Businesses around the world continue to migrate from proprietary licensed software to Software as a Service (SaaS) subscriptions as they seek innovation, better user experience and lower costs, according to a report released by Information Services Group (ISG).

The global market report finds that business SaaS demand is rebounding after a slowdown caused by the COVID-19 crisis. A 21% growth in the value of combined SaaS and infrastructure-as-a-service (IaaS) annual contracts is expected in 2021.

“Businesses across industries are adapting their systems to take full advantage of digital capabilities,” said Bill Huber, ISG Partner, Digital Platforms and Solutions.

“SaaS has been gaining traction for several years as companies use it as a springboard for new digital initiatives, and we believe demand will continue to grow this year as a solution for both back-end and front-end applications. “

Businesses increase spending on core business applications

Companies are expected to increase their spending on core business applications such as enterprise resource planning (ERP), human capital management, and customer relationship management, which are increasingly delivered and billed as SaaS subscriptions, according to the report. These types of apps help businesses keep operating during disruptions such as the COVID-19 pandemic.

Over the next 12-18 months, companies are expected to launch major projects aimed at business continuity, centralization, cost optimization, and greater collaboration and visibility. They are expected to adopt SaaS solutions for an even wider range of applications.

Demand is increasing for vertical SaaS solutions aimed at specific industries. Vendors focus on developing pre-built integrations for specific industries and meeting key performance indicators (KPIs) for each industry. The pandemic has sparked particularly strong demand for vertical SaaS solutions for supply chain management and ERP, according to the report.

Main drivers of SaaS growth

One of the main drivers of SaaS growth is the availability of modern application programming interfaces (APIs) for easy integration. APIs allow channel partners and integrators to easily combine sets of applications to meet the needs of specific customers. This shortens the time to market for new offerings, allowing vendors to focus on their core capabilities and develop features that set them apart.

The report also sees mobile app personalization as a key trend for SaaS providers looking to deliver a superior user experience, with built-in machine learning and artificial intelligence to deliver better insights through mobile dashboards.

As the SaaS market has a growing number of players, including small niche providers, industry consolidation to increase scale is expected to continue, according to the report. Almost all of the companies covered by the report have acquired smaller suppliers in the past three years.

When considering SaaS providers, customers should consider the chances of acquiring the business and be mindful of support options.