Why does every business owner keep going on about “aaS”, remarking that their business is an “aaS” model? Hardly the most flattering of statements. Before I begin, I should confirm that “aaS”, refers to the “as a Service” model.
Historically, Anything-as-a-Service (or XaaS) was the provision of a product to a customer delivered on a subscription/rental (opex) model rather than requiring upfront capex. Indeed, Software as a Service “SaaS” is probably the most well-known of this group of acronyms.
But, as the models keep growing, the acronyms keep coming, extending all the way from BaaS (Backend-as-a-Service) to IaaS (Infrastructure-as-a-Service) to WaaS (Warehouse-as-a-Service).
Nowadays, whatever product or service you are offering by subscription or even just an outsourced service itself, there is a good chance you can aaS-it, whether it’s provided over the cloud, as we consider further below, or not. There are tens if not hundreds of examples of commercialised models out there.
How the cloud became mainstream
Why is that? Well, initially the idea of putting data in the cloud frightened companies. But, with advancements in internet speeds, data security and modern technological features like virtualisation and cloud-based scalability, SaaS providers have allayed concerns by creating a new instance of the software for each customer which keeps data secure and workflows reliable.
One of the key attractions about cloud services is that they can be deployed by any company of any size, anywhere in the world. With these characteristics, it is no surprise that cloud (or aaS-adoption) has now become mainstream.
However, the penetration rate of this phenomenon might be lower than you would expect. SaaS accounted for just c.20% of total enterprise software spend in 2019. Whilst IaaS (such as Amazon Web Services or Microsoft Azure) was much higher, the remainder of software spend was still targeted at on-premise deployments or applications. That means there is still plenty of headroom for the growth of SaaS models.
The Covid effect
The recent global pandemic has helped to drive digitisation of industries and adoption of the cloud. Demand for these services grew almost exponentially overnight with the forced migration of the employee from the office to home. This bodes well for SaaS companies as it appears highly unlikely that employees will return en-masse to their offices anytime soon.
Companies need to embrace the virtual workforce operating in a virtual working environment and SaaS companies reduce that virtual friction.
In the Development Capital team, we support companies benefitting from this trend and use our expertise and understanding of these business models to help companies grow and prosper in a number of ways. This includes supporting the development of the go-to-market strategy and scalability of the sales function.
For professional advisers only. Not to be relied upon by retail investors. Personal opinions may change and should not be seen as advice or a recommendation. Issued by Octopus Investments Limited, which is authorised and regulated by the Financial Conduct Authority. Registered office: 33 Holborn, London, EC1N 2HT. Registered in England and Wales No. 03942880. Issued: October 2020. CAM010310