Pundits are already calling the February 5th stock market rout "Black Friday" and asking if the $18 billion one-day drop in market cap suffered by Salesforce, Workday, and LinkedIn is an omen for software-as-a-service (SaaS) companies.

I recently had the chance to speak with Eric M. Jackson from CapLinked, a cloud platform for secure enterprise sharing, about this topic and what the future holds for SaaS. Eric is the CEO of CapLinked and also the author of The PayPal Wars, which describes his time as PayPal's first head of U.S. marketing.

During our conversation, Eric made the strong case that short-term market trends notwithstanding, SaaS is revolutionizing corporate IT past the point of no return.

1. Shadow IT is Making Transparency Murky

In a recent Cisco study, 75% of enterprises polled mentioned they didn't have a full organization cohesive cloud strategy in place. The same study showed that roughly 83% of enterprises are looking to work with major cloud MSP's to carry out their current operations in the cloud.

This means two things: if three quarters of enterprises polled have no significant cloud strategy in place, tech organization gaps are forming and employees are using their own solutions to fill the void. In turn, the rise of internal shadow IT is now demonstrating how little C-Level execs, VP's and division managers know about their own processes.

Without visibility into what software employees are using daily to meet goals, CIO's aren't able to standardize processes, make plans for the future and most importantly, protect critical business and/or client data.

To shed light on shadow IT, the cloud software market must provide applications tailor made to target and fix all shadow IT issues within a company. These SaaS discovery tools must work to not only locate shadow IT within departments, they also must alert organizations as to where they can combine likewise solutions. By providing discovery apps, companies will be able to cut down on cost and operational inefficiencies, while also increasing their level of internal and external data security.

2. Keeping Control of Data Security is Harder Than Ever

Did you know the BYOD (Bring Your Own Device) market is expected to top $181 billion by the end of 2017 and that roughly 67% of employees already use their own devices at work to access both company and personal data? Matched with shadow IT, the rise of BYOD in the enterprise means keeping track of who has what data, on what device and when is becoming harder and harder. The trend towards employees using their own devices is increasingly leading to data security issues internal IT departments can't keep up with.

Cloud based applications can help with this by providing the market with various security applications designed to protect your internal network and data. Cloud based services can elevate the level of security within an organization for the sole reason that you're entrusting your security protocols to a third party who has more resources and knowledge than you do.

Once you are over the initial hump of biting the bullet and entrusting security to another company - you'll be able to make use of some truly great cloud based security applications.

3. The Importance of APIs

One of the major points Eric and I both agreed on is the explosion of SaaS solutions and the importance of these software services to integrate into an existing digital ecosystem. While some companies are looking to wholly migrate their data to cloud software and platform services, others are simply looking for as a service solutions to harmonize within existing infrastructure with the express purpose of making it better.

It could be the need for standardized API's or the desire for employees to wholly understand how those software services empower their daily happenings or strategic goals. Whatever you want to call it, the need for software as a service integration into existing ecosystems is as wide reaching as the number of companies who require cloud MSP's to streamline their offerings.

As a client looking to cloud MSP's to empower your business needs, the pre-purchase insights into the MSP in question should revolve around the following:

  • What is the overall capability of the provider to integrate into the existing technology solutions within your organization?
  • Can your potential provider not only integrate new applications, but what is its ability to integrate legacy data systems into this new ecosystem?
  • Can the application provider ensure data protection during the integration process?

With legacy systems in place and data security concerns at hand, it should fall to the SaaS MSP to ensure full integration without breaking or leaking anything critical.

4. With Multiple Applications, Confusion May Abound

If you had to guess, how many apps do you think are available on the open market? If you answered just south of four million, you'd be right. Recent findings show there are currently 3.97 million apps available for download or purchase between the Apple App Store (1.5 million), the Android Google Play store (1.6 million), the Amazon App Store (400,000), the Windows Phone Store (340,000) and Blackberry World (130,000)

Now, a question: if your company chooses to use a certain set of apps to accomplish a task, yet another company selects another set of apps to accomplish the same goal, how do you successfully collaborate on projects and data-sharing data?

Answer: integration of similar and likewise apps across companies.

One of the major trends moving forward in the SaaS market is from cloud MSP's needing to successfully integrate their apps with similar, yet competing applications. This integration is necessary to ensure that collaborative work across different companies can be accomplished without the fear of data security faults, work production lapses or failure of communication.

5. More SaaS Players, Quicker Growth and More Funding

The software as a service market is booming!

For the past ten years, we have had a front row seat witnessing the growth of the as a service market. In a decade, it has become evident that most applications as a service companies will trade at 5 times revenue while growing at 30% year over year. We also know that most successful SaaS firms operate on an operational rule of 40% (growth rate + profit). When examined together, it becomes clear that these companies are growing at a faster rate than ever and are hitting a $50 million evaluation mark faster than ever before.

More interestingly, "by 2018, 59% of all cloud workloads will be SaaS based, up from 41% in 2013". This is compared to 28% of cloud workloads being IaaS and 13% being PaaS.

What does this mean?

More financially powerful cloud application MSP's are growing past the $50 million mark in a shorter period of time than ever before. They are effectively creating a surplus of venture capital firms looking to make ground floor investments. This groundswell is flooding the cloud software market with new ideas looking to dominate all existing and yet to be created technologies.

It follows, to benefit from the software as a service boom, the application developers bring to clients via app stores, sales teams and digital marketing avenues must supply quick and lasting benefit both in terms of client pain points and venture capital return. Without that combination, cloud software providers run the risk of missing the $50 million evaluation mark averaging less than 30% year over year growth.

The trend is SaaS explosion, yet that explosion of funding will become much more competitive in the years to come.

6. The Emergence of DaaS

The great thing about the tech market is that it's always changing.

With that change, we believe 2016 and the years to come will introduce DaaS (Data as a Service) to the market in a big way. The basic idea of DaaS is to provide companies with a large volume and wide-varity cloud based data at a fraction of the cost to enable smarter day-to-day and overall strategic choices

If studies from the IDC are any indicator, the DaaS market is expected to grow by 23.1% through 2019 with annual spending reaching $48.6 billion.

As a 23.1% annual growth rate seems a bit slow, for the DaaS market to continue expansion, the cost of infrastructure will have to be overcome by investments in public cloud solutions (30% CAGR growth expected through 2018) matched with the utilization of open source solutions.

Much like the software as a service market, as companies continue to shed internal IT departments in favor of cost and solution efficiency, the DaaS market will experience growth over the coming years to help companies streamline solutions by more accurately and cost effectively monitoring client needs.

The software as a service market is undergoing a major growth cycle.

As shown, the cycle will be powered by the increased need for companies to cut costs while increasing efficiency. This means cloud providers will have to deploy apps to kill shadow IT, streamline likewise services, build security and leverage hyper-sensitive data to become more attune with their clients.

The cycle of growth will sustain but providers must answer the call.

Published on: Feb 19, 2016