XaaS and how embracing coopetition can help SaaS companies combat business churn
The rise of the Software-as-a-Service model has been a revolution for the software world, and one that’s been welcomed with open arms by businesses everywhere. According to figures from Gartner the global SaaS market is worth approximately $195 billion, and by 2026 around 75% of businesses will undergo digital transformation to embrace a fundamental cloud platform.
But while that seems like a net positive for SaaS providers, it’s beginning to present serious challenges. With so many SaaS products in use throughout a business, companies are increasingly looking for tools that offer more value at a lower cost, while end users are seeking a more holistic alternative to their current array of powerful but separate SaaS platforms.
The way to provide that will be for SaaS providers to embrace coopetition and work together to build the kind of all-encompassing platforms that end users want. Coopetition means recognising who has the best solutions to different parts of a problem, and sharing those solutions, rather than sinking money into a challenge that has already been solved.
The race to add more value to SaaS
The incredible growth of the SaaS market has been fueled by several factors – the increased adoption of cloud computing, greater demand for mobile apps and the advancements in AI and machine learning – and is unlikely to slow down while those remain in play.
According to Gartner, the SaaS market is expected to rise from $195 billion to $232 billion by as early as next year. That’s an increase of almost 19% of the amount that end users spend on SaaS products every year.
But that growth has also come at a cost – both for the end users paying for SaaS products and the SaaS companies themselves. With so many individual SaaS platforms handling multiple vital parts of a business, SaaS has become one of the most significant cost centres for many companies. According to Nidhi Jain, CEO and founder of CloudEagle, SaaS spend in many businesses is third only to the costs of keeping an office and paying staff.
That in turn becomes a problem for SaaS providers, because cancelling licences for the least essential or effective SaaS tools is much easier to do for a cost-conscious company than closing an office or making staff redundant. As a result, SaaS vendors are having to fight harder to add value to their platforms in order to make them indispensable and protect against churn.
The rise of Everything-as-a-Service
Those challenges faced by the growing SaaS industry alongside another trend in the software world: the rise of XaaS, or Everything-as-a-Service.
The XaaS concept isn’t a new one, at least not in the consumer world. Take super-apps, for example. These mobile apps, which can combine everything from instant messaging to food and transport ordering to financial services, are incredibly popular around the world. That’s especially true in regions like Asia and Africa, where the cost of smartphones means that storage space is at a premium and having one app in place of three or four is a considerable attraction.
But the idea of one app for everything is gaining traction even where hardware limitations aren’t a factor. In 2022, Paypal and PYMNTS found that 72% of people in the US, UK, Australia and Germany were interested in replacing individual apps with one super-app. After going through a boom of having niche apps for every service, there’s a growing desire to simplify and consolidate things in one place.
That appeal is something the business world is feeling too. When SMEs can be paying $250,000 to $1 million every year for as many as 70 different SaaS applications, the prospect of a platform that can combine many of those into one lower cost would be hard to turn down.
How SaaS companies can make their next move
For SaaS companies, leaning into the rise of XaaS and the growing interest for more comprehensive platforms can go a long way to solving the problem of churn. The more essential services are contained within a single SaaS platform, the more integral it is to a business and the more value it has over competitors.
On one hand, that creates a product that’s much harder for companies to do away with, but it does so in a way that ultimately provides the end user with a better experience. They’re not only saving money, they’re also saving time and frustration by having many apps consolidated seamlessly in one place.
That’s a particularly strong draw for small business owners. In our 2022 study of UK small businesses we found that 39% of small business owners don’t know who to trust to provide digital tools. But if they can find one tool that handles six or seven important functions, they can get started much quicker and spend more time on building their business instead of researching tech tools.
The difficulty for SaaS providers is how to build such a platform in a way that’s commercially viable. Building out multiple different SaaS functions alongside your core offering is extremely costly – not to mention risky to try and compete against established vendors in those areas.
The answer will be cooperation and coopetition. The goal of XaaS isn’t to create a library of different SaaS products. It’s to bring those SaaS products together into one seamless, connected ecosystem – one where the different tools talk to each other, and end users can move from one to another without feeling the bumps between.
Doing so requires a degree of trust and collaboration that can be alien in the highly competitive tech world. It requires embracing the concept of open ecosystems in order to make the API calls and communication between platforms possible. But whether it’s to reduce churn for SaaS providers or to add more value to SaaS customers, that kind of open collaboration is going to be crucial to build a better SaaS market for everyone.
For more reflections on the state of SaaS, check out our thoughts on tech for good and the old question of whether to scale your platform by building vs. buying vs white labelling.