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SaaS and Cloud

Startup Report
2018
The State of the World SaaS and Cloud Economies

CROZDE SK .COM // THE SOF T WA RE DISCOV ERY PL ATFORM

World‘s biggest startup ecosystems company


clusters, funding patterns, trends and more.

CROZDESK LTD :
M : RESEARCH@CROZDESK.COM
W : CROZDESK.COM
SaaS and Cloud Startup Report 2018 | Crozdesk The So ftware Discov ery Platform

Table of Content
Key Findings 04

The Cloud and SaaS Market

Maket Value 14

How you can Industry Funding 14

use this report


Geographic Analysis

Global Clusters Analysis 16

US Cluster Analysis 18

Europe Cluster Analysis 20

ATTRIBUTION GUIDELINES
Trends
At Crozdesk, we produce research content
and resources for the software community
and provide them free of charge. We pride Vertical vs Horizontal 24
ourselves on helping businesses - big
and small - make better decisions when
buying software and vendors build better Mobile Strategies 26
solutions.

Feel free to distribute and use this report Integrations 27


in your own content creation. You can
republish any charts or findings with the
caveat of providing Crozdesk as the source From SaaS to PaaS 28
of the original research.

If you would like high resolution versions of Private, Public and Hybrid Cloud Environments 30
any of the images and charts used, please
contact research@crozdesk.com.
Predictions 32

Methodology 34

PUBLICATION DATE :
THIS REPORT WAS RELEASED ON THE 20TH NOVEMBER 2017

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SaaS and Cloud Startup Report 2018 | Crozdesk The So ftware Discov ery Platform

ABOUT US
Key Findings
Crozdesk.com - SaaS discovery

The public cloud market is expected to London (5th) and Tel Aviv (8th) are the
grow by 20% and the Software-as-a- only non-US clusters in the top 10, driven
Free SaaS reviews, comparison and software listings Service market by 22% in 2018. by their SaaS startup movements.

Crozdesk.com is a business software discovery portal, offering software search & comparison services SaaS investment has grown by around As horizontal SaaS markets are getting
for virtually any business purpose. 4% in 2017. The categories attracting the more competitive, 2018 is expected to
most funding were Accounting & Finance lead to a further increase in vertical
Whether you’re looking for accounting, marketing, development or CRM software, Crozdesk has you and Business Intelligence / Analytics. This and hybrid SaaS startups. While
covered. Over 230 categories and curated lists of detailed software profiles, user and expert reviews, was largely due to continued growth in vertical solutions already make up the
comparison features and rankings to help you figure out which product is best suited for your the FinTech space and new AI / Machine majority of solutions this is bound to
business. Learning applications in the Big Data and increase further due to more untapped
Data Science space. opportunities as compared to the
Create a user account and unlock exclusive discounts, compare thousands of applications side-by- horizonal SaaS space.
side and discover the right software for your business. The United States is still largely unrivalled
with 63% of companies globally and 2018 will show a further increase
nearly 89% of the startup funding in the in demand for end-to-end system

2018 will be the year of vertical


cloud and software sectors. However, integrations, fueled by developments in
as the US market is becoming more the Integration Platform-as-a-Service
saturated US vendors are increasingly space and higher customer expectations.
looking to expand into Europe and Asia.
Furthermore, established SaaS category

and hybrid SaaS startups.


Europe, a distant second, is showing leaders are increasingly expanding their
increased velocity with a great number model to incorporate a PaaS approach
of emerging companies focussed on the in a bottom-up approach as compared
space. In 2017 it was home to 22% of the to the top-down developments by IaaS
world’s cloud companies, but only 5% of providers in recent years.
funding.
With overall confidence in public
Silicon Valley - home to 16% of the cloud security on the rise, private
world’s cloud and software companies - cloud environments are becoming less
remains the ultimate powerhouse with popular. While hybrid cloud adoption is
nearly 39% of the world’s funding and decreasing as well it is still the preferred
rapid growth rates. It is followed by New cloud model of security sensitive
York, Southern California and Boston. enterprise and mid-market businesses.

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The Cloud and SaaS


Market
Revenue, Growth and Funding

Cloud adoption is continuing to grow, as laggard enterprises and


traditional businesses are increasingly embracing public and
hybrid cloud services to reinvent their business processes.
With growing threats from unbundled services providers and
digital innovation, staying competitive is the name of the game...

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SaaS and Cloud Startup Report 2018 | Crozdesk The So ftware Discov ery Platform

Market Value SaaS Market Value


The global SaaS market has been predicted to expand at a CAGR of 19.9% between
2015 and 2022 and is forecasted to reach $71.2 billion in 2018 - a 21.5% increase
from 2017.

However, the rapid growth in the horizontal SaaS market, seen in recent years, is
Growth Predictions likely to slow in 2018, as a result of established SaaS categories, such as customer
relationship management (CRM) and human resource management (HRM), reaching
SaaS revenue is projected to double from 2016 to 2020 maturity. With increasing demand for specialized industry solutions a shift towards
further verticalization and fragmentation of SaaS is to be expected.

The SaaS sector has started to mature and stabilise, with customers becoming
Public Cloud Revenue in US$B more reliant on SaaS products. In conjunction, vendors no longer need to dedicate
2016 2017 2018 2019 2020
(excl. advertising) substantial amounts of time to showcase the benefits of SaaS at a broader level.
The clear advantage of freeing internal IT functions from substantial hardware
Cloud Business Process Services (BPaaS) 39.6 42.2 45.8 49.5 53.6 requirements and legacy technology is becoming increasingly evident to the wider
market. This is illustrated by the fact that out of the Fortune Global 50 companies,
Cloud Application Infrastructure Services (PaaS) 9.0 11.4 14.2 17.3 20.8 48 have publicly announced new cloud adoption plans in 2017.

