SaaS: The White Collar Industrial Revolution

We talk about history through the lens of “era’s” as social, economic, and cultural revolutions take hold throughout time. An Era is defined as “a long and distinct period of history with a particular feature or characteristic.” Let’s take a look at the era’s that have impacted the B2B world.

The digital disruption

From 1980’s through the 1990’s we saw the integration of computer technologies into the enterprise. This world was fundamentally split into those companies that sold “the box” and those companies that created the software to make the box “work.” As a practical example, companies like EMC built “the box” and companies like SAP made software that made the box “work.”

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This initial era wasn’t for the feint of heart. Companies spent millions of dollars for on-premise installations that took up huge foot prints. Then to actually get value, they spent up to 5x the cost of “the box” to make it work. These installations took years and were ALWAYS delayed. Once up and running, customers had to deal with yearly updates, service agreements, and constant interruptions in service. But while this seems like quite a hefty price to pay, enterprise organizations were more than happy to do it because of the order of magnitude in organizational efficiency and longterm savings the enterprise would see.

And the enterprises that adopted the systems were right. The disruption was real, and even more real was the money flooding in.

But, as the saying goes, all good things must come to an end.

SaaS: The White Collar Industrial Revolution

As complacency set in with the “on-prem” vendors and software aristocracy, a revolution was beginning. In the same way that the assembly lines of the industrial revolution fundamentally altered the manufacturing industry, so did SaaS for organizations filled with white collar workers. Instead of consistently placing the same bumper on every car coming through, white collar workers were pushed into using identical workflows and ways of looking at processes by companies like Salesforce and Marketo.

SaaS, simply put, created assembly line-like efficiency by enforcing prescripted workflows.

Just as the industrial revolution is nothing to laugh at, the same can be said about the SaaS revolution. Marketo sold for $1.8B to Vista Equity Partners, and Salesforce’s current market cap is over $48 Billion dollars. That’s a lot of money.

Today, SaaS reigns as king. There’s no debating it. In-fact, SaaS hasn’t even fully penetrated the enterprise, meaning there’s still plenty of billion dollar SaaS opportunities in the making. But what we are seeing happen in the market is shifting tides. The first change we’re seeing is the bundle.

“Bundle now, and save”

The change coming to SaaS isn’t due to complacency by the big technology companies, in-fact far from that. SaaS is experiencing consolidation. Today, it’s all about the bundle. Why pay for three, five, or ten different SaaS companies when you can instead “bundle now, and save?”

This philosophy has worked to up-sell digital cable, satellite, telephone, and cell phone customers for the better part of a decade. So why wouldn’t it work for SaaS? That’s the bet Amazon, Google, Apple, Salesforce, and many more are making today. And they’re probably right. Consolidation will provide these companies with larger revenues, and provide customers with better pricing — that’s what we call a win-win.

This bundle effect will only continue. So does that mean that the days of the startup are numbered? Yes and no.

Smarter SaaS — Going Vertical, Going Smart

It will likely become increasingly more difficult to compete against the big technology companies — that’s a fact. But bundles will fail to adopt or react fast enough when it comes to emerging verticals. Think about how Netflix has been able to compete against the Comcast’s and Disney’s of the world. This is why we, here at Storm Ventures, think verticalized application of SaaS will be are where the real market opportunity exists.

But being vertical won’t be enough. Entering a nascent vertical and applying SaaS will be necessary, but not sufficient. This is because the modern day employee doesn’t want to be sold a digital workflow and reporting tool that forces someone’s “best practices” into their lives. The white collar industrial revolution has come, and is on its way out.

Just like robots changed manufacturing, machine learning will change SaaS. This is because modern day SaaS users want smarter technology. They want technology to seamlessly fit into THEIR workflow, not the other way around. And that’s where SaaS is going.

What i’m talking about is verticalized applications of SaaS with machine learning at the core.

What i’m talking about is verticalized applications of SaaS with machine learning at the core. This new bread of SaaS is reactive, prescriptive, and works with the user to make them better, faster, smarter. SaaS tools like this will be core to the contractor gig-economy, to the enterprise, and to the millennial workforce.

Industries of opportunity — We call these “Smart and SaaSy”

As a firm, we think that some of the most exciting verticals for SaaS are as follows:

  • Construction
  • Healthcare
  • Government
  • Transportation
  • Security
  • Sales & Marketing

That’s because all of these either have only early stage SaaS providers, or are industries where machine learning will continue or begin to be extremely disruptive. These are the industries where our money’s being put. We call companies that fit into this thesis “Smart and Sassy.”

Venture Capital
Storm Ventures