This talk was given by Ariel Diaz, CEO of Blissfully at SaaS Connect 2018 in San Francisco, May 1-2, 2018. Get the slides

This is an update to the 2017 Blissfully report.

What is Blissfully?

Blissfully helps hundreds of companies manage their SaaS, which gives us insight into what’s happening across the industry. One of the things that is obvious and a common thread for everybody at this conference is the SaaS explosion. Over the last ten years or so SaaS has permeated entire organizations, companies large and small across every single business function and that is really what gave rise to Blissfully. It’s why we exist.

We help companies manage this explosion of SaaS across their entire organization and we help hundreds of companies, large and small.

We’re focusing this talk and these insights across SMB’s. We have a unique data set going back over eight years, across companies showing their evolving usage and usage across all business functions from sales to engineering to product and everything in between.

How fast is SaaS growing in reality?

Five or six years ago SaaS was pretty focused on engineering and maybe some early sales with Salesforce. But recently it has touched every single business function, with more and more products serving every niche or need and serving very particular functions across the entire business.

As a result, you see SMB paying for dozens of products using dozens more free products and spending tens of thousands of dollars, even for small companies, across all of their SaaS usage. This impacts large and small companies.

The keynote yesterday, with Infusionsoft, focused on companies under 10 employees. They use a lot of SaaS, including Infusionsoft, and many others including all the way up to public tech companies with thousands of employees or more.

So for this data set we focused on companies with under a thousand employees. If we look at that, obviously bigger companies are going to use more SaaS. This is not a surprise. Companies approaching 1000 employees are using hundreds of different SaaS apps.

The interesting thing is that the rate of growth over the last 6-7 years of how many products companies are using is pretty consistent across company sizes. So under 10 employees you’re using a lot fewer different SaaS apps, but the rate of growth across all size companies is pretty similar. And this is great for our industry because everybody’s constantly looking for new tools and better ways to get the jobs done.

You can see this a little bit better on a log scale where the slope of all the graphs is pretty similar regardless of company size. The rate of growth of SaaS usage across company size is very consistent.

What SaaS is being used? Small Companies vs. Large Companies

As companies grow the types of products and the types of SaaS apps that they’re using and adopting tends to evolve. Let’s look into that a little bit by evaluating SaaS spending by department. As companies grow they spend a lot more on sales tools. Now this is obviously things like Salesforce and CRM. But it’s also purchasing leads, doing things that help their sales team be more efficient, sales analysis, lead scoring. So you see a lot more spend in the sales category.

On the flip side as companies grow you start to see a little bit more efficiencies on the engineering front. One of the big benefits of SaaS is your engineering costs can be distributed over more and more companies as you grow. So this trend is not a surprise.

Marketing starts off in growth mode and then starts to decline; partly because smaller companies tend to focus more on marketing versus sales—a trend that reverses as a company grows and places more emphasis on sales. It’s a different go-to-market strategy and their SaaS usage reflects that.

When looking at the top 10 apps by revenue across the different company sizes you can see some fun themes. G Suite starts falling proportional to spend because it’s a small dollar per seat but then it starts climbing again as a company grows; probably because bigger companies are upgrading to G Suite business and G Suite Enterprise for security and other features become more important.

Salesforce, as companies grow, continues to rise in its prominence and how much is being spent.

And then you see some apps are a little bit more SMB focused. Gusto is a very common HR platform. Quickbooks, obviously, is huge in that small company space.

Is Freemium important?

One thing that’s really interesting is freemium. Freemium is a very common go to market strategy and product offering and it’s very known in smaller companies as they tend to have tighter budgets.

But it’s not just the smaller companies that are using freemium. Across our data, companies are using three times more SaaS apps that are free versus apps that they are paying for. And this trend is pretty consistent across company sizes.

Breaking it down into free and paid apps and looking at this on a percentage basis it becomes pretty clear that there are three times more free apps versus paid apps consistently across companies.

This is encouraging for a bunch of reasons. A lot of companies in this room have freemium offerings. It’s not just limited to very small companies. But it also creates some challenges around the consumers of SaaS because you’re using a lot more than you might be paying for and you have to track that and understand that and integrate more and more apps.

Is the market of SaaS Vendors competitive?

So we’ll switch gears a little bit and look at SaaS vendors. If we look at just the top 20 by revenue share you see a lot of very familiar companies in here. The big enterprise players—Google, Microsoft, Salesforce—are here.