Cloud Application Services (SaaS) 48.2 58.6 71.2 84.8 99.7

Cloud Management and Security Services 7.1 8.7 10.3 12.0 13.9

Cloud System Infrastructure Services (IaaS) 25.4 34.7 45.8 58.4 72.4

Total Market 129.3 155.7 187.3 222.0 260.3 Retention and Margins
89% While some customer attrition is virtually unavoidable, high growth SaaS businesses
Table 1 - Public Cloud Revenue Projections 2016-2020 (excl. advertising), Source: Gartner 2017 have retained 89% of their subscription units annually on average. Throughout 2016, the
median annual unit churn was just 10%, which rose to 11% in 2017.
Cloud Market Value 77% With median gross margins on subscription revenue in the region of 77%, the SaaS
model continues to prove a catalyst for growth.

Cloud IT market revenue (excl. revenue rising to $187.3B. In 2017 the There is also a regional element to be
advertising) is expected to increase growth rate was 20.4%. taken into account when assessing the
from $129B in 2016 to $260B by the end future of the cloud services market. The
of 2020. This represents a Compound The SaaS market is projected to reach geographic analysis featured later in
Annual Growth Rate (CAGR) of 19%. $71.2B in 2018, continuing to be the this report underscores the significant
leading cloud segment in terms of regional disparity of supply development
More than 90% of current customer revenue. across the world. However, with the US
demand for cloud services comes market approaching more saturated
from replacing or upgrading existing The Infrastructure-as-a-Service (IaaS) levels, many vendors are looking towards
applications and from new digital sector is to achieve the highest rate of Europe and elsewhere for growth. “Our most important learning in 2017 has been that our technology is
product innovation. growth out of all of the cloud services
sectors, up 36.6% in 2017 to reach $34.7 The Asia-Pacific region is forecast to more far-reaching and pervasive than we had anticipated. In a way,
A Bain & Company study found that billion. reach a CAGR of 32.1% until 2022. China
from 2012 to 2015, cloud demand will likely play a significant role in the we had to expand our thinking, become comfortable speaking to much
accounted for 70% of IT market growth, The SaaS and IaaS sectors, in particular, IaaS market in particular, with forecasts
and is expected to represent 60% of new were the primary drivers for cloud anticipating higher demand in the larger organizations, and develop solutions to much bigger problems.
growth through 2020. services growth throughout 2017. Both coming years as digital services become
SaaS and IaaS have exceeded 2016 more mainstream - despite China’s cloud This year has definitely been a ‘go big or go home’ period in our
The public cloud services market is set to expectations, causing an uplift in cloud services market being several years
grow substantially by 20.3% in 2018, with revenue forecasts. behind its western counterparts. company’s growth.”

- Agreeable Research

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SaaS and Cloud Startup Report 2018 | Crozdesk The So ftware Discov ery Platform

Industry Funding

SaaS Funding by Segment


Q1-Q3 2017

To gain a better understanding of the Machine Learning and AI technologies


underlying SaaS and enterprise software attracting substantial investment to the
investment patterns, Crozdesk analyzed segment.
year-to-date funding at the time this
report was compiled (Q1 to Q3 2017), Third place went to Video related
amounting to $50.25B in total. This products, which received $1,567M in
represents a 4.1% increase over funding funding over the period, fueled by the
raised over the same period in 2016. Augmented and Virtual Reality trends.

Accounting and Finance software Traditional growth segments such as


companies received the most funding CRM and Project Management have
over this time period ($5,120M). dropped substantially due to lower
In 2016, it was only the fourth highest growth opportunities. This can be traced
funded sub-sector and has been driven to increased dominance exhibited by
by substantial growth of FinTech in 2017. established market leaders.

Business Intelligence, Analytics and Figure 1 shows all analyzed industry


Performance was the second highest- segments and the funding they received
performing in terms of funding received over the Q1 to Q3 2017 period.
($3,320M). This was fueled by new

+3.5%*

+4.6%* $57.0B* SaaS funding growth slows


$55.1B*
+8.6% After an 8.6% increase in 2016 and 4.6% in 2017, we expect SaaS funding
$52.7B to grow by just 3.5% in 2018. This is largely due to the fact that horizontal
SaaS catgegories - which historically attracted more funding - are
becoming increasingly competitive. Furthermore, with verticalization
$48.5B steadily on the rise, more and more vertical SaaS vendors tend focus on
2015 2016 2017 2018 profitability and sustainability, rather than venture-backed growth.
* Crozdesk projection

Figure 1 - SaaS Funding by sector (Q1-Q3 2017), Source: CB Insights data

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SaaS and Cloud Startup Report 2018 | Crozdesk The So ftware Discov ery Platform

Geographic Analysis
The World‘s Cloud Clusters and
Investment Patterns in 2017

The world’s cloud ecosystem differences in terms of growth,


funding and chances for success are staggering. While Silicon
Valley is the indisputed champion of incubation grounds, some
findings were more surprising...

