Connect with us

Technology

Why Tech Investors Love the SaaS Model

Published

on

Why Tech Investors Love the SaaS Business Model

Why Tech Investors Love the SaaS Business Model

Investors love businesses that have a reputation for minting cash.

And as far as tech companies go, the Software as a Service (SaaS) model is as good as it gets. It provides predictable, quantifiable, and fast-growing revenue for any company that can execute correctly – and everyone from venture capitalists (like Marc Andreessen) to asset managers (like Blackrock) love investing in companies with these traits.

Today’s infographic from TIMIA Capital explains why this is the case.

What is SaaS?

Unlike in years past when software was bought in a physical form at a store, much of today’s software runs right off the cloud.

This is made possible by ubiquitous broadband access and powerful computers – and SaaS allows users to consume software in a different way:

  • Customers connect to the software online
  • Customers are charged on an ongoing subscription basis for access
  • The latest version of the software is automatically provided to the user

SaaS has immeasurable benefits over traditional software distribution models.

  • It can be used everywhere, including on mobile
  • It has easy integration with plug-ins or add-ons
  • There is no overhead, packaging, or distribution costs
  • It limits piracy
  • It has a flexible and clear licensing model
  • Software is always up-to-date
  • User data can be collected and new features can be tested easily

While the benefits of SaaS to the end user are plenty, it has even more interesting properties as an investment.

SaaS Economics

Instead of relying on one-time transactions or upfront fees, SaaS is built around smaller, subscription-based transactions that recur each month or year.

Recurring revenue makes SaaS extremely predictable, measurable, and built to scale.

Unlike some other types of startups, measuring performance in SaaS is heavily focused on growing important metrics like LTV (lifetime value) or MRR (monthly recurring revenue), while minimizing CAC (customer acquisition costs) and churn (the rate at which customers stop buying the product).

As a result of the inherent attributes of the SaaS model, the industry has been exploding with growth. The BVP Cloud Index, which tracks 56 publicly traded cloud companies, is up 396% since 2011. That easily beats out benchmarks like the Nasdaq, S&P 500, and DJIA by triple digits.

Other Reasons to Love SaaS

Aside from performance, here are a few last reasons that elite investors love SaaS:

Costs go down: As SaaS businesses scale, the cost of servicing each customer goes down. In the long run, this helps lead to a growing, predictable cash flow.

Buyouts: It’s common for SaaS businesses to get gobbled up by the bigger fish in the pond, which often offers investors a premium on the current stock price.

Low Barriers: The SaaS model has erased barriers to entry for software, allowing new entrepreneurs to enter the fold in almost every niche possible. This creates a wide array of new opportunities for investors, as well.

Click for Comments

Technology

Visualizing AI Patents by Country

See which countries have been granted the most AI patents each year, from 2012 to 2022.

Published

on

Visualizing AI Patents by Country

This was originally posted on our Voronoi app. Download the app for free on iOS or Android and discover incredible data-driven charts from a variety of trusted sources.

This infographic shows the number of AI-related patents granted each year from 2010 to 2022 (latest data available). These figures come from the Center for Security and Emerging Technology (CSET), accessed via Stanford University’s 2024 AI Index Report.

From this data, we can see that China first overtook the U.S. in 2013. Since then, the country has seen enormous growth in the number of AI patents granted each year.

YearChinaEU and UKU.S.RoWGlobal Total
20103071379845711,999
20115161299805812,206
20129261129506602,648
20131,035919706272,723
20141,278971,0786673,120
20151,7211101,1355393,505
20161,6211281,2987143,761
20172,4281441,4891,0755,136
20184,7411551,6741,5748,144
20199,5303223,2112,72015,783
202013,0714065,4414,45523,373
202121,9076238,2197,51938,268
202235,3151,17312,07713,69962,264

In 2022, China was granted more patents than every other country combined.

While this suggests that the country is very active in researching the field of artificial intelligence, it doesn’t necessarily mean that China is the farthest in terms of capability.

Key Facts About AI Patents

According to CSET, AI patents relate to mathematical relationships and algorithms, which are considered abstract ideas under patent law. They can also have different meaning, depending on where they are filed.

In the U.S., AI patenting is concentrated amongst large companies including IBM, Microsoft, and Google. On the other hand, AI patenting in China is more distributed across government organizations, universities, and tech firms (e.g. Tencent).

In terms of focus area, China’s patents are typically related to computer vision, a field of AI that enables computers and systems to interpret visual data and inputs. Meanwhile America’s efforts are more evenly distributed across research fields.

Learn More About AI From Visual Capitalist

If you want to see more data visualizations on artificial intelligence, check out this graphic that shows which job departments will be impacted by AI the most.

Continue Reading
Visualizing Asia's Water Dilemma

Subscribe

Popular