SaaS and Cloud

Startup Report
2018
The State of the World SaaS and Cloud Economies

CROZDE SK .COM // THE SOF T WA RE DISCOV ERY PL ATFORM

World‘s biggest startup ecosystems company

clusters, funding patterns, trends and more.

CROZDESK LTD :
M : RESEARCH@CROZDESK.COM
W : CROZDESK.COM
SaaS and Cloud Startup Report 2018 | Crozdesk The So ftware Discov ery Platform

Table of Content
Key Findings 04

The Cloud and SaaS Market

Maket Value 14

How you can Industry Funding 14

use this report

Geographic Analysis

Global Clusters Analysis 16

US Cluster Analysis 18

Europe Cluster Analysis 20

ATTRIBUTION GUIDELINES
Trends
At Crozdesk, we produce research content
and resources for the software community
and provide them free of charge. We pride Vertical vs Horizontal 24
ourselves on helping businesses - big
and small - make better decisions when
buying software and vendors build better Mobile Strategies 26
solutions.

Feel free to distribute and use this report Integrations 27

in your own content creation. You can
republish any charts or findings with the
caveat of providing Crozdesk as the source From SaaS to PaaS 28
of the original research.

If you would like high resolution versions of Private, Public and Hybrid Cloud Environments 30
any of the images and charts used, please
contact research@crozdesk.com.
Predictions 32

Methodology 34

PUBLICATION DATE :
THIS REPORT WAS RELEASED ON THE 20TH NOVEMBER 2017

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SaaS and Cloud Startup Report 2018 | Crozdesk
ABOUT US
Key Findings
Crozdesk.com - SaaS discovery
The public cloud market is expected to
grow by 20% and the Software-as-a-
Free SaaS reviews, comparison and software listings Service market by 22% in 2018.
Crozdesk.com is a business software discovery portal, offering software search & comparison services SaaS investment has grown by around
for virtually any business purpose. 4% in 2017. The categories attracting the
most funding were Accounting & Finance
Whether you’re looking for accounting, marketing, development or CRM software, Crozdesk has you and Business Intelligence / Analytics. This
covered. Over 230 categories and curated lists of detailed software profiles, user and expert reviews, was largely due to continued growth in
comparison features and rankings to help you figure out which product is best suited for your the FinTech space and new AI / Machine
business. Learning applications in the Big Data and
Data Science space.
Create a user account and unlock exclusive discounts, compare thousands of applications side-by-
side and discover the right software for your business. The United States is still largely unrivalled
with 63% of companies globally and
nearly 89% of the startup funding in the
cloud and software sectors. However,
as the US market is becoming more
saturated US vendors are increasingly
looking to expand into Europe and Asia.
Europe, a distant second, is showing
increased velocity with a great number
of emerging companies focussed on the
space. In 2017 it was home to 22% of the
world’s cloud companies, but only 5% of
funding.
Silicon Valley - home to 16% of the
world’s cloud and software companies -
remains the ultimate powerhouse with
nearly 39% of the world’s funding and
rapid growth rates. It is followed by New
York, Southern California and Boston.
PAGE: 4 // 3 4
The So ftware Discov ery Platform
London (5th) and Tel Aviv (8th) are the
only non-US clusters in the top 10, driven
by their SaaS startup movements.
As horizontal SaaS markets are getting
more competitive, 2018 is expected to
lead to a further increase in vertical
and hybrid SaaS startups. While
vertical solutions already make up the
majority of solutions this is bound to
increase further due to more untapped
opportunities as compared to the
horizonal SaaS space.
2018 will show a further increase
in demand for end-to-end system
2018 will be the year of vertical
integrations, fueled by developments in
the Integration Platform-as-a-Service
space and higher customer expectations.
Furthermore, established SaaS category
and hybrid SaaS startups.
leaders are increasingly expanding their
model to incorporate a PaaS approach
in a bottom-up approach as compared
to the top-down developments by IaaS
providers in recent years.
With overall confidence in public
cloud security on the rise, private
cloud environments are becoming less
popular. While hybrid cloud adoption is
decreasing as well it is still the preferred
cloud model of security sensitive
enterprise and mid-market businesses.
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SaaS and Cloud Startup Report 2018 | Crozdesk The So ftware Discov ery Platform

The Cloud and SaaS

Market
Revenue, Growth and Funding

Cloud adoption is continuing to grow, as laggard enterprises and

traditional businesses are increasingly embracing public and
hybrid cloud services to reinvent their business processes.
With growing threats from unbundled services providers and
digital innovation, staying competitive is the name of the game...

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SaaS and Cloud Startup Report 2018 | Crozdesk The So ftware Discov ery Platform

Market Value SaaS Market Value

The global SaaS market has been predicted to expand at a CAGR of 19.9% between
2015 and 2022 and is forecasted to reach $71.2 billion in 2018 - a 21.5% increase
from 2017.

However, the rapid growth in the horizontal SaaS market, seen in recent years, is
Growth Predictions likely to slow in 2018, as a result of established SaaS categories, such as customer
relationship management (CRM) and human resource management (HRM), reaching
SaaS revenue is projected to double from 2016 to 2020 maturity. With increasing demand for specialized industry solutions a shift towards
further verticalization and fragmentation of SaaS is to be expected.