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SaaS and Cloud Startup Report 2018 | Crozdesk The So ftware Discov ery Platform

The Global Cloud Startup


Clusters in 2017
19,188 $134B
total companies in funding
For the following geographical analysis are showing increased interest in the
of global cloud business clusters, the space they are still lagging behind.
Crozdesk team has analyzed 19,188 However, early signs of increased
currently operating SaaS, PaaS, IaaS and focus on SaaS and enterprise software
enterprise software companies, as well are visible and are bound to lead to
as 20,883 funding rounds, to determine increased growth in both countries as
statistically relevant patterns of regional their economies mature further. In the
development. case of China, total funding of companies
in the sector has increased to 2.17% of
Crozdesk analysis has found that in 2017 the worldwide share and IaaS is deemed
62.79% of relevant companies worldwide to become a major driver of growth in
were located in North America (United coming years.
States 59.57%, Canada 3.22%). Europe
followed with 22.28% of worldwide Asia as a whole comes in at 7.66% of
records. Funding patterns and overall company records, the Middle East at
development of both regions will be 2.64%, Australia at 2.08%, South and
analyzed in more detail in subsequent Latin America at 1.99% and Africa at
sections of this report. 0.56%.

For regional comparison, records have Regional cluster development is largely


Chicago London Greater Amsterdam
been clustered in areas of significant driven by proximity to traditional Companies: 1.15%
North West Companies: 1.80%
Funding: 3.51%
Companies: 4.20% Funding: 0.30%
velocity and companies have been industry across a wide range of sectors Cluster Growth: 0.79
Funding: 1.27%
Growth: 0.29
Growth: 0.16

consolidated to their headquarters (e.g. Manufacturing, Finance and other Companies: 3.51% Denver Berlin
Companies: 0.81%
Funding: 3.33% Companies: 1.73%
Toronto
location. In some areas, such as the service industries) and proximity Growth: 0.34 Funding: 1.60%
Growth: 0.58 Companies: 1.70%
Funding: 0.35%
Growth: 0.28

Texas Triangle (Dallas, Houston and San to funding sources such as Venture Silicon Valley
Funding: 1.27%
Growth: 0.37
Paris
Companies: 1.38%

Antonio) and the North West Cluster Capitalists, Angel Networks and Companies: 16.14% Boston Funding: 0.52%
Funding: 38.68%
Companies: 4.20% Madrid Growth: 0.21
Bangalore
(Seattle, Portland and Vancouver), the trade investment arms of established Growth: 0.97
Funding: 8.40%
Growth: 0.76
Companies: 0.91% Companies: 0.95%
Funding: 0.06% Funding: 0.35%
editorial decision has been made to enterprises. New York Growth: 0.08 Growth: 0.35

bundle them into one cluster due to Companies: 5.67%


Funding: 8.38%

their shared investment and business This clustering trend can be better Southern Growth: 0.50 Barcelona
Washington DC
California Companies: 0.62%

infrastructure. understood by looking at the next Companies: 5.11%


Companies: 1.88%
Funding: 2.61%
Funding: 0.10%
Growth: 0.29
Growth: 1.00
section of this report, which covers Funding: 4.73%
Growth: 0.50
Atlanta
Silicon Valley and it’s surrounding area funding patterns in relation to investor Companies: 1.38%

Texas Triangle
Funding: 1.15% Israel Singapore
accounted for 16.14% of the global location across the United States in more Growth: 0.88
Companies: 1.93% Companies: 0.76%
Companies: 3.30% Funding: 1.27% Funding: 0.17%
records, followed by New York at 5.67% detail. Funding: 3.52%
Growth: 0.42
Growth: 0.68 Growth: 0.18

and Southern California at 5.12%. Boston


and London were tied for #4 at 4.20%. In the next two sections of this
geographic analysis we will take a deeper
Outside of North America and Europe, look at funding and overall company
Israel and its hub Tel Aviv have growth in the United States and Europe,
shown significant traction in its SaaS which are driving forward the cloud and
development and come in at 1.93% of software economies with over 85% of
records, followed by Bangalore at 0.95%, cloud services and enterprise software
New Delhi at 0.78%, Sydney at 0.78% and companies worldwide. Sydney
Singapore at 0.76%. Companies: 0.78%
Funding: 0.30%
Growth: 0.25

While Brazil (1.14%) and China (0.99%)

Figure 2 - The world’s cloud and software clusters


Size determined by total company records
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SaaS and Cloud Startup Report 2018 | Crozdesk The So ftware Discov ery Platform

Relative
% of total % of total Cluster
Largest Cloud and Software Clusters growth
companies funding score**
speed*

1. Silicon Valley 16.14% 38.68% 0.97 2.97

2. New York 5.67% 8.38% 0.50 1.07

3. Southern California 5.11% 4.73% 0.50 0.94

4. Boston Area 4.20% 8.40% 0.76 1.24

5. London 4.20% 1.27% 0.29 0.58

6. North West Cluster*** 3.51% 3.33% 0.34 0.64

7. Texas Triangle**** 3.30% 3.52% 0.42 0.72

8. Tel Aviv / Israel 1.93% 1.27% 0.68 0.83

9. Washington DC 1.88% 2.61% 1.00 1.18

10. Chicago 1.80% 3.51% 0.79 0.99

11. Denver 1.73% 1.60% 0.58 0.73

12. Toronto 1.70% 1.27% 0.37 0.51

13. Atlanta 1.38% 1.15% 0.88 1.00

14. Paris 1.38% 0.52% 0.21 0.31

15. Amsterdam / Netherlands 1.15% 0.30% 0.16 0.24

16. Philadelphia 1.08% 0.68% 0.63 0.71

17. Bangalore 0.95% 0.35% 0.35 0.42

18.

