The Rebirth of Software as a Service
By Frank V. Cespedes and Jacco van der Kooij
For years, subscription Software as a Service (SaaS) was the fastest-growing business model for tech entrepreneurs and investors. The SaaS capital index peaked in 2021, crashed months later, and by year-end 2022 VC firms raised their lowest amount in a decade. But the reasons for that rise and fall have not been appropriately analyzed, and the implications hold lessons for other businesses for which a subscription model is a key part of growth plans.
Subscription businesses grew more than 300% from 2012–2018, about five times faster than revenues of S&P-500 companies. After the Covid-19 pandemic, SaaS offerings are moving up-market as firms encourage enterprises to add subscription offerings to their core product lines. This article discusses why the model grew, why it crashed in the tech sector, and the lessons for growth via that approach.