The SaaS sector has started to mature and stabilise, with customers becoming
Public Cloud Revenue in US$B more reliant on SaaS products. In conjunction, vendors no longer need to dedicate
2016 2017 2018 2019 2020
(excl. advertising) substantial amounts of time to showcase the benefits of SaaS at a broader level.
The clear advantage of freeing internal IT functions from substantial hardware
Cloud Business Process Services (BPaaS) 39.6 42.2 45.8 49.5 53.6 requirements and legacy technology is becoming increasingly evident to the wider
market. This is illustrated by the fact that out of the Fortune Global 50 companies,
Cloud Application Infrastructure Services (PaaS) 9.0 11.4 14.2 17.3 20.8 48 have publicly announced new cloud adoption plans in 2017.

Cloud Application Services (SaaS) 48.2 58.6 71.2 84.8 99.7

Cloud Management and Security Services 7.1 8.7 10.3 12.0 13.9

Cloud System Infrastructure Services (IaaS) 25.4 34.7 45.8 58.4 72.4

Total Market 129.3 155.7 187.3 222.0 260.3 Retention and Margins
89% While some customer attrition is virtually unavoidable, high growth SaaS businesses
Table 1 - Public Cloud Revenue Projections 2016-2020 (excl. advertising), Source: Gartner 2017 have retained 89% of their subscription units annually on average. Throughout 2016, the
median annual unit churn was just 10%, which rose to 11% in 2017.
Cloud Market Value 77% With median gross margins on subscription revenue in the region of 77%, the SaaS
model continues to prove a catalyst for growth.

Cloud IT market revenue (excl.
advertising) is expected to increase
from $129B in 2016 to $260B by the end
of 2020. This represents a Compound
Annual Growth Rate (CAGR) of 19%.
More than 90% of current customer
demand for cloud services comes
from replacing or upgrading existing
applications and from new digital
product innovation.
A Bain & Company study found that
from 2012 to 2015, cloud demand
accounted for 70% of IT market growth,
and is expected to represent 60% of new
growth through 2020.
The public cloud services market is set to
grow substantially by 20.3% in 2018, with
revenue rising to $187.3B. In 2017 the
growth rate was 20.4%.
The SaaS market is projected to reach
$71.2B in 2018, continuing to be the
leading cloud segment in terms of
revenue.
The Infrastructure-as-a-Service (IaaS)
sector is to achieve the highest rate of
growth out of all of the cloud services
sectors, up 36.6% in 2017 to reach $34.7
billion.
The SaaS and IaaS sectors, in particular,
were the primary drivers for cloud
services growth throughout 2017. Both
SaaS and IaaS have exceeded 2016
expectations, causing an uplift in cloud
revenue forecasts.
There is also a regional element to be
taken into account when assessing the
future of the cloud services market. The
geographic analysis featured later in
this report underscores the significant
regional disparity of supply development
across the world. However, with the US
market approaching more saturated
levels, many vendors are looking towards
Europe and elsewhere for growth. “Our most important learning in 2017 has been that our technology is
The Asia-Pacific region is forecast to more far-reaching and pervasive than we had anticipated. In a way,
reach a CAGR of 32.1% until 2022. China
will likely play a significant role in the we had to expand our thinking, become comfortable speaking to much
IaaS market in particular, with forecasts
anticipating higher demand in the larger organizations, and develop solutions to much bigger problems.
coming years as digital services become
more mainstream - despite China’s cloud This year has definitely been a ‘go big or go home’ period in our
services market being several years
behind its western counterparts. company’s growth.”

- Agreeable Research

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SaaS and Cloud Startup Report 2018 | Crozdesk
Industry Funding
SaaS Funding by Segment
Q1-Q3 2017
To gain a better understanding of the
underlying SaaS and enterprise software
investment patterns, Crozdesk analyzed
year-to-date funding at the time this
report was compiled (Q1 to Q3 2017),
amounting to $50.25B in total. This
represents a 4.1% increase over funding
raised over the same period in 2016.
Accounting and Finance software
companies received the most funding
over this time period ($5,120M).
In 2016, it was only the fourth highest
funded sub-sector and has been driven
by substantial growth of FinTech in 2017.
Business Intelligence, Analytics and
Performance was the second highest-
performing in terms of funding received
($3,320M). This was fueled by new
+3.5%*
+4.6%*
$55.1B*
+8.6%
$52.7B
$48.5B
2015 2016 2017
* Crozdesk projection
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The So ftware Discov ery Platform
Machine Learning and AI technologies
attracting substantial investment to the
segment.
Third place went to Video related
products, which received $1,567M in
funding over the period, fueled by the
Augmented and Virtual Reality trends.
Traditional growth segments such as
CRM and Project Management have
dropped substantially due to lower
growth opportunities. This can be traced
to increased dominance exhibited by
established market leaders.
Figure 1 shows all analyzed industry
segments and the funding they received
over the Q1 to Q3 2017 period.
$57.0B* SaaS funding growth slows
After an 8.6% increase in 2016 and 4.6% in 2017, we expect SaaS funding
to grow by just 3.5% in 2018. This is largely due to the fact that horizontal
SaaS catgegories - which historically attracted more funding - are
becoming increasingly competitive. Furthermore, with verticalization
steadily on the rise, more and more vertical SaaS vendors tend focus on
2018 profitability and sustainability, rather than venture-backed growth.
Figure 1 - SaaS Funding by sector (Q1-Q3 2017), Source: CB Insights data
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SaaS and Cloud Startup Report 2018 | Crozdesk The So ftware Discov ery Platform

Geographic Analysis
The World‘s Cloud Clusters and
Investment Patterns in 2017

The world’s cloud ecosystem differences in terms of growth,

funding and chances for success are staggering. While Silicon
Valley is the indisputed champion of incubation grounds, some
findings were more surprising...