19.
Madrid

Berlin
0.91%

0.81%
0.06%

0.35%
0.08

0.28
0.14

0.34
Silicon Valley
20. Dublin 0.81% 0.09% 0.08 0.13
“San Francisco and its
21. New Delhi 0.78% 0.12% 0.37 0.42
surrounding area remains the
22. Sydney 0.78% 0.30% 0.25 0.31
powerhouse of the world’s cloud
23. Singapore 0.76% 0.17% 0.18 0.23
and software economies.“
24. Miami 0.76% 0.48% 0.87 0.87

25. Barcelona 0.62% 0.10% 0.29 0.33 San Francisco and its surrounding area remains the powerhouse of
the world’s cloud and software economies with a cluster score of
2.97. The abundance of capital and infrastructure resources there
Others 36.66% 18.76% 0.38
is unmatched and it is only narrowly beat in average development
speed of companies by the much smaller Washington DC metro
* Relative growth speed = function of age, total capital raised and employee growth of a company (1.00 = fastest) area, where government contractors have benefited from access to
** Cluster score = sum of all 3 relative factors (3.00 = maximum) political decision makers and government budgets.
*** North West Cluster = Seattle, Portland, Vancouver - bundled due to regional proximity and shared startup / funding infrastructure
**** Texas Triangle = Dallas, Houston, San Antonio - bundled due to regional proximity and shared startup / funding infrastructure

Table 1 - The 25 largest cloud and software clusters in the world

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SaaS and Cloud Startup Report 2018 | Crozdesk The So ftware Discov ery Platform

North America:
Funding and Clusters 63% 89%
of world‘s companies of world‘s funding
The following analysis assesses the By and large, investors on the the west
relative abundance of capital and debt and east coasts tend to overlook the
investment in North American SaaS, midwest and south of the country when
PaaS, IaaS and enterprise software they invest outside of their own region
businesses by state and looks at the and opt for the opposite coast instead.
overall growth by geographic cluster. For instance investors from the north
Growth is defined as a function of east of the country tend to invest in
company records and expansionary west coast businesses 34% of the time
metrics (employees and funding per and only 3% in midwest businesses.
company). The analysis included 12,048 This further fuels the mismatch of
North-American businesses. funding and infrastructure. West Coast
investors keep their investments within
Sample companies based in California their region in 78% of cases and skip
raised funding amounting to $58.74B the heartland to invest in north eastern
since their incorporation, which businesses 14% of the time.
constituted 43.69% of global funding into
the sector. This is followed by New York While there is a slowly declining trend
State with $11.59B and Massachusetts related to this, it illustrates the relative
$11.39B. Illinois with $4.75B is closely mismatch of funding and explains the
followed by Texas at $4.74B and continued cluster growth of growth hot
Washington State at $4.04B. 13 US states spots on the west and northeastern
and one Canadian province (Ontario at coasts of the country.
$2.10B) were home to companies with a
total of more than $1B in equity and debt
capital.
Government Offices 77% North West Cluster
Companies: 3.51%
The largest US tech clusters by Funding: 3.33%
Growth: 0.34
headquarter location are Silicon Valley Chicago
at 16.14% of the world’s companies Angel Investors 66% Companies: 1.80%
Funding: 3.51%
operating in the space, New York at Growth: 0.79

5.67%, Southern California at 5.11%, Toronto


Boston at 4.20% and the North Accelerators 61% Companies: 1.70%
Funding: 1.27%

West Cluster (Portland, Seattle and Growth: 0.37

Vancouver) at 3.51%. Other interesting


clusters include the Washington DC / Venture Capital Firms 58% Boston
Companies: 4.20%
Arlington (VA) metro area with 1.88% of Funding: 8.40%
Growth: 0.76
records and the fastest average company
development of any cluster measured. Micro VC Firms 54% Silicon Valley Denver
Companies: 1.73%
Chicago and Denver at 1.80% and 1.73% Companies: 16.14%
Funding: 38.68%
Funding: 1.60%
Growth: 0.58
Growth: 0.97
respectively are two areas of increased
velocity in current SaaS development. Family Offices 49% New York
Companies: 5.67%
Funding: 8.38%

A recent Crunchbase study has found Growth: 0.50

that, in the US, 66% of Angel and 58% Corporate VCs 48% Washington DC
of Venture Capital deals happen in the Companies: 1.88%
Funding: 2.61%
Growth: 1.00
investors’ states of residence. In Silicon
Valley this is even more extreme. San Figure 3 - Rate at which US investors invest in-state
Francisco Bay Area investors invested in Source: Crunchbase News, 2017
Bay Area companies 66.2% of the time. Southern California Atlanta
Companies: 5.11% Companies: 1.38%
Funding: 4.73% Funding: 1.15%
Growth: 0.50 Growth: 0.88

Texas Triangle
Companies: 3.30%
Funding: 3.52%
Miami
Companies: 0.76%
Figure 4 - North America’s cloud and software clusters Growth: 0.42
Funding: 0.48%
Growth: 0.87

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Size determined by sum of total growth PAGE: 19 // 3 4
SaaS and Cloud Startup Report 2018 | Crozdesk The So ftware Discov ery Platform