But if you slice that a slightly different way and look at it by market share, you start to see a different set of companies. You see folks that tend to have smaller revenue, like Gusto and MailChimp but are more widespread.

You also start to see some interesting differences across companies that have higher contract values. Salesforce was ranked pretty highly by revenue, but is a little bit lower by share. They’re still pretty broad but a little bit lower when you just look at market share.

There are 7,000 apps just in the marketing space and tens of thousands of SaaS apps across different categories. You see this explosion of SaaS being adopted and not just that SaaS is being adopted within organizations but also just the sheer number of vendors that are providing increasingly focused SaaS products to different companies.

What categories of SaaS are growing the most?

We’ve talked a little bit about the different departments and what they’re using and we wanted to break out the growth rate of SaaS usage by department. You see a few different categories—engineering, finance and customer support. These tend to be a little bit more mature SaaS categories. Quickbooks Online, Xero have been around a long time. Engineering platforms-as-a-service are also one of the early SaaS models, so they’re pretty stable in terms of their growth.

On the flip side you see some of the categories that have more new products coming in—product, devops, and HR. Engineers are using more and more SaaS. They’re not just running everything on their local environment, they’re using a lot of tools. They’re paying for a lot of tools. There’s a lot more HR software out there. Not just on the big category of HR information system but, as more and more categories move online, application tracking systems etc. That category is growing. And then product—do you have a lot of design tools.

A lot of things that used to be local apps are now moving to a SaaS model. Adobe obviously being a huge public company has moved most of their revenue to SaaS but also apps like Invision have seen incredible growth as well as a lot of other products in that category. In the middle you’ll see sales marketing biz apps. They’re growing a little bit between the higher growth categories and the more established categories.

Let’s take a look at some of the fastest growing companies. You can see a lot of familiar names some new names, a messaging category Drift and Intercom, those are superhot right now. It’s actually incredibly fun to see the very public competition between Drift and Intercom. It’s creating great products for consumers and has a lot of dividends for a lot of us.

The Good and the Bad News

So let’s look at the implications. There is both good and bad news around this SaaS explosion. Starting with the vendors, the bad news is that more vendors equals more competition. Every category has more and more competitors more and more new entrants and it becomes harder to differentiate a given product as the category grows.

Dave Cancel, of Drift, likes to say that one of the big differentiators of products these days is not the product quality but the brand. The SaaS industry and the tech industry has been less focused on brand building. But one of the examples that he looks at a lot is the consumer product goods industry. The big CPG companies are expert brand builders. The only way to really differentiate Tide from its competitors is by branding. That may be one particular and extreme view on the importance of brand but certainly more vendors is leading to more competition.

On the flip side, the market is still growing at an incredible rate. The pie is getting bigger for everyone and there’s a lot of exciting opportunities as more companies move to SaaS. As more data is in SaaS platform the integration opportunities continue to grow and there are still some underserved categories that could use some product innovation.

And some other interesting keys, freemium as a business model is still incredibly prevalent across all business sizes. Freemium kind of goes in waves on how popular it is but it’s still very common across companies not just small or medium companies but also companies as they grow.

Consumers feel SaaS Chaos

On the flip side if we look at SaaS consumers and the beauty of SaaS, certainly all vendors are also consuming a lot of SaaS internally. If you look at similar bad news you have the sheer increase in the number of vendors and offering creating confusion, and creating what we like to call the SaaS chaos.

  • Which product should we use in this category?
  • What are we using?
  • How do we manage all the tools that we’re already paying for?
  • And the free one that we might not even know about?

    • The good news is as the number of vendors increases you have a lot more really high quality, really amazing products serving every single niche; getting your business to grow and getting your business to build products faster and better.

    The other key is that you need tools to manage all of this chaos and that’s actually why Blissfully exists. You know we think about this SaaS chaos. Companies are using dozens and dozens of different SaaS applications, some paid, some free and some they may not even know about. And what we do is help companies by starting with real time visibility into all the different SaaS applications they’re using.

    How Blissfully Helps

    We have a lot of partners in this ecosystem. We have a G suite marketplace app you install, then integrate additional data sources, like your accounting system, single sign on provided etc. and we use this to bring in a real time overview of the apps that you’re using across your organization. We tell you the people that are using them and how much you’re spending across those different SaaS applications in aggregate.

    Some of the trends that you’ve seen today is the result of some aggregate anonymized data across our companies to give us some really interesting insight into what people are doing and we like to share that with some of our partners. And the reason we do this is because we don’t want companies to think of SaaS and chaos. We want them to be blissful when they use SaaS.

