SaaS News

“Software will eat the world,” the venture capitalist Marc Andreessen famously predicted in 2011.

Inside the move

That prediction has borne out: Many of the most highly valued companies and startups in the world are software startups, and SaaS (software as a service) has become a ubiquitous business model in the tech industry.

In simple terms, software as a service (SaaS) refers to software provided over the internet as a service.

Before the rise of SaaS, people generally accessed software by installing it on their computers or servers — think back to buying the latest version of Microsoft Windows on a CD, for example.

These days, most widely used consumer and business software tools — from productivity tools like Google Workspace to streaming entertainment platforms like Netflix — are web-based applications that are delivered as services for which customers pay a regular subscription fee.

Many of the world’s largest and most highly valued companies offer SaaS products. They include:

Many of the largest startups operate on a SaaS model. They include:

There are several common types of SaaS services that cater to different business needs. Here are some of the most common types:

These are just a few examples of common types of SaaS services. The industry continues to grow and evolve with new types of SaaS services emerging to address specific business needs.

The numbers behind the story

Yes, Netflix and other video streaming services like Hulu are SaaS companies because they deliver their services — in this case, entertainment content — online through a web-based platform.

Some of Amazon’s consumer businesses are also SaaS services. They include Netflix competitor Amazon Prime Video, audiobook service Audible and its Kindle e-book division.

Moreover, Amazon Web Services (AWS), a subsidiary of Amazon, provides a suite of cloud computing services, many of which are used by other companies as building blocks to develop and deploy SaaS applications.

The SaaS model offers several advantages for businesses and users. Key benefits include:

SaaS startups have the potential to provide software to a large and growing market, making them an appealing investment choice for many VCs. Venture investors are especially drawn to SaaS startups due to these businesses’ recurring revenue model, scalability, potential for market disruption and attractive exit opportunities.

VCs invest in startups with the expectation of generating a return on their investment. SaaS startups often offer attractive exit opportunities through acquisitions or IPOs.

SaaS companies are often appealing acquisition targets for larger tech companies seeking to expand their product offerings or customer base. For example, Salesforce’s $27 billion acquisition of workplace collaboration tool Slack in 2021 is one of the largest software acquisitions of all time.

IPOs can also provide significant returns for VCs when a company goes public. Some of the largest venture-backed IPOs in recent years have been SaaS companies, such as data warehousing company Snowflake and data analytics and software company Palantir Technologies.

What this changes

Investors also like the potential for some SaaS startups to create network effects, where the value of the software service increases as more users join the platform. This can create strong barriers to entry for competitors and drive long-term growth. VCs seek startups that have the potential to create and leverage network effects, as it can lead to significant market dominance and competitive advantage.

Venture capitalists have spent hundreds of billions of dollars to fund SaaS startups.

In 2022, nearly $32 billion in venture capital was invested in SaaS startups globally, Crunchbase data shows, making SaaS one of the most heavily funded startup categories. In 2021, venture capitalists invested more than $52 billion into SaaS startups, according to Crunchbase.

Current SaaS unicorns on The Crunchbase Unicorn Board include:

Former SaaS unicorn startups that have since exited, either through IPOs or acquisitions, include Zoom, Snap, GitHub, Dropbox, Unity and many more.

Workplace collaboration tool Slack went public in 2019 via a direct listing, so it didn’t raise any additional capital by going public. The company was then acquired by Salesforce in 2021 for $27.7 billion.

SaaS has become the most widely used and recognized term to describe software delivered as a service over the internet, but there are several other phrases that overlap with SaaS. They include: cloud-based software, on-demand software, web-based software and hosted software.

The term “application service provider,” or ASP, is less commonly used today, but also refers to  companies that provide software applications and services over a network to customers.