Europe:
Funding and Clusters
22% 5%
of world‘s companies of world‘s funding
The following analysis assesses the Sample companies across Germany and
relative abundance of capital and debt France are both close to reaching the $1B
investment in European SaaS, PaaS, IaaS operating capital mark. Paris, the second
and enterprise software businesses by largest sector cluster in Europe, is home
country and looks at the overall growth to 1.38% of global companies and 0.52%
by geographic cluster. Growth is defined of the overall capital. Berlin, Europe’s
as a function of company records and second largest startup ecosystem, has
expansionary metrics (employees and been a late-adopter of the SaaS trend
funding per company). The analysis and is lagging behind at only 0.81%
included 4,276 European businesses. of companies and 0.35% of operating
capital.
The European cloud services and
software economies have been The Amsterdam area and surrounding Oslo
Companies: 0.23%
dominated by the United Kingdom - territories in the Netherlands have Funding: 0.02%
Growth: 0.19
home to 6.42% of global companies in shown significant interest in SaaS, PaaS
the sector and $2.34B in funding within and enterprise software. The extended
the sample group. 65.37% of UK cloud cluster comes in at 1.15% of companies,
services and software companies are however, with less funding at only 0.30%.
located in the Greater London area
operating with 73.16% of the country’s Other SaaS hotspots with little capital
sector funding. The UK ecosystem has but significant growth in startup
Copenhagen
grown steadily in recent years and SaaS numbers have emerged in Madrid Companies: 0.39%
Funding: 0.04%
has become one of the primary drivers (0.91%/0.06%), Dublin (0.81%/0.09%) and Growth: 0.15

of startup growth, rivalling its still Barcelona (0.62%/0.10%). Cambridge


Companies: 0.09%
dominant FinTech sector. Funding: 0.04% Greater Amsterdam
The fastest growing areas outside of Dublin Growth: 0.22 Companies: 1.15%
Funding: 0.30%
Companies: 0.81% Growth: 0.16
While London has a large SaaS London were Cambridge, Paris, Oslo, Funding: 0.09%
Growth: 0.08 Berlin
ecosystem it can’t keep up with its US Berlin and Barcelona. Companies: 0.81%
Funding: 0.35%
counterparts in terms of funding and Growth: 0.28

growth opportunities. For instance, the Spread across Eastern Europe, an


average funding round of London-based increased number of startups have
companies was just one quarter the size appeared in recent years, but with
of their San Francisco-based rivals. The little access to capital and growth
London
median round size was $654,500 - in opportunities within the sector. Companies: 4.20%

comparison to $3M in San Francisco. Funding: 1.27%


Growth: 0.29

Consequently, this likely caused the All in all, Europe has exhibited significant
average growth speed of London interest in SaaS, BPaaS, PaaS and
companies in the sector to just reach one enterprise software, while its IaaS sector Paris
Companies: 1.38%
third of that on the US west coast. has been lead by a small selection of Funding: 0.52%
Munich
Growth: 0.21
established players. However, more Companies: 0.25%
Zurich Funding: 0.06%
Despite much higher impediments to conservative investment practices and Companies: 0.19%
Growth: 0.26
Funding: 0.04%
growth and opportunity in the European less venture capital have made it difficult Growth: 0.24

cloud services and software space, for European businesses to keep up


smaller ecosystems with heavy focus on with the fast growth exhibited by US Madrid
SaaS and BPaaS have been popping up competitors. Companies: 0.91%
Funding: 0.06%
Barcelona
Growth: 0.08 Companies: 0.62%
all across western, central and northern Funding: 0.10%
Growth: 0.29
Europe.

Figure 5 - Europe’s cloud and software clusters


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SaaS and Cloud Startup Report 2018 | Crozdesk The So ftware Discov ery Platform

SaaS Trends
And Cloud Adoption
Developments

The SaaS and cloud space is changing rapidly. Enterprise


and small business users alike, are becoming increasingly
demanding. SaaS vendors have to keep up with trends in
demand and service innovation to stay ahead of the game in an
increasingly competitive space...

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SaaS and Cloud Startup Report 2018 | Crozdesk The So ftware Discov ery Platform

SaaS Trends Vertical

Vertical vs Horizontal SaaS Solutions

The SaaS market has reached new share and attract new customers. As solutions geared at specific industries
maturity levels in the US, limiting the the largely industry-agnostic horizontal from Healthcare to Retail. Veeva, for
new-market growth opportunities for SaaS environment has matured, many instance, has been very successful in
“horizontal” SaaS solutions. This has segments are now dominanated by tailoring its CRM and data management
led to a major trend of diversification established players creating significant solutions to the pharmaceutical and life
into vertical markets, addressing barriers to entry. The focus here has science industries exclusively. Crozdesk
key business issues for particular changed from customer acquisition to is seeing a large number of new entrants
verticals and establishing new growth increasing customer value and retention. aiming to replicate this model across a
opportunities. However, while vertical SaaS solutions diverse set of horizontal functions and
already make up the majority of SaaS industries.
One size-fits-all software is starting to vendors, a wide range of opportunities
give way for more modular verticalized for process improvements and Horizontal / Vertical Hybrids Horizontal
approaches, and with SMEs becoming disruption across a great many industries While less common, an increased Solutions
the driving force for SaaS growth in 2018, still remain. number of vendors tailor their largely
SaaS providers are increasingly focusing horizontal solutions to a small number of
on niche industries and markets. When it Horizontal Software Solutions specific industries. This can be achieved
comes to mission-critical functionality, Horizontal SaaS solution funding and either purley through marketing,
customers demand a deeper expertise growth is starting to slow, as investors with custom landing pages and sales
in their field - so single-industry soutions shift towards backing vertical solutions messages geared to individual industry
often lead to greater market success. and unbundled software aimed at segments, or by customising the
While vertical SaaS companies trade with disrupting traditional industry offerings. underlying solution technology to better
a narrower customer base and occupy Most large horizontals have established cater towards an industry’s core pain Hybrids
a smaller market space, they have a market leaders with significant maket points and workflows.
product-based competitive advantage share by now, which creates lower Figure 6 - Vertical vs Horizontal Solution Examples
within their area of focus. growth prospects for new entrants and We expect a further shift towards
less funding opportunities. ‘verticalization’ of the SaaS approach
Horizontal SaaS focuses on a specific in 2018 and beyond to provide better
software category (HR, marketing, sales Vertical Software Solutions off-the-shelf and modular cloud services,
etc) and have wide market reach. This A clear trend has emerged in recent rivaling horizontal category leaders
generally requires higher marketing and years aimed at replacing horizontal in their largest and most profitable
sales budgets to gain significant market SaaS solutions with more customized industry segments.

