Is SaaS dead? Not quite, but it’s evolving rapidly

As the SaaS market becomes increasingly crowded, we’re seeing a trend towards specialization and flexibility. Two key developments are shaping this evolution: vertical SaaS and composable solutions.

Vertical SaaS

Vertical SaaS solutions, tailored to specific industries or business functions, are gaining significant traction. These industry-specific platforms offer deep functionality and built-in best practices that address the unique challenges and regulatory requirements of particular sectors. For example, we’re seeing specialized SaaS solutions for healthcare, finance, real estate, and manufacturing, among others.

The appeal of vertical SaaS lies in its ability to provide out-of-the-box solutions that require minimal customization, leading to faster implementation times and quicker ROI. These solutions often come with industry-specific analytics, reporting, and compliance features, making them particularly attractive to businesses looking for comprehensive, sector-specific tools.

Alongside vertical SaaS, we’re witnessing the rise of composable solutions. This approach allows businesses to build custom applications by assembling pre-built, modular components. Composable architecture offers a middle ground between rigid, one-size-fits-all SaaS platforms and fully custom-built solutions.

The key advantage of composable solutions is flexibility. Organizations can select and combine different components to create a tailored solution that precisely fits their needs. This approach also allows for easier updates and modifications as business requirements evolve, without the need for a complete system overhaul.

While SaaS isn’t “dead”, traditional SaaS subscription models are being strongly – and rightfully – challenged. The historic “per-seat, per-month” pricing model is rapidly being abandoned in favor of usage- and value-based pricing as customers demand greater flexibility and ROI transparency. This shift is partly driven by economic uncertainty and the need for businesses to justify every expense.

While value-based pricing is appealing in theory, it can be extremely difficult to measure and implement in practice. Attribution is a major issue, as it’s often challenging to directly link software usage to specific business outcomes. For this reason, consumption pricing, which is much simpler to understand and implement, will often be a better option for both vendors and customers.

Consumption-based models align costs directly with usage, providing clearer visibility into ROI and allowing businesses to scale their software expenses up or down based on actual needs. This model can be particularly attractive in uncertain economic times, as it offers more flexibility and can help manage costs more effectively.

For CIOs – and CFOs – this trend necessitates a more nuanced approach to software procurement and management. It’s no longer just about the features; it’s about understanding usage patterns, demonstrating tangible value, and aligning costs with actual consumption. CIOs will need to work closely with finance teams to model different pricing scenarios and choose the options that best align with their organization’s needs and budget constraints.

Moreover, this shift in pricing models may require changes in how organizations budget for and manage their software expenses. Instead of fixed annual costs, CIOs may need to implement more dynamic budgeting processes that can accommodate fluctuations in software usage and costs.

Long live value-based SaaS

To paraphrase Mark Twain, the reports of SaaS’s death have been greatly exaggerated. What we’re witnessing is not the end of SaaS, but its evolution into a more mature, AI-enhanced, and value-focused industry.

For CIOs and business leaders, this evolution presents both challenges and opportunities. To navigate this new landscape effectively, consider the following recommendations:

1. Revisit your pricing models: Take a close look at your current SaaS contracts and pricing structures. Are they aligned with the value you’re receiving? Consider negotiating for consumption-based pricing where it makes sense, as this can often provide better cost alignment with actual usage and value. Work with vendors who can clearly demonstrate ROI and are willing to align their success with yours.
2. Consolidate point solutions: As I discussed in a previous article, the proliferation of point solutions can lead to inefficiencies and increased complexity. Look for opportunities to consolidate your SaaS stack, particularly where you have overlapping functionalities. This can not only reduce costs but also simplify your IT landscape and improve data integration.
3. Explore vertical and composable solutions: Look closely at vertical SaaS solutions that are tailored to your industry. These can often provide more targeted functionality and better alignment with your specific business processes. Similarly, consider composable solutions that allow you to build custom applications using pre-built components, offering greater flexibility and adaptation to your business and industry.
4. Stay agile: The SaaS landscape is evolving rapidly. Maintain flexibility in your contracts and IT architecture to allow for quick pivots as new technologies and solutions emerge.

The key to success will be staying agile, embracing AI and other emerging technologies, and focusing on solutions that deliver measurable business value. By following these recommendations, CIOs can position their organizations to take full advantage of the evolving SaaS landscape. As we navigate this new era, one thing is clear: the future of software is in the cloud, it’s intelligent, and it’s more closely aligned with business outcomes than ever before. The SaaS model isn’t dead – it’s just growing up, and those who adapt will find themselves well-positioned for success in this new paradigm.