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SaaS and Cloud Startup Report 2018 | Crozdesk The So ftware Discov ery Platform

The Global Cloud Startup

Clusters in 2017
For the following geographical analysis
of global cloud business clusters, the
Crozdesk team has analyzed 19,188
currently operating SaaS, PaaS, IaaS and
enterprise software companies, as well
as 20,883 funding rounds, to determine
statistically relevant patterns of regional
development.
Crozdesk analysis has found that in 2017
62.79% of relevant companies worldwide
were located in North America (United
States 59.57%, Canada 3.22%). Europe
followed with 22.28% of worldwide
records. Funding patterns and overall
development of both regions will be
analyzed in more detail in subsequent
sections of this report.
19,188 $134B
total companies in funding
are showing increased interest in the
space they are still lagging behind.
However, early signs of increased
focus on SaaS and enterprise software
are visible and are bound to lead to
increased growth in both countries as
their economies mature further. In the
case of China, total funding of companies
in the sector has increased to 2.17% of
the worldwide share and IaaS is deemed
to become a major driver of growth in
coming years.
Asia as a whole comes in at 7.66% of
company records, the Middle East at
2.64%, Australia at 2.08%, South and
Latin America at 1.99% and Africa at
0.56%.

For regional comparison, records have Regional cluster development is largely

Chicago London Greater Amsterdam
been clustered in areas of significant driven by proximity to traditional Companies: 1.15%
North West Companies: 1.80%
Funding: 3.51%
Companies: 4.20% Funding: 0.30%
velocity and companies have been industry across a wide range of sectors Cluster Growth: 0.79
Funding: 1.27%
Growth: 0.29
Growth: 0.16

consolidated to their headquarters (e.g. Manufacturing, Finance and other Companies: 3.51% Denver Berlin
Companies: 0.81%
Funding: 3.33% Companies: 1.73%
Toronto
location. In some areas, such as the service industries) and proximity Growth: 0.34 Funding: 1.60%
Growth: 0.58 Companies: 1.70%
Funding: 0.35%
Growth: 0.28

Texas Triangle (Dallas, Houston and San to funding sources such as Venture Silicon Valley
Funding: 1.27%
Growth: 0.37
Paris
Companies: 1.38%

Antonio) and the North West Cluster Capitalists, Angel Networks and Companies: 16.14% Boston Funding: 0.52%
Funding: 38.68%
Companies: 4.20% Madrid Growth: 0.21
Bangalore
(Seattle, Portland and Vancouver), the trade investment arms of established Growth: 0.97
Funding: 8.40%
Growth: 0.76
Companies: 0.91% Companies: 0.95%
Funding: 0.06% Funding: 0.35%
editorial decision has been made to enterprises. New York Growth: 0.08 Growth: 0.35

bundle them into one cluster due to Companies: 5.67%

Funding: 8.38%

their shared investment and business This clustering trend can be better Southern Growth: 0.50 Barcelona
Washington DC
California Companies: 0.62%

infrastructure. understood by looking at the next Companies: 5.11%

Companies: 1.88%
Funding: 2.61%
Funding: 0.10%
Growth: 0.29
Growth: 1.00
section of this report, which covers Funding: 4.73%
Growth: 0.50
Atlanta
Silicon Valley and it’s surrounding area funding patterns in relation to investor Companies: 1.38%

Texas Triangle
Funding: 1.15% Israel Singapore
accounted for 16.14% of the global location across the United States in more Growth: 0.88
Companies: 1.93% Companies: 0.76%
Companies: 3.30% Funding: 1.27% Funding: 0.17%
records, followed by New York at 5.67% detail. Funding: 3.52%
Growth: 0.42
Growth: 0.68 Growth: 0.18

and Southern California at 5.12%. Boston

and London were tied for #4 at 4.20%.
Outside of North America and Europe,
Israel and its hub Tel Aviv have
shown significant traction in its SaaS
development and come in at 1.93% of
records, followed by Bangalore at 0.95%,
New Delhi at 0.78%, Sydney at 0.78% and
Singapore at 0.76%.
In the next two sections of this
geographic analysis we will take a deeper
look at funding and overall company
growth in the United States and Europe,
which are driving forward the cloud and
software economies with over 85% of
cloud services and enterprise software
companies worldwide. Sydney
Companies: 0.78%
Funding: 0.30%
Growth: 0.25

While Brazil (1.14%) and China (0.99%)

Figure 2 - The world’s cloud and software clusters

Size determined by total company records
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SaaS and Cloud Startup Report 2018 | Crozdesk The So ftware Discov ery Platform

Relative
% of total % of total Cluster
Largest Cloud and Software Clusters growth
companies funding score**
speed*

1. Silicon Valley 16.14% 38.68% 0.97 2.97

2. New York 5.67% 8.38% 0.50 1.07

3. Southern California 5.11% 4.73% 0.50 0.94

4. Boston Area 4.20% 8.40% 0.76 1.24

5. London 4.20% 1.27% 0.29 0.58

6. North West Cluster*** 3.51% 3.33% 0.34 0.64

7. Texas Triangle**** 3.30% 3.52% 0.42 0.72

8. Tel Aviv / Israel 1.93% 1.27% 0.68 0.83

9. Washington DC 1.88% 2.61% 1.00 1.18

10. Chicago 1.80% 3.51% 0.79 0.99

11. Denver 1.73% 1.60% 0.58 0.73

12. Toronto 1.70% 1.27% 0.37 0.51

13. Atlanta 1.38% 1.15% 0.88 1.00

14. Paris 1.38% 0.52% 0.21 0.31

15. Amsterdam / Netherlands 1.15% 0.30% 0.16 0.24

16. Philadelphia 1.08% 0.68% 0.63 0.71

17. Bangalore 0.95% 0.35% 0.35 0.42

18.