Vertical solutions, while generally less well known, make up the majorty
of SaaS solutions on the market. With horizontal SaaS segments getting
more and more competitive we expect a greater shift towards vertical
and hybrid solutions by new SaaS entrants in 2018.

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SaaS and Cloud Startup Report 2018 | Crozdesk The So ftware Discov ery Platform

SaaS Trends SaaS Trends


Mobile Stategies Integrations

While most B2B SaaS applications are friendly SaaS and aimed to improve their automation specifically, they believe SaaS users are becoming increasingly core aspect businesses consider when developers and ‘Citizen Integrators’
commonly used on desktop computers, mobile experience, but felt that their that “a mobile device will always be an demanding when it comes to flexible and evaluating SaaS products. within target customer organizations.
customers are increasingly demanding industries were rather slow to adapt. ancillary way of viewing and interacting seamless integrations of complementary
access to the same services while on- Demand from their customer base was with an enterprise application.” software products, databases and Complexity, security, concerns over These are often complementary add-ons
the-go. not stong enough to warrant making information streams across a wide decreasing stickiness and IP retention which aim to improve a missing feature
mobile-optimization a priority and issues However, field-service and heavy use range of business functions. This trend have slowed adoption of this across or enhance an existing SaaS ecosystem
‘Mobile-friendly’ as a product strategy surrounding security often prevented collaboration service providers have that is fuelling Integration Platform- a range of fields - especially in the through the use of integrative solutions.
prioritizes and often equates the this. been increasing their investment in as-a-Service (iPaaS) also requires enterprise space.
importance of mobile experience mobile optimization significantly. We SaaS vendors to collaborate more and Drag-and-Drop Standardization
with that on desktop computers. Fraud detection provider Pondera stated spoke to Brian Saab from Unearth more on point-to-point integrations Multi-Layered Security To offer a maximum of flexibility to
Mobile devices are entrenched in the that mobile-friendly initiatives had been Labs - a construction management and expand their API offerings beyond Integrating disparate software, can run non-technical users more standardized
workflow of businesses with non- slow to move within their niche due to software vendor: “If your platform isn’t providing isolated cloud silos. the risk of increasing vulnerabilities integration ecosystems are bound to
stationary workforces. Additionally, the sensitive nature of the data they mobile-friendly, it will likely significantly and allow for security protocols to be emerge in coming years following a
43% of business owners now frequently analyze. hinder its adoption given how many Standardized protocols and language bypassed, which, in turn, increases the hub-and-spoke integration approach.
use mobile devices as an avenue for people use their mobile device for work. compatibility is becoming increasingly risk of unauthorized access to sensitive Standardised protocols and iPaaS
managing operations remotely. However, Accelo CEO, Geoff McQueen, said Mobile friendly design was even more important. RESTful web services, WDSL data. To combat this, SaaS vendors networks hold the potential for users to
demand for the ability to manage “mobile first SaaS works fantastically important for us because mobile is king and SOAP are used frequently to further increasingly adopt multi-layered security create their own ‘drag-and-drop’-type
operations and collaborate on projects for products with a clear and leading on construction sites. If we don’t have interoperability and allow for diverse processes, with high-end encryption integrations between heterogeneous
while out of office, is not yet universal. mobility use case” however, he saw this an intuitive and simple mobile interface, application triggers and data streams to protocols. systems and could allow for ultimate
as only providing tangential value for no one in the field is going to adopt our enable users to tailor off-the-shelf control in creating bespoke business
We talked to 25 SaaS vendors across Accelo and other enterprise software software and we will be dead in the SaaS offerings to their own unique API Service Unbundling workflows on a much grander scale.
a wide range of different fields to get vendors, and sees shifting focus to water.” requirements and business processes. A steadily rising number of startups have
their opinion on mobile-friendly SaaS. mobile for non-location dependent It also increases value-add and cross- adopted the strategy of packaging their While this model, in the long-run, has
Whether it has affected their business services as inadvisable. Mobile optimization has become promotion opportunities to capture core services for access through APIs the potential of replacing point-to-point
model, or whether they have adopted a necessity for some vertical SaaS more value in enterprise and SME and suites of developer tools. As some integrations that tend to be time-
the strategy within their own company, These sentiments were echoed by vendors, but enterprise applications workflows. SaaS industry categories are getting consuming to build and often inflexible
greatly varied by segment. marketing automation company, Lead are still facing early stages of mobile overcrowded with a great number in their execution, market leaders in the
Liaison: “It is almost impossible to maturity, as the costs of delivering a Ease of on-boarding new solutions of similar products, more and more space are yet to emerge.
The majority of interviewees operating deliver a meaningful experience on meaningful experience on mobile often into the existing business arcitecture startups are focusing on unbundling
outside of field-service industries, mobile, especially for an enterprise outweigh their benefits. and infrastructure through flexible these features, to offer tailored, more
recognized the benefits of mobile- application”. Regarding marketing integrations is quickly becoming a flexible services geared towards

