What do you think investors would make of a technology that is already used by a vast majority of the country’s medium-sized businesses and is still expected to post a compounded annual growth rate of nearly 20% through 2016?
We thought such a product sounded like an investment opportunity, so this week we add yet another entry to the catalog with our Software as a Service motif.
For some of you, this may be a vague concept that you might have spotted in the news without completely understanding.
But it’s simple, and you’re likely to quickly realize that you’re probably using it every day. At its essential level, the concept involves gaining access to software applications via renting or borrowing it from the Internet, as opposed to the traditional method of buying a disc and installing it on your desktop.
And in just a few short years, the adoption – and variety – of online software has been prominently on display. Recent research from IDC estimates that two-thirds of US mid-sized businesses will use cloud-based services (SaaS and hardware-based Platform as a Service) in 2013, up from half in 2012. And 50% of businesses with 10-99 employees are expected to access the cloud this year.1
What’s more, within the next three years, IDC projects that SaaS vendors will vie for market share leadership – grabbing one or more of the top share positions – in over half of the major application software markets, such as customer relationship management.
That expectation applies not only to pure-play vendors but also packaged software vendors like IBM, Oracle, Microsoft and SAP that have become purveyors of SaaS organically and through aggressive acquisition.
Oh, and about that aggressive acquisition – that is expected to continue. IDC anticipates there will be $25 billion in SaaS acquisitions over the next 20 months, up from $17 billion in buys over the last 20 months.
Why the popularity?
As research from Gartner recently projected, the SaaS market is expected to grow at a compound annual growth rate of 19.5% through 2016, with global spending reaching $32.8 billion in 2016. The biggest market within that, customer-relationship management software, should grow 16.3% on a CAGR basis during the same period.2
Of course, anything on the horizon that hampers the perception by businesses of healthy end-demand could also hit the adoption of new software technology.
However, as IDC noted, this next wave of technology, built on the Four Horsemen of mobile devices, cloud services, social media and Big Data, has moved beyond the “exploration” stage and into “high-stakes competition.”
1IDC research report, “IDC prediction 2013: competing on 3rd platform,” November 2012,http://www.idc.com/research/Predictions13/downloadable/238044.pdf, (accessed Oct. 15, 2013).
2Louis Columbus, “Gartner Predicts Infrastructure Services Will Accelerate Cloud Computing Growth,” Forbes.com, Feb. 19, 2013, (http://www.forbes.com/sites/louiscolumbus/2013/02/19/gartner-predicts-infrastructure-services-will-accelerate-cloud-computing-growth/), (accessed Oct. 15, 2013).