SaaS isn’t Going Anywhere. Here’s why.

Take a quick moment and try to name the top five to ten apps you use on a daily basis. Chances are a good percentage of the apps on your list follow a Software as a Service (SaaS) model—that is, they charge you a small (or sometimes large) subscription fee (usually monthly) to use the app and continue benefitting from its features on a day to day basis. While this model has been around and accepted for decades with modern services that we tend to take for granted—such as, telephone, electricity, water, and an Internet connection—only in the past five to ten years has it become ubiquitous in the world of consumer software and applications. Though SaaS has been around since at least the 1960s, until recently it was much more common in the enterprise sector and rarely did a single consumer pay a monthly or yearly fee for software rather than buying a single license from the software company. Just consider the fact that Microsoft did not release a SaaS version of its Office suite (Office 365) until 2011, and neither did Adobe with its creative suite (Creative Cloud) until the following year. When tech giants like these are converting to a SaaS model for their biggest selling apps, it’s clear that change is here, and it’s likely here to stay.

Let’s return briefly to that list you came up with just a minute or two ago. It’s likely that you named at least one or two of the following apps:

  • Dropbox, Google Drive, or another cloud storage service
  • Evernote
  • Spotify, Rdio, or another music streaming service
  • Instapaper, Pocket, or another “read it later” service
  • Netflix, Hulu, or another video streaming service
  • XBOX Live or Playstation Network
  • Amazon Prime
  • Microsoft Office 365
  • Adobe Creative Cloud

These apps all operate on a SaaS model, and although most of them offer a basic free account, the paid subscription tiers typically provide users with a lot more features and much better support. For instance, Dropbox’s free plan gives users 2GB of cloud storage (with the ability to increase this number up to 16GB by completing tasks like Tweeting about Dropbox and referring friends and family). Their Pro plan, on the other hand, gives users a whole 1TB for $9.99/month or $99.00/year. While there may be a huge increase in value from the free plan to the Pro plan, it comes at the expense of paying $9.99 per month indefinitely. Which leads us to the question at the foundation of this article: is this model sustainable, or will we see custom software development companies shift back to the one-time license purchase model that dominated consumer software for so long?

Why is SaaS here to stay?

The main idea behind charging a subscription fee for an application today is that the developers of the application are not merely providing the consumer with a finished end product that they will install and use on their local device. Instead, SaaS applications offer the consumer some kind of ongoing added value, oftentimes in the form of cloud-based services, regular updates, the addition of features, and full support. The consistent stream of revenue provided by the subscription model is appealing to software companies because it ensures that they will be able to continue providing these value added aspects of their application month after month.

But why are today’s apps any different from software of the past? Haven’t companies like Apple, Microsoft, and Adobe always provided support and updates for their one-time purchase software? Yes, they certainly have, but there are three aspects of today’s computing environment that have played a significant role in increasing the prevalence of SaaS software on the market.

1. The Cloud

cloud

More than any other trend or development in computing technology, the growth of cloud-based networks has caused more apps to choose SaaS over a one-time purchase fee. This is because the cloud isn’t free. It costs money to store user data and keep it secure, so it’s likely that a good portion of a monthly SaaS subscription fee will go to paying for server infrastructure. This is a good thing: cloud-based apps and services have not only made life more convenient for many of us, but they have also decreased our reliance on and attachment to specific pieces of hardware. With cloud technology, users have access to files and data no matter where they are in the world, and syncing data across devices takes mere seconds. When you really think about what this technology allows us to do and the freedom it provides, $9.99 per month seems like a steal. Indeed, unless we’re willing to build our own personal cloud networks in our garages or basements, it’s best we continue letting the pros handle things for the price of two or three beers each month.

2. Operating Systems

os

Whether you use a Mac or a PC, you’ve probably noticed that the distribution and release of operating systems has changed drastically in the past 2 or 3 years when compared with the preceding 20 or so years. In short, both Windows and OS X are starting to push out new operating systems in a fashion more akin to mobile operating systems than traditional desktop ones. Since the release of Lion (OS X 10.7) in 2011, Apple has been on a yearly release schedule for major OS X releases. Additionally, every OS X version since Mavericks (OS X 10.9) has been a free update available as a download through the Mac App Store. While this might seem like no big deal, for those of us that remember purchasing older versions of OS X for $100 or more and installing them by CD, it made a world of a difference. Though slower to catch on, Microsoft has decreased the amount of time between releases of new versions of Windows since Vista, and in an unprecedented move is now also offering Windows 10 as a free update to Windows 7, 8, and 8.1 users.
So what does this have to do with SaaS? Well, the monthly subscription fees charged by a SaaS company allow the company to respond to these rapid changes in operating systems without the need to charge big one-time upgrade fees. Instead, we pay $5, $10, maybe $15 per month with the assurance that our apps will continue to work on the next version of Windows, OS X, Android, iOS, etc. It doesn’t look like either Microsoft or Apple plan on going back to an older style of release cycle for operating systems, and SaaS is the ideal model for such a fast-paced and continually changing computing environment.

3. APIs (integration and push)

api

The wide range of apps available today has caused consumers to demand more and more cross-platform compatibility and deeper integration between different apps. As if first-party operating systems weren’t changing enough, third party apps come and go daily, making it difficult for app developers to decide which apps will be most worth the effort and cost of integration. This cost is yet another area where SaaS fees can help. If we want to continue seeing convenient, useful, and seamless integration between our favorite apps, we’re going to have to accept the fact that subscription fees are necessary. If not, a developer might charge an “upgrade” fee each time an integration is performed, regardless of whether one uses the newly integrated app or not. With the SaaS model, developers can use the consistent stream of revenue to add new features and integrations, and the price doesn’t change for current users. Everyone is happy, and if the integration is a success, the developer will attract new subscribers, which will increase the pool of revenue the developer has to spend on even more features and integrations.

The Future of SaaS

According to one forecast, worldwide revenue generated from SaaS applications will continue to grow to over 30 billion dollars in 2016. In 2010, that number was just under 11 billion dollars. It’s clear that SaaS isn’t just a passing phase in the technology world. While some find it hard to swallow the idea of indefinitely paying a monthly fee for a piece of software that they used to buy for a one-time fee (such as Microsoft Office or Adobe Creative Suite), environmental factors in the direction computing is going will continue to make SaaS the more attractive option for both developers and consumers alike. Cloud storage and syncing, consistent upgrades, and wide-reaching integration with external apps are just three things that the SaaS model can better support than the traditional one-time fee model, and the numbers appear to say that consumers have no problem setting aside $10 per month to make sure they get these features.

Here at InspireSmart, much of the software we develop is subscription based. If your company is interested in hiring a Denver software development firm to create a SaaS application, please feel free to contact us at 303-907-0655 for a free consultation today.