Integration Software-as-a-Service (iSaaS)


iSaaS is a set of tools that allow users the prime audience for iSaaS solutions. integration it has the potential to disrupt

$4.9B
to design their own integration tasks Companies such as Adeptia are driving the Electronic Data Interchange (EDI)
and self-mange the process. ‘Citizen this space forward with flexible market and provides opportunty for
Corporate Mobile Integrators’ - meaning people who components, allowing for simple increased standardization, availability
understand the business requirements Citizen Integration. While this model is a and secturity of SaaS integrations.
SaaS Market 2017 and are generally tech-savvy, without precursor to integration standardization
necessarily being IT specialists - are as a substitute to point-to-point

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SaaS and Cloud Startup Report 2018 | Crozdesk The So ftware Discov ery Platform

SaaS Trends
From SaaS to PaaS
The global market for with large development teams required “An integrated set of data management,
PaaS is projected to to build and maintain cloud products analytics, and insight application
reach $10.6B in 2018. built on custom infrastructure. development and management
components, offered as a platform the
SaaS is one of the key models of the An additional driver of PaaS growth is enterprise does not own or control.”
cloud services economy giving business the parallel growth of big data, fuelled by Insight PaaS makes it easier to manage
customers the means to steer away from investment and innovation in Machine complex data sets, update applications,
legacy systems and traditional hardware Learning and AI technologies. Big data upgrade technology and coordinate
PaaS adoption will be a prime driver of SaaS requirements. As the SaaS industry services are forecasted to grow 39.5% team member activities.
matures, established vendors are annually on average until 2021.
innovation in 2018 and provides an opportunity for frequently augmenting their approach Furthermore Integration Platform-as-
to incorporate a Platform-as-a-Service PaaS will become a major aspect of a-Service (iPaaS) will also be driving
SaaS category leaders to diversify their solution and (PaaS) model. the enterprise architect’s arsenal to growth in 2018, as demand for seamless
complement their big data strategies and integration of data sources and diverse
increase the overall stickiness of their solution. A prominent example of this is custom project deployments. One model cloud applications is demanded by a
Salesforce. Their platform approach of PaaS set to rise in popularity due to large number of mid-market and SME
allowing developers to build their the continued big data trend is Insight customers.
solutions on top of Salesforce services PaaS. Forrester defines Insight PaaS, as
Why is PaaS adoption increasing? and infrastructure provides substantial
positive externalities to their SaaS
offering and increases overall stickiness,
as well as providing diversification
Increased investment in the application infrastructure & middleware benefits. Many horizontal category
market by large IaaS providers (AWS, Microsoft, Google, IBM, Oracle, etc.) leaders in SaaS are openly considering
these add-on ecosystems. Legacy Model PaaS Model

SaaS category leader diversification through the creation of add-on The overall PaaS market is largely
ecosystems dominated by Amazon Web Services, rent/buy & setup hardware
Microsoft, Google, IBM and Oracle. For
Oracle PaaS is quickly becoming the install operating system
Increased demand for scalable infrastructure allowing for shorter primary mover of growth, even more so
development cycles than its SaaS functions. Its PaaS and IaaS setup user access/permissions
Q4 2017 revenue reached $497 million, an just build your solution

increase of 40% compared with Q4 2016. build your solution

Increasing demand for ecosystems to support big data and machine While stand-alone PaaS companies
learning projects are still few in number there is a clear test security and stability

indication that PaaS is due significant


investment in 2018. update & patch continuously

Growing focus on seamless integration of cloud services and data streams


This is a result of rapidly increasing
demand to shorten product
development cycles and decrease App App
ongoing maintenance requirements.
This is further amplified by shortages in
development talent across the western
world and increasing costs associated Figure 7 - Simplified model illustrating PaaS benefits

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SaaS and Cloud Startup Report 2018 | Crozdesk The So ftware Discov ery Platform

Cloud Adoption Trends


Private, Public
and Hybrid Cloud 89% 89% 91%

77%

Environments
72% 71%
68% 67%
65%

In 2017, the number of companies towards data science processes and


adopting public and hybrid cloud services for laggard enterprise and mid-

2018*

2018*

2018*
environments has increased market businesses. their potential market through new

