Key Highlights from Softletter’s SaaS Report, Part III of III

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(The following information is excerpted from Softletter’s forthcoming SaaS Report. This report was first released in 2007 and is the industry’s most comprehensive source of information on the SaaS model and its evolution and adaptation to the market. The Report has been released. This article will be open until December 15th, and then only be available to Softletter subscribers.)

The Softletter 2016 SaaS Report is primarily based on the Softletter SaaS Survey. Our sixth SaaS survey was launched in late spring of 2016 and was closed at the end of July. The MatrixCX ( online was used to generate and manage the survey. The purpose of this survey was to develop a comprehensive snapshot of the current state of the SaaS industry and has always been targeted at companies and/or software company business units that derived at least 80% of their revenues from sales of SaaS products and services.

This survey had respondents answer up to 163 depending on how respondents answered conditional queries. The surveyed received 220 valid responses. The single largest group, 67% of respondents, reported their title as owner, founder, president, CEO or related title of their companies. This was followed by 23% identifying themselves as vice president, executive vice-president or director. The balance of respondents were senior managers, CFO’s, COO’s or other mid-level management. Twenty-six percent of those taking the survey were international, with representation primarily from Canada, EU countries, and Latin America.

In addition to the summary results, cross tabulation ‘drill downs’ have been incorporated into the report where we felt these could further enlighten companies on important SaaS trends. We invite readers of this report to contact Softletter publisher and managing editor Merrill R. (Rick) Chapman to discuss the results and suggest new areas for survey and investigation. Softletter contact information can be found on the Softletter website.

In addition to adding new questions and content, we also pull results from our past surveys to enable our readers to see important trends and developments in this fast-growing industry segment. To assist you in executing on the information, trends, and best practices information found in this report, we suggest you obtain a copy of Softletter Managing Editor Merrill R. (Rick) Chapman’s latest book, SaaS Entrepreneur: The Definitive Guide to Succeeding in Your Cloud Applications Business, Second Edition.

Throughout this report numbers of particular interest have been bolded. Decimals have been rounded off to one degree of precision for summary results and percentages may not equal 100%. Results cross-tabulated by company revenue size have been rounded off to whole numbers and may not equal 100%.

The results from The Softletter 2016 SaaS Report confirmed trends seen over the last nine years but also highlights new directions in the development of the SaaS industry. Since the first edition of this report, released in 2007, SaaS has moved from a recovering technology movement into the dominant model for the development and release of new software products, particularly in B2B markets. Growth in on-premise and the desktop markets has ceased and existing product lines are transforming into a “legacy” models a la the world of financial management products first created in the 50s, 60s, and the model is now subsuming desktop software, as giants such as Adobe have moved their products into “the Cloud” and Microsoft is also beginning to move away from the desktop as rapidly as it can, though it will take several years for it to manage the transition.

Despite the sluggish growth the economy has experienced since 2008, SaaS growth has continued to expand in the 20% to 30% annual range and we predict this market will continue to grow vigorously. One factor driving expansion is many new markets and niches remain to be filled by SaaS and its “Kissing Cousin,” mobile applications. The other is the development of what we call the “portable workspace,” a virtual computing infrastructure coming into existence that will be a key part of the post-SaaS world. We discuss this trend in greater detail later in the report.

Infrastructure and Service Guarantees

Is your infrastructure company SSAE 16 certified?

Yes 92%
No 3%
They are in the process of being audited 7%

If your infrastructure firm is not SSAE 16 certified, it will probably not remain in business. Cross tabulation provides no useful insights.

Please tell us the name of the primary Cloud infrastructure provider you are using

Amazon 61%
Google 11%
IBM 7%
Microsoft Azure 14%
Other, please specify 7%

Others included Mosso, Rackspace, and Oracle Cloud. Considering Oracle’s preeminence in databases, their low numbers are surprising. Crosstabs show that younger customers are strong consumers of Amazon and Microsoft’s offerings. Note Amazon’s dominance in this market. The company caught computing stalwarts such as Microsoft and Oracle by surprise.

Cross Tab: Years Selling

0 to 1 year

1 to 2 years

2 to 4 years

a) Amazon




b) Google








d) Microsoft Azure




e) Other, please specify




What baseline percentage of uptime do you guarantee your customers? (All percentages assume 24/7/52 availability and also assume they have not contracted for additional or premium uptime service levels)

a) 99.999% (five nines) 9%
b) 99.99% (four nines) 19%
c) 99.9% (three nines) 28%
d) 99% (two nines) 16%
e) 98% 1%
f) 97% 1%
g) 90% to 96% 1%
h) 80% to 89% 1%
i) We do not guarantee uptime 15%
j) Other, please specify 6%

These are almost identical to the last report, with the exception of a slight uptick in we do not guarantee uptime. More companies are shying away from offering these guarantees because of legal issues and because they’ve discovered their markets are not that sensitive to brief periods of unplanned and unannounced downtime. This is dependent upon the market of course; if your ecommerce system used by major retailers during the Christmas season face plants, you can bet they insisted on uptime numbers and you will be on the hot seat.