19.
Madrid

Berlin
0.91%

0.81%
0.06%

0.35%
0.08

0.28
0.14

0.34
Silicon Valley
20. Dublin 0.81% 0.09% 0.08 0.13
“San Francisco and its
21. New Delhi 0.78% 0.12% 0.37 0.42
surrounding area remains the
22. Sydney 0.78% 0.30% 0.25 0.31
powerhouse of the world’s cloud
23. Singapore 0.76% 0.17% 0.18 0.23
and software economies.“
24. Miami 0.76% 0.48% 0.87 0.87

25. Barcelona 0.62% 0.10% 0.29 0.33 San Francisco and its surrounding area remains the powerhouse of
the world’s cloud and software economies with a cluster score of
2.97. The abundance of capital and infrastructure resources there
Others 36.66% 18.76% 0.38
is unmatched and it is only narrowly beat in average development
speed of companies by the much smaller Washington DC metro
* Relative growth speed = function of age, total capital raised and employee growth of a company (1.00 = fastest) area, where government contractors have benefited from access to
** Cluster score = sum of all 3 relative factors (3.00 = maximum) political decision makers and government budgets.
*** North West Cluster = Seattle, Portland, Vancouver - bundled due to regional proximity and shared startup / funding infrastructure
**** Texas Triangle = Dallas, Houston, San Antonio - bundled due to regional proximity and shared startup / funding infrastructure

Table 1 - The 25 largest cloud and software clusters in the world

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SaaS and Cloud Startup Report 2018 | Crozdesk The So ftware Discov ery Platform

North America:
Funding and Clusters
The following analysis assesses the
relative abundance of capital and debt
investment in North American SaaS,
PaaS, IaaS and enterprise software
businesses by state and looks at the
overall growth by geographic cluster.
Growth is defined as a function of
company records and expansionary
metrics (employees and funding per
company). The analysis included 12,048
North-American businesses.
Sample companies based in California
raised funding amounting to $58.74B
since their incorporation, which
constituted 43.69% of global funding into
the sector. This is followed by New York
State with $11.59B and Massachusetts
$11.39B. Illinois with $4.75B is closely
followed by Texas at $4.74B and
Washington State at $4.04B. 13 US states
and one Canadian province (Ontario at
$2.10B) were home to companies with a
total of more than $1B in equity and debt
capital.
The largest US tech clusters by
headquarter location are Silicon Valley
at 16.14% of the world’s companies
operating in the space, New York at
63% 89%
of world‘s companies of world‘s funding
By and large, investors on the the west
and east coasts tend to overlook the
midwest and south of the country when
they invest outside of their own region
and opt for the opposite coast instead.
For instance investors from the north
east of the country tend to invest in
west coast businesses 34% of the time
and only 3% in midwest businesses.
This further fuels the mismatch of
funding and infrastructure. West Coast
investors keep their investments within
their region in 78% of cases and skip
the heartland to invest in north eastern
businesses 14% of the time.
While there is a slowly declining trend
related to this, it illustrates the relative
mismatch of funding and explains the
continued cluster growth of growth hot
spots on the west and northeastern
coasts of the country.
Government Offices 77% North West Cluster
Companies: 3.51%
Funding: 3.33%
Growth: 0.34
Chicago
Angel Investors 66% Companies: 1.80%
Funding: 3.51%
Growth: 0.79

5.67%, Southern California at 5.11%, Toronto

Boston at 4.20% and the North Accelerators 61% Companies: 1.70%
Funding: 1.27%

West Cluster (Portland, Seattle and Growth: 0.37

Vancouver) at 3.51%. Other interesting

clusters include the Washington DC / Venture Capital Firms 58% Boston
Companies: 4.20%
Arlington (VA) metro area with 1.88% of Funding: 8.40%
Growth: 0.76
records and the fastest average company
development of any cluster measured. Micro VC Firms 54% Silicon Valley Denver
Companies: 1.73%
Chicago and Denver at 1.80% and 1.73% Companies: 16.14%
Funding: 38.68%
Funding: 1.60%
Growth: 0.58
Growth: 0.97
respectively are two areas of increased
velocity in current SaaS development. Family Offices 49% New York
Companies: 5.67%
Funding: 8.38%

A recent Crunchbase study has found Growth: 0.50

that, in the US, 66% of Angel and 58% Corporate VCs 48% Washington DC
of Venture Capital deals happen in the Companies: 1.88%
Funding: 2.61%
Growth: 1.00
investors’ states of residence. In Silicon
Valley this is even more extreme. San Figure 3 - Rate at which US investors invest in-state
Francisco Bay Area investors invested in Source: Crunchbase News, 2017
Bay Area companies 66.2% of the time. Southern California Atlanta
Companies: 5.11% Companies: 1.38%
Funding: 4.73% Funding: 1.15%
Growth: 0.50 Growth: 0.88

Texas Triangle
Companies: 3.30%
Funding: 3.52%
Miami
Companies: 0.76%
Figure 4 - North America’s cloud and software clusters Growth: 0.42
Funding: 0.48%
Growth: 0.87

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Size determined by sum of total growth PAGE: 19 // 3 4
SaaS and Cloud Startup Report 2018 | Crozdesk The So ftware Discov ery Platform