    We help by taking a lot of the worry around the SaaS explosion off their plate helping create a really nice simple dashboard to see everything they’re using to address their security compliance issues, to help make sure they’re not wasting money, and to make sure the employees are using the tools that they need. So that’s Blissfully. Hope you enjoyed some of this data.

    Questions

    Question: When companies first see all the SaaS apps mapped across organization what’s their reaction?

    Great question. So almost every single company upon first installation will see the complete data within a few minutes of installing Blissfully and nearly every single company will find products they didn’t know they were using.

    So IT looks at this and says I didn’t know we use this; and finance says, I didn’t even know we had all these free products. So there is an instant surprise in just the volume of apps across the organization.

    Well over 50 percent of companies find instant savings either apps that they are using multiple subscriptions in a given category or something that we actually identify who the billing owner is so you know they can identify billing owners that are not even at the company but, you know, that nobody’s getting those invoices and receipts so they can cancel things like that. So we see a lot of kinds of instant surprise and it’s partly delightful because they get to get better visibility. But certainly surprising for almost all companies.

    Question: So do you ever see opportunities where people go wow I’m a SaaS app I’m coming up against other SaaS there’s an opportunity for us to work together by looking at your data?

    Where we do that as we go deeper with certain customers, not in aggregate right now, but one of the things that’s interesting as we start to see examples of how companies mature and how the SaaS that they’re using evolves as they grow. We look at some of that data and the stacks do evolve.

    You know people move CRMs as they grow as they have different pains. Then integrations start to matter more as you use more and more tools. So there’s a lot of utility around seeing your stack in one place and seeing where you can either you know integrate better or you know what pains start to evolve as the company grows whether that’s across security or across sales.

    Question: The freemium was pretty much similar across business size. Do you know if conversion from free to pay is different by business size?

    So we haven’t sliced that particular data. But in terms of just the total by the number of different SaaS vendors that are free to pay. So the conversion rate should hold relatively consistently assuming but we haven’t done kind of what the trial exact conversion are. It’s interesting though.

    Question: Do you have any insight on how SaaS goes to market?

    We don’t have a ton of data on that sales effort other than freemium.. One of the things that we have heard is just the sheer noise a lot of the channels have gotten a lot more mature cold email and outbound email and outbound calling and kind of sales 2.0 the predictable revenue model that’s really common. But as SaaS vendors increase it gets harder for consumers to differentiate. So we do know that there some saturation in some of the channels. There’s a lot more creativity and exploration around what are the new platforms as Google matures, as Facebook matures and as those cost of acquisition kind of start increasing there’s surely more experimentation but we haven’t kind of tied the experimentation to adoption on the other side.

    Question: Do you have any statistics or metrics around cost of acquisition, lifetime value, churn, or just profitability in the SaaS industry?

    Most of those we don’t have. We do know churn. We don’t publish that yet for a bunch of reasons but we do see the typical churn and equivalent lifetime value on vendors across the different category. The acquisition cost is a little harder for us to see because the cost is on the vendor side.

    Question: Do you have any insights on the amount of unused subscriptions?

    So typically we see somewhere around that 20%. Some interesting analysis outside of Blissfully of dark MRR shows 20 percent plus or minus, counting either underutilized overlapping product that can be consolidated, unknown things, and orphan subscription after people leave. So it’s been broadly consistent: about 20 percent.

    Question: You had a couple of slides that show the largest SaaS players by revenue by gross. I’m just curious a number of them are private companies so how do you collect that data?

    This is anonymized and aggregated across our user base. This is just looking at the growth rate and the revenue per customer not their revenue growth but the revenue kind of penetration across our customer base.

    Question: Can you talk a little bit about how you literally work?

    We integrate a lot of different data sources. I mentioned we plug into accounting systems. We integrate with security platforms like Okta to get utilization data in single sign on. We have a deep integration with G Suite, so, we can actually identify what might be unknown to finance or I.T. We can actually automatically pull some of the invoices and receipts from SaaS vendors into our platform in an automated way.

    We are really rich in real time data across SaaS usage across the entire organization. When you do that that single click install, within five minutes you’ll get that visibility in Blissfully. Pretty much instantly. And it’s updated daily so we’re continually sending out alerts to finance to security around.

    We have a lot of integration a lot more coming and we’re partners on multiple aspects of the ecosystem.