IT procurement used to represent a significant capital investment for businesses, in terms of both hardware and software. Rolling cycles of hardware refreshes ensured that workers had devices that could handle their needs, while software licenses were procured on a per-user basis and replaced or upgraded when new versions were released.
But that system lacked flexibility - if a business invested in software licenses for workers who then left, those licenses would lay dormant with a real cost associated with them. That lack of flexibility went both ways, too, with temporary staff needing software licenses procured, even if they were only in the business for a matter of weeks.
Software-as-a-Service (SaaS) changed all that, moving software from the CapEx column to OpEx, while also delivering that much needed flexibility. At its most basic level SaaS is a system of renting or leasing software licenses, allowing businesses to make use of the software for as long as they need it through an ongoing subscription, rather than a significant initial outlay. So those temporary workers who will only be around for a couple of months, will only cost the business two months’ worth of software subscriptions for the applications they need.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Switching to a SaaS model has also delivered tangible benefits to the software developers and publishers. There was a time when piracy was a major issue for huge software companies like Microsoft, with its Office productivity suite one of the most pirated applications on the planet. But with Office now part of a SaaS offering in the shape of Microsoft 365, the cost of entry is far lower, and the benefits of an official subscription far outweigh the attraction of pirated or hacked versions. Plus, those Microsoft 365 subscriptions also ensure that every user is on the latest version of the software, with ongoing updates and security patches rolled out automatically.
Similarly, Adobe’s Creative Suite used to command a significant capital investment, and that investment would roll around again whenever new versions of the applications were released. But with Adobe’s Creative Cloud SaaS offering, businesses and individuals can subscribe to the applications they need on a monthly basis, making software that was previously out of reach a reality. Why look for a cheaper application that can do most of what Photoshop does when you can just subscribe to Photoshop instead?
But traditional software powerhouses transitioning to a SaaS model is only part of the story, because the software world is now dominated by developers who have never worked any other way. And if the unprecedented events of 2020 have shown us anything, it’s that technology and specifically cloud-based SaaS platforms have kept the world turning, and industry working.
Communication and collaboration applications and platforms have become the lifeblood of remote working under the shadow of a pandemic - SaaS solutions like Slack, Zoom and Dropbox have kept us connected, productive and effective while working remotely, and now that we’re used to working this way, they’ll likely become staples in a post-Covid world.
That SaaS model works across any number of industries and applications, too. Cloud-based accounting platforms like Quickbooks from Intuit allow small and large businesses alike to keep on top of their finances from anywhere and at any time, while app-based telephone solutions like RingCentral have done away with traditional PABX systems, allowing users to make and receive calls from almost any device with an internet connection.
With businesses and consumers alike adopting SaaS as the preferred method of buying and using software, this market is only set to grow, making it an attractive investment opportunity. But technology moves fast, and today’s innovative startup could be tomorrow’s boom and bust story. Thankfully CMC Markets can take some of the worry out of the equation with its SaaS share basket, which rounds up some of the biggest players in the sector including Microsoft, Salesforce, Adobe, Slack and Zoom, spreading exposure over a carefully curated collection of companies. If you’re looking to ride the SaaS wave and invest in this innovative technology sector, CMC Markets can help.
To find out more about share baskets and test run a demo account, head to the CMC Markets website.
Disclaimer: Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