Europe:
Funding and Clusters
The following analysis assesses the
relative abundance of capital and debt
investment in European SaaS, PaaS, IaaS
and enterprise software businesses by
country and looks at the overall growth
by geographic cluster. Growth is defined
as a function of company records and
expansionary metrics (employees and
funding per company). The analysis
included 4,276 European businesses.
The European cloud services and
software economies have been
dominated by the United Kingdom -
home to 6.42% of global companies in
the sector and $2.34B in funding within
the sample group. 65.37% of UK cloud
services and software companies are
located in the Greater London area
operating with 73.16% of the country’s
sector funding. The UK ecosystem has
grown steadily in recent years and SaaS
has become one of the primary drivers
22% 5%
of world‘s companies of world‘s funding
Sample companies across Germany and
France are both close to reaching the $1B
operating capital mark. Paris, the second
largest sector cluster in Europe, is home
to 1.38% of global companies and 0.52%
of the overall capital. Berlin, Europe’s
second largest startup ecosystem, has
been a late-adopter of the SaaS trend
and is lagging behind at only 0.81%
of companies and 0.35% of operating
capital.
The Amsterdam area and surrounding Oslo
Companies: 0.23%
territories in the Netherlands have Funding: 0.02%
Growth: 0.19
shown significant interest in SaaS, PaaS
and enterprise software. The extended
cluster comes in at 1.15% of companies,
however, with less funding at only 0.30%.
Other SaaS hotspots with little capital
but significant growth in startup
Copenhagen
numbers have emerged in Madrid Companies: 0.39%
Funding: 0.04%
(0.91%/0.06%), Dublin (0.81%/0.09%) and Growth: 0.15

of startup growth, rivalling its still Barcelona (0.62%/0.10%). Cambridge

Companies: 0.09%
dominant FinTech sector. Funding: 0.04% Greater Amsterdam
The fastest growing areas outside of Dublin Growth: 0.22 Companies: 1.15%
Funding: 0.30%
Companies: 0.81% Growth: 0.16
While London has a large SaaS London were Cambridge, Paris, Oslo, Funding: 0.09%
Growth: 0.08 Berlin
ecosystem it can’t keep up with its US Berlin and Barcelona. Companies: 0.81%
Funding: 0.35%
counterparts in terms of funding and Growth: 0.28

growth opportunities. For instance, the Spread across Eastern Europe, an

average funding round of London-based
companies was just one quarter the size
of their San Francisco-based rivals. The
median round size was $654,500 - in
increased number of startups have
appeared in recent years, but with
little access to capital and growth
London
opportunities within the sector. Companies: 4.20%

comparison to $3M in San Francisco. Funding: 1.27%

Growth: 0.29

Consequently, this likely caused the All in all, Europe has exhibited significant
average growth speed of London interest in SaaS, BPaaS, PaaS and
companies in the sector to just reach one enterprise software, while its IaaS sector Paris
Companies: 1.38%
third of that on the US west coast. has been lead by a small selection of Funding: 0.52%
Munich
Growth: 0.21
established players. However, more Companies: 0.25%
Zurich Funding: 0.06%
Despite much higher impediments to conservative investment practices and Companies: 0.19%
Growth: 0.26
Funding: 0.04%
growth and opportunity in the European less venture capital have made it difficult Growth: 0.24

cloud services and software space, for European businesses to keep up

smaller ecosystems with heavy focus on with the fast growth exhibited by US Madrid
SaaS and BPaaS have been popping up competitors. Companies: 0.91%
Funding: 0.06%
Barcelona
Growth: 0.08 Companies: 0.62%
all across western, central and northern Funding: 0.10%
Growth: 0.29
Europe.

Figure 5 - Europe’s cloud and software clusters

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SaaS and Cloud Startup Report 2018 | Crozdesk The So ftware Discov ery Platform

SaaS Trends
And Cloud Adoption
Developments

The SaaS and cloud space is changing rapidly. Enterprise

and small business users alike, are becoming increasingly
demanding. SaaS vendors have to keep up with trends in
demand and service innovation to stay ahead of the game in an
increasingly competitive space...

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SaaS and Cloud Startup Report 2018 | Crozdesk
SaaS Trends
Vertical vs Horizontal SaaS
The SaaS market has reached new
maturity levels in the US, limiting the
new-market growth opportunities for
“horizontal” SaaS solutions. This has
led to a major trend of diversification
into vertical markets, addressing
key business issues for particular
verticals and establishing new growth
opportunities.
One size-fits-all software is starting to
give way for more modular verticalized
approaches, and with SMEs becoming
the driving force for SaaS growth in 2018,
SaaS providers are increasingly focusing
on niche industries and markets. When it
comes to mission-critical functionality,
customers demand a deeper expertise
in their field - so single-industry soutions
often lead to greater market success.
While vertical SaaS companies trade with
a narrower customer base and occupy
a smaller market space, they have a
product-based competitive advantage
within their area of focus.
Horizontal SaaS focuses on a specific
software category (HR, marketing, sales
etc) and have wide market reach. This
generally requires higher marketing and
sales budgets to gain significant market
PAGE: 24 // 3 4
share and attract new customers. As
the largely industry-agnostic horizontal
SaaS environment has matured, many
segments are now dominanated by
established players creating significant
barriers to entry. The focus here has
changed from customer acquisition to
increasing customer value and retention.
However, while vertical SaaS solutions
already make up the majority of SaaS
vendors, a wide range of opportunities
for process improvements and
disruption across a great many industries
still remain.
Horizontal Software Solutions
Horizontal SaaS solution funding and
growth is starting to slow, as investors
shift towards backing vertical solutions
and unbundled software aimed at
disrupting traditional industry offerings.
Most large horizontals have established
market leaders with significant maket
share by now, which creates lower
growth prospects for new entrants and
less funding opportunities.
Vertical Software Solutions
A clear trend has emerged in recent
years aimed at replacing horizontal
SaaS solutions with more customized
The So ftware Discov ery Platform
Vertical
Solutions
solutions geared at specific industries
from Healthcare to Retail. Veeva, for
instance, has been very successful in
tailoring its CRM and data management
solutions to the pharmaceutical and life
science industries exclusively. Crozdesk
is seeing a large number of new entrants
aiming to replicate this model across a
diverse set of horizontal functions and
industries.
Horizontal / Vertical Hybrids Horizontal
While less common, an increased Solutions
number of vendors tailor their largely
horizontal solutions to a small number of
specific industries. This can be achieved
either purley through marketing,
with custom landing pages and sales
messages geared to individual industry
segments, or by customising the
underlying solution technology to better
cater towards an industry’s core pain Hybrids
points and workflows.
Figure 6 - Vertical vs Horizontal Solution Examples
We expect a further shift towards
‘verticalization’ of the SaaS approach
in 2018 and beyond to provide better
off-the-shelf and modular cloud services,
rivaling horizontal category leaders
in their largest and most profitable
industry segments.
Vertical solutions, while generally less well known, make up the majorty
of SaaS solutions on the market. With horizontal SaaS segments getting
more and more competitive we expect a greater shift towards vertical
and hybrid solutions by new SaaS entrants in 2018.
PAGE: 2 5 // 3 4
SaaS and Cloud Startup Report 2018 | Crozdesk The So ftware Discov ery Platform

