August 13, 2020

Cutthroat COVID economy threatens SaaS investment boom

COVID has seen vast changes in companies' budgets, and 80% of them say these cuts won't be reverting back anytime soon. Yet, over half of businesses worldwide have spent the same or more on SaaS products during this period.

More and more businesses have stepped up their efforts to operate completely digitally, and this has seen SaaS companies across Europe start to rival US household names.

 

But with an initial boom of investment, tightened belts and permanently closed doors may cause a harsh drop in demand.

 

Some SaaS start-ups rely solely on industries that continue tosuffer heavily under an economy facing the global pandemic.

 

With widespread redundancies and many SaaS clients having to account for employees returning from the furlough scheme, the segments within the SaaS market are becoming more defined, as growth continues to noticeably differ.

 

This means the futures of some areas are emerging as more stable than others.

 

A clear frontrunner in the B2B market is cloud computing. Make-shift virtual offices have meant cloud software-as-a-service brands havehit record stock prices, in contrast to most other industry-wide trends.

 

Typeform, for example, have seen much more traffic fromsectors that have never typically used cloud computing solutions. Increasedusage from industries such as education has accounted for much of the upturnthat SaaS brands are currently experiencing.

 

This is, however, is contrasted with those operating withinstruggling industries. Lisbon’s Unbabel, selling AI-powered translationsoftware, was forced to let go of 80 employees, over a third of its staff,following the departure of the majority of clients in the travel sector.

 

Despite uncertainty, it’s apparent that VC rounds are stillin full effect. Bloobirds, the B2B sales prospecting software-as-a-service,raised €3m recently.

 

Co-founder and chief executive, Javier Darriba, speaks of the efficiency that social distancing restrictions have brought upon the process, and the dwindling relevance of face-to-face sales. “They can do it remotely… I think this is the new approach of digital sales,” he says, speaking to Sifted.

 

The notable cases of upturn and the overall digitisation ofmore traditional industries drives optimism amongst investors and the sector asa whole, yet might not tell the entire story.

 

For education and cloud computing, for example, it will be interesting to see whether institutions revert to more traditional methods,when students return to in-person teaching.

 

Current figures reflect an adapting landscape, one thatthrusted businesses into fast, remote solutions. Once these SaaS clients review expenses and return to “normal”, SaaS services could not be deemed essential in the eyes of many. Those persisting with the sentiment of “we’ve always done it this way” have been forced to change, and it’s likely they’re looking forward to changing back.

 

Even more agile, innovative SME clients are naturally suffering from recession and a lack of certainty moving forward. For most, it will come down to what is necessary to the way a business operates. What’s coming next is a wave of automation, and SaaS brands facilitating this wave will be the ones that come out on top.

 

The fact is, in the coming months, some companies will be ina better position than others, and SaaS brands and tech buyers need to be prepared for a shift in traffic when the dust settles.

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Dom is a writer and marketing analyst who has a passion for advertising, branding and copy with all the creativity that comes with it. Part of De Montfort University's class of 2020, he earned a First-Class degree.

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