Understanding the Different Types of SaaS Business From a Buyer’s Perspective
As reported by card payment integrator Card Connect, as of June 2020, there are approximately 15,529 software as a service companies globally. Each and every one of those companies is unique. As you might expect, this means SaaS is an incredibly broad and diverse business category.
If you intend to buy or sell any SaaS businesses, you need at least a general idea of the types of SaaS businesses that exist and what sort of software each might develop. Therein lies the problem, however. Were we to fully list every single type of application one could possibly encounter, this piece could charitably be called encyclopedic.
Instead, it serves our purposes far better to organize things into broad buckets.
Productivity management software is exactly what it sounds like. It’s designed to help the user more efficiently and effectively do their job. This can take many forms, from simple checklists to extensive journaling and task tracking apps supported by artificial intelligence.
Project management systems could also feasibly be placed under this umbrella.
As noted by Grand View Research, although the market for productivity management apps suffered slightly due to the pandemic, the outlook moving forward is positive. Currently, the global productivity management software market is valued at $42.6 billion. It is expected to grow significantly between now and 2028, driven at least in part by machine learning and artificial intelligence.
Per online advertising specialist Wordstream, digital communication and collaboration tools experienced enormous growth during the pandemic. Although interest in these tools is likely to taper off at least slightly once the pandemic ends, distributed work is still here to stay. The hybrid offices, which will become the norm moving forward, will necessitate the presence of virtual communication and meeting tools as in-office teams coordinate and collaborate with remote staff.
Unsurprisingly, this category has the potential to generate considerable revenue. However, be aware that competition in this niche is incredibly steep, and you may find yourself going up against the likes of Microsoft Teams and Slack.
- Google Drive
- Microsoft Teams
Most B2B apps in the collaboration and productivity space are generalist solutions. They aren’t designed with any specific industry or sector in mind, and most business users can likely find some value in what they offer. Where vertical-specific SaaS solutions are concerned, this is not the case.
These are highly purpose-built tools designed and developed with the specific needs of a single industry in mind. On the one hand, this significantly limits an app’s potential user base. On the other, because businesses in this category typically work with complex regulatory and security standards, they tend to operate at higher margins than other SaaS businesses.
As a buyer, I’d recommend avoiding this highly-niche software unless you possess the necessary expertise to work with it.
- Cox Automotive
Horizontal apps have a great deal in common with vertical apps. They’re developed with a specific use case in mind, offering little value to anyone that doesn’t fit their particular niche. Where the two apps differ is that horizontal apps are broadly applicable across multiple sectors.
To put it another way, they’re designed to meet business needs that are industry-agnostic. These might include customer relationship management, human resources, accounting, and customer payments. Collaboration/project management apps might also feasibly fall under this category, depending on how they are developed and marketed.
Up to this point, our focus has primarily been on business users. However, it is essential to understand that consumer software comprises a not insignificant portion of the SaaS market. It’s also crucial to know that there are several fundamental differences between B2C and business to business (B2B).
- B2B users are more logical when it comes to selecting and purchasing software, while B2C customers tend to make purchase decisions more grounded in emotion.
- B2B software tends to operate at higher margins than B2C software, but consequently, B2B apps tend to be more complex to manage.
- B2B users often have a clear idea of what they’re looking for or their business needs. B2C users, on the other hand, are often more nebulous in what they’re looking for.
- Entertainment or enjoyment is often the core goal of a B2C audience. B2B audiences tend to be somewhat more complicated.
The B2C category has experienced considerable growth over the course of the pandemic, as more and more people turn to streaming content and playing video games to help them pass the time during lockdown. As such, a digital entertainment SaaS business can be an incredibly solid buy.
- League of Legends
Here’s where things get a bit more confusing.
A single SaaS app might fit into one or more of the categories above. You might see a collaboration app developed exclusively for the healthcare sector, for instance, or a human resources app intended for use by law firms. This is hardly a bad thing.
Per Venturebeat, the more focused a SaaS business’s niche, the more effectively it tends to scale. This is because niche apps can easily adopt industry best practices and adapt to market shifts. They can also be extensively customized to a business’s precise criteria while using a low-touch approach to sales.
There are nearly limitless categories and classes of SaaS apps. It’s vital that you learn to recognize each and understand whether or not they appeal to you as a buyer. Even if a SaaS company looks great on paper, you may lack the necessary expertise or knowledge to run it effectively — and the right business in the wrong hands can be just as much of a lemon as a failing business.