SaaS Trends SaaS Trends

Mobile Stategies Integrations

While most B2B SaaS applications are
commonly used on desktop computers,
customers are increasingly demanding
access to the same services while on-
the-go.
‘Mobile-friendly’ as a product strategy
prioritizes and often equates the
importance of mobile experience
with that on desktop computers.
Mobile devices are entrenched in the
workflow of businesses with non-
stationary workforces. Additionally,
43% of business owners now frequently
use mobile devices as an avenue for
managing operations remotely. However,
demand for the ability to manage
operations and collaborate on projects
while out of office, is not yet universal.
We talked to 25 SaaS vendors across
a wide range of different fields to get
their opinion on mobile-friendly SaaS.
Whether it has affected their business
model, or whether they have adopted
the strategy within their own company,
greatly varied by segment.
The majority of interviewees operating
outside of field-service industries,
recognized the benefits of mobile-
friendly SaaS and aimed to improve their
mobile experience, but felt that their
industries were rather slow to adapt.
Demand from their customer base was
not stong enough to warrant making
mobile-optimization a priority and issues
surrounding security often prevented
this.
Fraud detection provider Pondera stated
that mobile-friendly initiatives had been
slow to move within their niche due to
the sensitive nature of the data they
analyze.
Accelo CEO, Geoff McQueen, said
“mobile first SaaS works fantastically
for products with a clear and leading
mobility use case” however, he saw this
as only providing tangential value for
Accelo and other enterprise software
vendors, and sees shifting focus to
mobile for non-location dependent
services as inadvisable.
These sentiments were echoed by
marketing automation company, Lead
Liaison: “It is almost impossible to
deliver a meaningful experience on
mobile, especially for an enterprise
application”. Regarding marketing
automation specifically, they believe
that “a mobile device will always be an
ancillary way of viewing and interacting
with an enterprise application.”
However, field-service and heavy use
collaboration service providers have
been increasing their investment in
mobile optimization significantly. We
spoke to Brian Saab from Unearth
Labs - a construction management
software vendor: “If your platform isn’t
mobile-friendly, it will likely significantly
hinder its adoption given how many
people use their mobile device for work.
Mobile friendly design was even more
important for us because mobile is king
on construction sites. If we don’t have
an intuitive and simple mobile interface,
no one in the field is going to adopt our
software and we will be dead in the
water.”
Mobile optimization has become
a necessity for some vertical SaaS
vendors, but enterprise applications
are still facing early stages of mobile
maturity, as the costs of delivering a
meaningful experience on mobile often
outweigh their benefits.
SaaS users are becoming increasingly
demanding when it comes to flexible and
seamless integrations of complementary
software products, databases and
information streams across a wide
range of business functions. This trend
that is fuelling Integration Platform-
as-a-Service (iPaaS) also requires
SaaS vendors to collaborate more and
more on point-to-point integrations
and expand their API offerings beyond
providing isolated cloud silos.
Standardized protocols and language
compatibility is becoming increasingly
important. RESTful web services, WDSL
and SOAP are used frequently to further
interoperability and allow for diverse
application triggers and data streams to
enable users to tailor off-the-shelf
SaaS offerings to their own unique
requirements and business processes.
It also increases value-add and cross-
promotion opportunities to capture
more value in enterprise and SME
workflows.
Ease of on-boarding new solutions
into the existing business arcitecture
and infrastructure through flexible
integrations is quickly becoming a
core aspect businesses consider when
evaluating SaaS products.
Complexity, security, concerns over
decreasing stickiness and IP retention
have slowed adoption of this across
a range of fields - especially in the
enterprise space.
Multi-Layered Security
Integrating disparate software, can run
the risk of increasing vulnerabilities
and allow for security protocols to be
bypassed, which, in turn, increases the
risk of unauthorized access to sensitive
data. To combat this, SaaS vendors
increasingly adopt multi-layered security
processes, with high-end encryption
protocols.
API Service Unbundling
A steadily rising number of startups have
adopted the strategy of packaging their
core services for access through APIs
and suites of developer tools. As some
SaaS industry categories are getting
overcrowded with a great number
of similar products, more and more
startups are focusing on unbundling
these features, to offer tailored, more
flexible services geared towards
developers and ‘Citizen Integrators’
within target customer organizations.
These are often complementary add-ons
which aim to improve a missing feature
or enhance an existing SaaS ecosystem
through the use of integrative solutions.
Drag-and-Drop Standardization
To offer a maximum of flexibility to
non-technical users more standardized
integration ecosystems are bound to
emerge in coming years following a
hub-and-spoke integration approach.
Standardised protocols and iPaaS
networks hold the potential for users to
create their own ‘drag-and-drop’-type
integrations between heterogeneous
systems and could allow for ultimate
control in creating bespoke business
workflows on a much grander scale.
While this model, in the long-run, has
the potential of replacing point-to-point
integrations that tend to be time-
consuming to build and often inflexible
in their execution, market leaders in the
space are yet to emerge.