Does your company provide an escrow option for your customers in the event of a major service interruption or your company going out of business?

a) No 58%
No, but we are considering it 8%
Yes 35%

Interest in escrow in SaaS has grown slowly but steadily over the last several years, with a 15% Yes response in our 2009 report.

SaaS Channels and Distribution

Do you have a recommender program for your SaaS product? (A recommender program pays an individual or company of record who recommends, but does not resell, your product)

a) Yes 54%
b) No 46%

Interest in this channel option has grown substantially since the 2009 report.

Do you resell your SaaS product via an affiliate label reseller program? (An affiliate label program allows other companies to resell your software, usually from a link on your website. Affiliate resellers are normally automatically paid via an affiliate management system such as SaaS Max. In an affiliate sale, your company normally “owns” the customer in terms of company contacts and future business)

Yes 54%
We are considering it 19%
Yes 27%

The crosstabs point out that after a year of operations the number of companies implementing affiliate programs peaks sharply. However, many companies find that the model is ultimately not a good match fit to their business niche. Affiliates are often a better fit to lower end products with large horizontal markets.

Do you resell your SaaS product on an OEM basis? (In an OEM sale, your product is directly incorporated into another application. Your product’s core functionality can be altered to meet the OEM purchaser’s requirements and your corporate and brand identity, with the exception of licensing information, set aside in favor of those of the OEM customer’s product and services)

No 85%
Yes 15%

The number of companies reporting at 15% Yes is a substantial drop from the last report’s 28%. We attribute the decrease to the growth of Open Source and component markets and the integration of services with platforms such as AWS and Azure.

Are you reselling your SaaS product via VARs (value added resellers)?

No 42%
No, but we are planning to build a VAR channel 12%
Yes 46%

This is the highest number reporting Yes we have ever recorded. When the SaaS model first began rising to dominance, many in the industry questioned the need for channels in SaaS. The question seems to have been answered.

How many VARs do you have?

1 to 5 60%
6 to 25 7%
c) 51 to 75 7%
76 to 100 7%
100+ 21%

Note that company VAR channels expand based on revenue size and markets. The 21% reporting 100+ VARs is the highest we’ve recorded.

SaaS Sales and Marketing

What is your primary means of selling your SaaS product?

A direct sales force (defined as personnel who are authorized and regularly meet face to face with key decision makers during the sales cycle) 38%
A telesales group (defined as a group that normally does not meet with or visit a client’s location but instead begins and finishes the sales cycle remotely) 15%
Indirect marketing (E-mail, direct mail, webinars, PPC, SEO, advertising, etc.) 27%
Reseller/channel programs (includes consultancies, business agents, etc.) 15%
Other, please specify 4%

Direct sales continues to lose ground as the primary means by which SaaS firms generate sales. In our last report, the number reporting A Direct Sales force was 53%. Most of the “lost” percentage was picked up by reseller channels, which rose from 6% to 16%.  However, even companies who don’t rely on direct sales for primary revenue generation often have a direct sales force for larger and enterprise deals. Other is always a mix of the other choices.

What do you believe is the primary reason your customers choose to subscribe to a SaaS system?

SaaS applications are counted as an operating expense, not as a capital investment 15%
Customers can quickly gain access to new capabilities and functions that they cannot obtain by purchasing existing software products and services 46%
Customers wish to replace existing licensed and/or client/server applications with SaaS applications to reduce the overall cost of software at their company or business unit 4%
Customers wish to replace existing licensed and/or client/server applications with SaaS applications to reduce overall IT operations and complexity at their company or business unit 27%
Other, please specify 8%

Quickly gain access to new capabilities is the response leader by a strong plurality and has always been so. Reduce overall IT operations is up from the last report’s number of 15%, a substantial shift and indicator of the increasing acceptance of SaaS in the enterprise.

Professional Services and SaaS

Do you have a professional services group?

No 27%
Yes 73%

Five years ago the number answering Yes to this question was approximately 40%. But note carefully the numbers on professional services as a % of the revenue of the overall sale of a subscription. In SaaS, your professional services group is expected to come and go swiftly.

Product, Community, and Analytics in SaaS

Does your company employ product managers?

No 31%
Yes 69%

The last report had Yes at 57%. It’s no surprise that as the industry has matured, adoption of the product management model so popular in on-premise software has increased. The question is, have SaaS companies taken advantage of online technology to transcend the “pom-pom” role often associated with product management?

Does your product incorporate a “new features or capabilities” requirements request mechanism by customers directly within the SaaS application environment?

No 31%
We are planning to add this capability 15%
Yes 69%

When we first asked this question in 2009, the number answering Yes was 15%. We believe all SaaS applications should have requirements management integrated directly into them and predicted the number of respondents answering Yes to this question would rise sharply over the next two to three years. This has occurred. Larger firms still lag significantly in this metric, but not to the previous extent.

Does your product system incorporate a customer community management system directly within the SaaS application environment? (By “within” we mean the customer can access the community from within the SaaS system via either direct access to an integrated community module or a direct link to a third party module)

No 54%
We are planning to add this capability 15%
Yes 31%

We believe that implementing community engagement and management into a SaaS application is critical for long-term competitive capability. This metric has risen from a 2009 Yes response of 8% to its current level of 31%. However, we believe this is a seriously lagging metric in SaaS.


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