Discover: 103% gains on the table for savvy investors, thanks to this 15 June announcement. Here’s why…
So, what exactly is the SaaS cloud market…
Around 10 years ago, most software companies sold "perpetual licenses." This means customers had to buy both the software and the hardware on which to run it.
Customers also paid a service fee to have the software installed... then paid a support fee every year to have access to a customer help desk and to receive the latest bug fixes and software upgrades.
But thanks to the rise of Software-as-a-Service (SaaS), that all changed.
Instead of buying a license to use the software, SaaS customers essentially rent the software. A company loads its software product on servers that it maintains, and the customer uses the software via the Internet.
Customers like this arrangement because they don't need to buy or service their own hardware i.e servers.
They also don’t need to install and run software applications on any computer. Everything is available over the internet when they log into their account online.
And they can usually access this software from any device, anytime (as long as there is an internet connection).
Most SaaS providers operate a subscription model with a fixed, inclusive monthly account fee. This means, a company knows exactly how much the software will cost and can budget accordingly.
Most subscriptions include maintenance, compliance, and security services, which is an advantage for customers as using on-premise software can be time-consuming and costly.
In fact, on average, companies that use SaaS see a 15% reduction in IT spending and a 16.7% reduction in IT maintenance costs.
And this why so many companies have adopted, and will continue to adopt SaaS for their own businesses.
This is great news for SaaS providers, because they generate consistent, predictable revenue every month through subscriptions.
In fact, thanks to exponential demand for SaaS-based programs, the total SaaS market revenue generated has soared more than six-fold, from $13.5 billion in 2011 to over $85 billion today.
This puts SaaS as the largest segment of the cloud market by revenue. And it will remain so in the future as total revenue generated will rise to $113 billion by 2021.
A few SaaS stocks to consider for your portfolio
In the US…
#1: ServiceNow delivers office services over the internet – on a monthly subscription basis – that are easily updated without requiring customers to manually download software from disks on different operating systems.
Simply, it uses technology and cloud-based software to make our lives simpler and easier.
#2: Square – Founded by Jack Dorsey (Twitter’s founder), is a payment-processing giant. The company profits from one of the world’s most robust technological pivots: the shift from cash to cashless payments.
There are others like Salesforce, Docusign
, Slack and Okta.
And even in SA, there are a couple of stocks that use SaaS in their businesses.
For example, through its SaaS platform, Cartrack provides fleet management solutions to small, medium and large fleets across the world. This SaaS-based technology helps customers…
• Manage and monitor driver behaviour more efficiently
• Reduce labour, fuel and operating costs
These advantages have helped Cartrack attract tons of subscribers from all over the world. And the company boasts a stellar track-record of subscriber base growth. For instance, its subscribers have grown 4-fold from 250,000 in 2012 to 1 million in 2019.
In short, if you’re looking to diversify into other booming online tech industries, you should consider the multi-billion SaaS industry.
See you next week.
Managing Editor, Real Wealth