Integration Software-as-a-Service (iSaaS)

iSaaS is a set of tools that allow users the prime audience for iSaaS solutions. integration it has the potential to disrupt

$4.9B
to design their own integration tasks
and self-mange the process. ‘Citizen
Corporate Mobile Integrators’ - meaning people who
understand the business requirements
SaaS Market 2017 and are generally tech-savvy, without
necessarily being IT specialists - are
Companies such as Adeptia are driving
this space forward with flexible
components, allowing for simple
Citizen Integration. While this model is a
precursor to integration standardization
as a substitute to point-to-point
the Electronic Data Interchange (EDI)
market and provides opportunty for
increased standardization, availability
and secturity of SaaS integrations.

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SaaS and Cloud Startup Report 2018 | Crozdesk
SaaS Trends
From SaaS to PaaS
The global market for
PaaS is projected to
reach $10.6B in 2018.
SaaS is one of the key models of the
cloud services economy giving business
customers the means to steer away from
legacy systems and traditional hardware
PaaS adoption will be a prime driver of SaaS requirements. As the SaaS industry
matures, established vendors are
innovation in 2018 and provides an opportunity for frequently augmenting their approach
to incorporate a Platform-as-a-Service
SaaS category leaders to diversify their solution and (PaaS) model.
increase the overall stickiness of their solution. A prominent example of this is
Salesforce. Their platform approach
allowing developers to build their
solutions on top of Salesforce services
Why is PaaS adoption increasing? and infrastructure provides substantial
positive externalities to their SaaS
offering and increases overall stickiness,
as well as providing diversification
Increased investment in the application infrastructure & middleware benefits. Many horizontal category
market by large IaaS providers (AWS, Microsoft, Google, IBM, Oracle, etc.) leaders in SaaS are openly considering
these add-on ecosystems.
SaaS category leader diversification through the creation of add-on The overall PaaS market is largely
ecosystems dominated by Amazon Web Services,
Microsoft, Google, IBM and Oracle. For
Oracle PaaS is quickly becoming the
Increased demand for scalable infrastructure allowing for shorter primary mover of growth, even more so
development cycles than its SaaS functions. Its PaaS and IaaS
Q4 2017 revenue reached $497 million, an
increase of 40% compared with Q4 2016.
Increasing demand for ecosystems to support big data and machine While stand-alone PaaS companies
learning projects are still few in number there is a clear
indication that PaaS is due significant
investment in 2018.
Growing focus on seamless integration of cloud services and data streams
This is a result of rapidly increasing
demand to shorten product
development cycles and decrease
ongoing maintenance requirements.
This is further amplified by shortages in
development talent across the western
world and increasing costs associated
PAGE: 28 // 3 4
with large development teams required
to build and maintain cloud products
built on custom infrastructure.
An additional driver of PaaS growth is
the parallel growth of big data, fuelled by
investment and innovation in Machine
Learning and AI technologies. Big data
services are forecasted to grow 39.5%
annually on average until 2021.
PaaS will become a major aspect of
the enterprise architect’s arsenal to
complement their big data strategies and
custom project deployments. One model
of PaaS set to rise in popularity due to
the continued big data trend is Insight
PaaS. Forrester defines Insight PaaS, as
Legacy Model
rent/buy & setup hardware
install operating system
setup user access/permissions
build your solution
test security and stability
update & patch continuously
App
Figure 7 - Simplified model illustrating PaaS benefits
The So ftware Discov ery Platform
“An integrated set of data management,
analytics, and insight application
development and management
components, offered as a platform the
enterprise does not own or control.”
Insight PaaS makes it easier to manage
complex data sets, update applications,
upgrade technology and coordinate
team member activities.
Furthermore Integration Platform-as-
a-Service (iPaaS) will also be driving
growth in 2018, as demand for seamless
integration of data sources and diverse
cloud applications is demanded by a
large number of mid-market and SME
customers.
PaaS Model
just build your solution
App
PAGE: 2 9 // 3 4
SaaS and Cloud Startup Report 2018 | Crozdesk
Cloud Adoption Trends
Private, Public
and Hybrid Cloud
Environments
In 2017, the number of companies
adopting public and hybrid cloud
environments has increased
significantly, while adoption of private
cloud environments has stalled.
95% of respondents to the 2017
RightScale State of the Cloud survey have
adopted a cloud environment, public
cloud being the most popular model
year-on-year with an 89% adoption rate
among surveyed businesses in 2017.
Public cloud environment
Public cloud environments are provided
by third-party multi-tenant service
providers. Public cloud users can take
advantage of dynamic scaling and cost-
effective pay-as-you-go pricing models.
Private cloud environment
Private cloud refers to any environment
operated internally, that offers self-
service and on-demand resource
allocation. While adoption is falling,
it is still the environment of choice for
security conscious businesses.
Hybrid cloud environment
A hybrid cloud environment involves
weaving the private and public cloud into
one cohesive and seamless experience.
This enables businesses to benefit from
the scalability and cost-effectiveness
of the public cloud, whilst being able
to host sensitive and mission-critical
resources within their private cloud.
In 2018, we’re expecting public cloud
adoption to rise further. This will largely
be due to cost decreases associated with
public cloud infrastructure and increased
availability of PaaS technologies geared
PAGE: 30 // 3 4
The So ftware Discov ery Platform
89% 89% 91%
77%
72% 71%
68% 67%
65%
towards data science processes and
services for laggard enterprise and mid-
2018*
2018*
2018*
market businesses. their potential market through new
2016
2017
2016
2017
2016
2017
customer segments willing to look to
Enterprises moving to the cloud typically the cloud to improve their business
start with a hybrid approach, splitting processes on a grander scale.
their IT budgets between on-premise Public Cloud Private Cloud Hybrid Cloud
/ private cloud solutions and public The veracity and number of challenges
cloud environments. In addition, 20% of Figure 8 - Public, Private and Hybrid Cloud Adoption 2016-2017, perceived by potential cloud adopters
enterprises are planning to use multiple Source: RightScale 2017 State of the Cloud Report has declined. Whilst cloud security
public clouds in the near future - up from * Crozdesk prediction for 2018 remains the number one perceived issue,
16% in 2016. Despite being more difficult this is now only seen as a challenge for
to implement effectively, hybrid cloud 25% of businesses, sharing the top spot
strategies will continue to represent the The reason for the increase in public the public cloud, giving them access with “lack of resources/expertise” and
most popular enterprise cloud strategy cloud and decrease in private cloud to cost effective and reliable services, “managing cloud spend”.
in 2018. usage is also due to improving enterprise and infrastructure that was previously
confidence in the public cloud’s ability to unaffordable. This ‘grass-roots’ Companies are still trying to work
This is largely due to many enterprises’ handle secure and sensitive data. movement has shifted focus and raised out the best cloud strategy for their
unwillingness or inability to move market awareness, which in turn, business as they navigate the concept of
to public cloud environments over SMEs on the other hand have embraced benefitted SaaS vendors by widening multidimensional cloud services.
continued security and compliance
concerns. Those leading in new
technology adoption have generally
opted for hybrid cloud environments in
the past in order to be able to segment
data and services according to their
sensitivity and overall importance for
the organisation’s primary business
functions. Hybrid cloud strategies can
be complex in their implementation
however, and cost savings associated
with public cloud environments are
increasingly recognized for their bottom
line benefits, despite looming security
concerns. This is leading to an increased
shift towards the public cloud within
hybrid setups.
Pure private cloud environments are less
and less popular, due to their high cost
and operation requirements and will
continue to play less of a role than hybrid
and multi-cloud environments in 2018.
PAGE: 31 // 3 4
SaaS and Cloud Startup Report 2018 | Crozdesk The So ftware Discov ery Platform