2016

2017

2016

2017

2016

2017
significantly, while adoption of private customer segments willing to look to
cloud environments has stalled. Enterprises moving to the cloud typically the cloud to improve their business
start with a hybrid approach, splitting processes on a grander scale.
95% of respondents to the 2017 their IT budgets between on-premise Public Cloud Private Cloud Hybrid Cloud
RightScale State of the Cloud survey have / private cloud solutions and public The veracity and number of challenges
adopted a cloud environment, public cloud environments. In addition, 20% of Figure 8 - Public, Private and Hybrid Cloud Adoption 2016-2017, perceived by potential cloud adopters
cloud being the most popular model enterprises are planning to use multiple Source: RightScale 2017 State of the Cloud Report has declined. Whilst cloud security
year-on-year with an 89% adoption rate public clouds in the near future - up from * Crozdesk prediction for 2018 remains the number one perceived issue,
among surveyed businesses in 2017. 16% in 2016. Despite being more difficult this is now only seen as a challenge for
to implement effectively, hybrid cloud 25% of businesses, sharing the top spot
Public cloud environment strategies will continue to represent the The reason for the increase in public the public cloud, giving them access with “lack of resources/expertise” and
Public cloud environments are provided most popular enterprise cloud strategy cloud and decrease in private cloud to cost effective and reliable services, “managing cloud spend”.
by third-party multi-tenant service in 2018. usage is also due to improving enterprise and infrastructure that was previously
providers. Public cloud users can take confidence in the public cloud’s ability to unaffordable. This ‘grass-roots’ Companies are still trying to work
advantage of dynamic scaling and cost- This is largely due to many enterprises’ handle secure and sensitive data. movement has shifted focus and raised out the best cloud strategy for their
effective pay-as-you-go pricing models. unwillingness or inability to move market awareness, which in turn, business as they navigate the concept of
to public cloud environments over SMEs on the other hand have embraced benefitted SaaS vendors by widening multidimensional cloud services.
Private cloud environment continued security and compliance
Private cloud refers to any environment concerns. Those leading in new
operated internally, that offers self- technology adoption have generally
service and on-demand resource opted for hybrid cloud environments in
allocation. While adoption is falling, the past in order to be able to segment
it is still the environment of choice for data and services according to their
security conscious businesses. sensitivity and overall importance for
the organisation’s primary business
Hybrid cloud environment functions. Hybrid cloud strategies can
A hybrid cloud environment involves be complex in their implementation
weaving the private and public cloud into however, and cost savings associated
one cohesive and seamless experience. with public cloud environments are
This enables businesses to benefit from increasingly recognized for their bottom
the scalability and cost-effectiveness line benefits, despite looming security
of the public cloud, whilst being able concerns. This is leading to an increased
to host sensitive and mission-critical shift towards the public cloud within
resources within their private cloud. hybrid setups.

In 2018, we’re expecting public cloud Pure private cloud environments are less
adoption to rise further. This will largely and less popular, due to their high cost
be due to cost decreases associated with and operation requirements and will
public cloud infrastructure and increased continue to play less of a role than hybrid
availability of PaaS technologies geared and multi-cloud environments in 2018.

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SaaS and Cloud Startup Report 2018 | Crozdesk The So ftware Discov ery Platform

Other Free Resources from

Sources
Live Market Infographics
Data Sources (used in models and analysis):
• Company records and trends from Crozdesk.com and the Crozdesk Vendor Portal
(retrieved November 2017)
and Vendor Radars


Company records and funding data from Crunchbase.com (retrieved November
2017)
Industry funding data from CBinsights.com (retrieved November 2017)
from Crozdesk
Reports:
• Building Trust in a Cloudy Sky, The state of cloud adoption and security, McAfee.com
(available here: https://www.mcafee.com/us/solutions/lp/cloud-security-report.
html)
• RightScale 2017 State of the Cloud Report, RightScale.com (available here: https://
www.rightscale.com/blog/cloud-industry-insights/cloud-computing-trends-2017-
state-cloud-survey)

Other Sources:
• Gartner Forecasts Worldwide Public Cloud Services Revenue to Reach $260 Billion
in 2017, October 2017 (available here: https://www.gartner.com/newsroom/
id/3815165)
• The Changing Faces of the Cloud (available here: http://www.bain.com/
publications/articles/the-changing-faces-of-the-cloud.aspx)
• Local Loyalty: Where Venture Capitalists Invest And Why, Crunchbase News (available
here: https://news.crunchbase.com/news/local-loyalty-venture-capitalists-invest/)
• Oracle Cloud Billings - Calculation of SaaS and PaaS Billings Growth, Q3 FY2017,
Oracle (available here: http://s1.q4cdn.com/289076952/files/doc_financials/
q3FY17/Q317_Cloud_Billings_03132017_FINAL.pdf ) View Online
• Oracle Earnings Preview: Analysts Expecting Another Quarter Of Strong Cloud Growth, crozdesk.com/infographics
Forbes.com (available here: https://www.forbes.com/sites/jjkinahan/2017/09/13/
oracle-earnings-preview-analysts-expecting-another-quarter-of-strong-cloud-
growth/#2c299cf07e20) Contact
• 2016 Pacific Crest SaaS Survey – Part 2, ForEntrepreneurs.com (available here: Crozdesk Research Team
http://www.forentrepreneurs.com/2016-saas-survey-part-2/) A: 83 Rivington Street, EC2A 3AY London,
• Total size of the public cloud Software as a Service (SaaS) market from 2008 to 2020 United Kingdom
(in billion U.S. dollars), Statista.com (available here: https://www.statista.com/ W: crozdesk.com
statistics/510333/worldwide-public-cloud-software-as-a-service/) E: research@crozdesk.com
• The Forrester Wave™: Insight Platforms-As-A-Service, Q3 2017, Forrester (available P: +44(0) 333 567 4242
here: https://reprints.forrester.com/#/assets/2/73/RES136245/reports

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