What is SaaS & why do the Tech investors love this model

Investors love to put their money in reputable businesses which have a sustainable model of business in the long run with a history of being profitable. SaaS (Software as a Service) model certainly falls into this scheme of things – producing fast-growing revenue with predictability and reliability. Before moving to look at the visual details that make it so enticing to invest in this sector, let’s take a brief look at what is SaaS & how it has evolved over the years.

In the older days (90’s & early 2000’s), we used to buy software programs like Microsoft Office or Microsoft Outlook on CDs to install on our computers. Easy as it sounded at that time but troubleshooting, emergence of a newer version of the software or customization of these suites were costly, time-consuming & cumbersome. Enter the age of Cloud infrastructure with the availability of high-speed Internet & we have a variety of software services available on demand with the “Pay as you go” model. Office 365 has taken over the Microsoft Office suite & Email services like Gmail have taken over the traditional desktop email clients. Not only this but the emergence of Cloud has revolutionized & created other services like IaaS (Infrastructure as a Service) & PaaS (Platform as a Service) and others are in the making as we speak. Amazon Web Services is an example of IaaS, while Microsoft Azure showcases the PaaS.

Coming back to SaaS, which is also known as the Cloud Application Services is the most popular & commonly adopted business services model in the Cloud market. It delivers most of its services over the Internet managed by a third-party. Some of the key feature include:

Client Independence – All the services including data, middleware, servers, and storage etc. are managed by the vendor giving clients peace of mind & the independence.
Subscription model – You only pay for the services that you want & for how long without any commitment for either.
Automatic updates – Since the software is hosted on remote servers elsewhere, updates are automatically pushed to the client’s machines without the need for extra effort.
Location independence – As the software is Cloud-based it can be accessed from anywhere on any device without the need to worry about installing it wherever you go.
No Overhead costs – The services are available on demand, therefore, there are no costs associated with packaging & distribution etc.
Limit Piracy – Again the non-availability of the software on any hardware medium restricts the unauthorized use or the piracy of the service.

Finally, following are a few infographics which enlist some of the key features of SaaS already discussed. Also shown are some of the data-driven metrics from investors’ point of view – performance of ETF (BVP Cloud Index) & list of the SaaS $1 billion+ market cap Club. Keep in mind though, this is not to be construed as an investment advice. Please conduct your own due diligence before making any such decision.