Other Free Resources from

Sources
Live Market Infographics
Data Sources (used in models and analysis):
• Company records and trends from Crozdesk.com and the Crozdesk Vendor Portal
(retrieved November 2017)
and Vendor Radars
•

•
Company records and funding data from Crunchbase.com (retrieved November
2017)
Industry funding data from CBinsights.com (retrieved November 2017)
from Crozdesk
Reports:
• Building Trust in a Cloudy Sky, The state of cloud adoption and security, McAfee.com
(available here: https://www.mcafee.com/us/solutions/lp/cloud-security-report.
html)
• RightScale 2017 State of the Cloud Report, RightScale.com (available here: https://
www.rightscale.com/blog/cloud-industry-insights/cloud-computing-trends-2017-
state-cloud-survey)

Other Sources:
• Gartner Forecasts Worldwide Public Cloud Services Revenue to Reach $260 Billion
in 2017, October 2017 (available here: https://www.gartner.com/newsroom/
id/3815165)
• The Changing Faces of the Cloud (available here: http://www.bain.com/
publications/articles/the-changing-faces-of-the-cloud.aspx)
• Local Loyalty: Where Venture Capitalists Invest And Why, Crunchbase News (available
here: https://news.crunchbase.com/news/local-loyalty-venture-capitalists-invest/)
• Oracle Cloud Billings - Calculation of SaaS and PaaS Billings Growth, Q3 FY2017,
Oracle (available here: http://s1.q4cdn.com/289076952/files/doc_financials/
q3FY17/Q317_Cloud_Billings_03132017_FINAL.pdf ) View Online
• Oracle Earnings Preview: Analysts Expecting Another Quarter Of Strong Cloud Growth, crozdesk.com/infographics
Forbes.com (available here: https://www.forbes.com/sites/jjkinahan/2017/09/13/
oracle-earnings-preview-analysts-expecting-another-quarter-of-strong-cloud-
growth/#2c299cf07e20) Contact
• 2016 Pacific Crest SaaS Survey – Part 2, ForEntrepreneurs.com (available here: Crozdesk Research Team
http://www.forentrepreneurs.com/2016-saas-survey-part-2/) A: 83 Rivington Street, EC2A 3AY London,
• Total size of the public cloud Software as a Service (SaaS) market from 2008 to 2020 United Kingdom
(in billion U.S. dollars), Statista.com (available here: https://www.statista.com/ W: crozdesk.com
statistics/510333/worldwide-public-cloud-software-as-a-service/) E: research@crozdesk.com
• The Forrester Wave™: Insight Platforms-As-A-Service, Q3 2017, Forrester (available P: +44(0) 333 567 4242
here: https://reprints.forrester.com/#/assets/2/73/RES136245/reports

PAGE: 32 // 3 4 PAGE: 3 3 // 3 4
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