs before the internet.

For instance, Concur business travel and cost management software. Concur shifted away from physical software after the 2001 market meltdown and became a pure SaaS company. It snowballed that SAP purchased Concur in 2014, making it the largest acquisition ever.

SaaS has grown significantly over the previous two decades, pushing the software development paradigm from its inception to where it is now. But what happened to the Breakout Companies, and where are they now?

Companies that made the break, then and now (and of the decade)

Learnings for SaaS firms this year (Inc. rates them on 3-Year growth — a rather unusual metric for start-ups at all stages): [Note: the higher on the list they are, the quicker they are increasing in percentage terms year over year]

1. AdRoll made $12.4 in GAAP revenue in 2011. 

Where it went: It was renamed Nextroll and is now worth $1.5 billion. Rather than SaaS, it's more Adtech.

2. Acquia made $21.8 million in revenue in 2011. 

Where it Went: Vista bought it for $1 billion in 2019. A fantastic result, but perhaps not as significant as you might assume considering the company's rapid expansion.

3. Rocketlawyer made $14.2 million in revenue in 2011. 

Where it Went: $233 million or more in growth finance in 2021 (at an implicit valuation of $1 billion or more).

4. Marketo made $32.9 million in GAAP revenue in 2011. 

Where it Went: IPO'd in 2013, with a $250 million annual revenue run rate by 2016. Vista PE bought it for $1.8 billion, and Adobe bought it for $4 billion.

5. SugarSync made $11.3 million in GAAP revenue in 2011. They're a fraction of the size of Box, but they were a participant with income in the eight figures last year. In the end, it's a challenging space.

6. Pardot made $7.4 million in 2011. There's still room at the bottom in marketing automation since they're expected to surpass the eight-figure threshold this year.

Where it went: Shortly after, it was acquired for $100 million after crossing the $10 million ARR threshold. Today's ARR is $250 million or more.

7. Janrain made $3.4 million in revenue in 2011. It was a great space, but OKTA and others won it for $30 billion. Lesson? It's too early to tell if $3 million in ARR will be enough.

8. HubSpot made $28.5 million in 2011. Outstanding performance — but about 20% lower than I expected from the PR. In line with the thesis. 

Where it went: The "winner" at the top of the list. Today's market cap is $28 billion, with $1 billion in annual revenue. SMBs with top-tier revenue retention and relatively high prices scale well.

9. Upwork (oDesk) made $25.8 million in GAAP sales in 2011. I estimated the cost to be around $50 million. It ended up with a $7 billion market cap and an IPO.

10. SEOmoz made $11.4 million in sales in 2011. It indicates that marketing is lucrative. 

Where it Went: It made $45 million in revenue in 2017, with a forecast of $100 million or more in 2021. It was later acquired for a bit of price in 2021.

11. Demandware generated $56.5 million in 2011.

Where it Went: It was purchased for $2.8 billion by Salesforce.

12. Coupons.com made $91.1 million in GAAP revenue in 2011. Who would have guessed? IPO'd with a market worth of $1.2 billion.

13. YouSendIt made $39.3 million in GAAP revenue in 2011. OpenText likely paid a low price for the company in 2018. It's a difficult market to break into (Box, etc.).

14. BigMachines made $49.8 million in GAAP revenue in 2011. What Happened: Oracle paid $400 million for the company in 2013. After founding G2 Crowd and Steelbrick, the CEO sold Steelbrick (a 2.0 version of BigMachines) to Salesforce for $360 million in 2015! And G2 is now worth $1.1 billion or more!

15. Intact Technology generated $20.3 million in GAAP revenue in 2011. Sage bought it for $850 million or more in 2017. It's not the end of the world if growth slows down. It can take a long time for the market to catch up to you.

16. VerticalResponse. In 2011, GAAP revenue was $24.1 million. The company was sold for $27 million (1x revenue?). Being the first to arrive isn't everything.

Present-Day SaaS Explosion

Covid-19  has created chaos in the global economy. Businesses are clambering to find cost-effective and feasible solutions to achieve their objectives and maintain, if not increase, their market share.

Although a shift to remote employment and e-commerce was already underway before the pandemic, Covid-19 accelerated the process catching many businesses unprepared. This present pandemic seems to be the most critical economic disruption in modern history. But one can never be argued that the business environment created by COVID-19 allows many SaaS firms to thrive and prosper beyond expectations.

The technologies dramatically changed the way we conduct business, like video conferencing. Now that people and companies couldn't avoid noticing the value of SaaS brands,  come to sit had come to stay. These firms are expected to do well beyond the pandemic. Any business that can utilize and exploit it undoubtedly has a competitive edge.

RELATED READ - How to Improve Customer Experience as a SaaS SDR

The Future of SaaS

The type and number of SaaS product users have increased dramatically over the years, especially in this time of the pandemic. Though initially positioned as an ideal solution for start-ups and small to medium enterprises, companies of diverse fields and sizes find it an excellent, affordable solution. It empowers digital transformation and business agility. According to recent research:

-SaaS market is increasing by 18% every year.

-78% of small businesses have already invested in SaaS options.

-SaaS adoption in the healthcare industry grows at a rate of 20% per year.

-By the end of this year, 2021, 99% of business establishments will use one or more SaaS solutions.

-70% of CIOs claim that agility and scalability are two of the top motivators for using SaaS applications.

The Future of SaaS

The Final Note

The future of Saas is not only promising but beckoning brightly. It is now acknowledged and proven the most secure and efficient business solution. SaaS is both an additional tool of communication and an independent business solution.

Cloud computing allows business tools to be more flexible, accessible, and a great work facilitator as it takes most responsibilities that have to do with performance, security, and maintenance.

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