Cloud Stocks and PaaS: Which SaaS Players Will Win in PaaS

At the end of 2020, I wrote Big Idea 2021: SaaS Companies Will Create 10 Million Jobs with the central thesis that SaaS players would evolve into PaaS to create deeper moats around their core market positions and gain access to the related force multiplier.

To recap on the assumptions:

• IF 1000 SaaS companies open up their platforms as a service, PaaS, as Salesforce.com does, by 2025
• IF each platform lets startups sell through its marketplace, as Salesforce.com does, by 2025
• IF each platform empowers 1000 startups to build on its stack by 2025
• IF each startup reaches $1M in annual revenue by 2030
• IF each startup hires an average of 10 employees by 2030
• 1000 startups x $1M in revenue on each PaaS platform/marketplace => $1B in total revenue for each platform ecosystem
• 30% platform fee => $300M revenue for the SaaS company that owns the platform
• $300M revenue => $3B+ in market cap gain for each SaaS player
• 1000 SaaS players x $3B+ = $3 Trillion market cap gain for the SaaS industry 

As you may have followed in the ensuing discussion, my assumption is that the trend would follow an 80:20 rule, with 20% of the SaaS companies becoming high performing PaaS players with robust developer eco-systems. In other words, around 200 companies would drive the industry trend forward.

My assumption is that these 200 companies have already achieved a certain scale, most likely, $100M+ in ARR.

It is, however, not the case that the top 200 SaaS players are currently ALL working on PaaS. Very few, in fact, have fully fleshed out PaaS strategies. Fewer actually have any developer ecosystem to write home about. I heard through my network that Twilio is generating $100M in PaaS ecosystem revenue. Shopify has about 4k developers, Atlassian has 25k. These are the frontrunners, besides, of course, Salesforce.

To assess which SaaS companies are likely to successfully transition into PaaS leaders, I use the following framework:

1. Is there critical mass in their developer ecosystem? 

PaaS needs developers. Developers come in various shapes and sizes. Lots of developers are sitting inside large companies and learning the technical capabilities of a platform, its APIs, etc. There are also freelancers with relevant expertise. Finally, there are small, entrepreneurial companies (including solo entrepreneurs running virtual companies), with the aspiration of becoming the next Veeva, perhaps.

Any SaaS player who wants to win in PaaS would need to have a strategy in place to nurture all three segments, especially the last of these categories: the small ISVs.

To get there, the first two categories of developers inside large companies, as well as the freelancers, need to be considered as a pipeline. There are many developers inside large companies who are Bootstrapping with a Paycheck. The freelancers have gigs, but often develop apps on the side.

Nurturing a developer community requires commitment and resources.

• Is there adequate training available?

Training comes in two forms: technical and business. There is considerable investment for a developer to build expertise on a platform. This journey needs to be made as smooth and as easy as possible. 

Equally important is the business training of the developers who have the aspiration of succeeding as entrepreneurs. Salesforce’s success hinged on the early realization of this need. They had an accelerator early on for their developer ecosystem.

• Is there a marketplace?

Entrepreneurs want customers. The draw of joining a PaaS ecosystem is being able to access customers. Having a robust marketplace strategy is the key to fluid customer engagement. Salesforce did this superbly with AppExchange, and Apple with its App Store.

• Is there startup funding available?

Salesforce and Apple have had dedicated venture funds for their developer ecosystems. They have also worked with other investors who have supported ventures germinating in their ecosystems.  

Currently, I see SaaS companies in various stages of evolution:

1. Very few have full blown PaaS strategies that fulfill all aspects of the above framework.
2. More have APIs that they’re using to integrate third party apps and trying to lure startups and ISVs to enrich their capabilities. Access to customers is often offered as the primary incentive for this category. It’s a good starting point.
3. Most do not have critical mass in their developer ecosystems.
4. Most do not have marketplaces.
5. Incubators, accelerators, venture funds and investor networks supporting PaaS strategies are extremely rare at this point.

So. 

This is where we begin 2021. 

I would love to work with SaaS players with serious PaaS ambitions.

It would be super interesting to track the progress of this trend through this new decade and contribute to its development.

Photo by Scott Webb on Unsplash

This segment is a part in the series : Cloud Stocks and PaaS