This Sector Sees Rising Demand As Companies Go Remote

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Posted: Apr 17, 2020 12:34 PM
This Sector Sees Rising Demand As Companies Go Remote

Source: AP Photo/Mike Householder

All around the world, stock markets are diving amid the coronavirus-triggered global slowdown. There are few industries that seem to be coronavirus-repellent, and the software-as-a-service (SaaS) sector is arguably leading the charge. It’s hard to say that the SaaS industry as a whole is on the rise, but the signs are there that it’s performing better than the rest of the market. 

COVID-19 has flatlined revenue indefinitely for entire swaths of the business ecosystem. It’s hard to find an airline that isn’t in financial difficulties. Hotels and tour operators have all been forced to close their doors. The (non-virtual) entertainment and events industry is largely sunk, with conferences canceled, parties postponed, and restaurants and cafes in major urban centers all either closed or operating on a takeout-only basis.

The retail sector has been hard hit across the board. Supply chains are damaged, logistics are disrupted, and a global slowdown leaves people with less disposable income. Stay-at-home lockdowns and restrictions on the number of people who can be in the same space have brought brick-and-mortar retail to its knees. Ecommerce is limping along, affected by the same global slowdown concerns and disrupted supply chains. 

The manufacturing industry is likewise experiencing difficulties. The logistics disruptions and lower demand due to the slowdown have taken their toll, plus factories have encountered challenges sourcing parts that are typically made in China. 

The Silver Lining Is in the Cloud

The SaaS sector is showing more signs of resilience and rising demand, while everywhere else is showing extreme volatility. Comparing the Nasdaq Emerging Cloud Index, which tracks the performance of cloud software companies, with other indices, shows that it’s dropped far less over the last week than the NASDAQ or the S&P 500. It’s rallying more rapidly, too.

Source: Bessemer Venture Partners

Many experts have noted that SaaS stocks generally outperform others during a volatile stock market. Some SaaS companies have even boomed, with companies like Shopify, Paycom Software, RingCentral and DocuSign among Q1’s top-performing stocks. Zendesk, Salesforce, Zoom and Workday were all strong performers before the coronavirus hit. 

US Senator Kelly Loeffler of Georgia, who is under suspicion of insider trading using her early knowledge of the coronavirus, is reported to have made only two purchases, one of them in Citrix, which produces teleconferencing software.

Part of SaaS’s strong showing is due to the nature of the sector. Unlike other industries, SaaS depends very little on physical logistics. Unlike oil and gas refineries, for example, tech companies are more able than most to work from home successfully. Subscription-based tools, web apps and other cloud-hosted software products are enjoying the silver lining to COVID-19, largely thanks to the sudden uptick in remote working.

Remote Working Keeps SaaS Afloat

Initially, individual requirements to quarantine and self-isolate forced companies to make arrangements for certain employees to work remotely. Then cutbacks to public transport, widespread fear of infection, and shelter-in-place laws made remote working the rule rather than the exception, forcing everyone to work from home if they wanted to work at all. 

By mid-March, Facebook, Google, Oracle, Spotify, and more had implemented remote work policies. 

This effectively forced businesses to embrace SaaS. “Although the technology to support large-scale remote work is nothing new, companies without a material remote workforce are unlikely to have invested in the infrastructure to the extent they can easily absorb a massive increase in the remote workforce,” Gartner’s Gregg Siegfried told one journalist via email.

Indeed, these newly telecommuting-friendly businesses have turned to SaaS to bridge this gap. The impact can be seen in the surge in users and stock price of 112% for Zoom video in the last couple of months, in defiance of the global downturn – although the company has more recently come under fire for shoddy privacy practices, prompting many to seek alternatives.

ClickMeeting, for one, saw 400% growth in users over the course of March 2020, expanding its server stack’s capacity by over 60%. The company has also benefited from some positive press since the start of the crisis, pledging to offer hospitals and government organizations free access to the platform.

“This way, doctors will receive a free and professional tool for efficient and real-time communication with each other, to run meaningful consultations and share documents,” Simon Grabowski, the company’s CEO, told Forbes.

But why all this growth in SaaS, as opposed to other forms of software? Generally, companies have relied on legacy enterprise applications that are fine in-house, but have very high latency when used remotely, so they use web apps to replace or sidestep them. And then there’s the advantage of self-service adoption. Whereas on-premises, lifetime-license software for businesses often involves cumbersome processes to obtain corporate stakeholder sign-offs and to configure all of the technologies required, line-of-business SaaS users can simply start enjoying enhanced productivity within a few clicks.

“SaaS solutions like ours, which are so easy for individuals to try out on their own, can make a big difference for keeping people working while cooped up at home,” said Markus Mikola, CEO of ContractZen

“In March we onboarded two times the number of new users that we usually see. We also recently rolled out a new integration between our meeting management solution and Microsoft Teams, a platform which reported enormous growth last month, so there's definitely growing demand for software that keeps your remote meetings organized and collaborative.”

Indeed, the benefits of business SaaS are unlikely to be negated once we figure out what will happen after the crisis. It’s entirely possible that SaaS companies will be permanent beneficiaries from COVID-19. “The coronavirus is going to be a tipping point,” said Kate Lister, president of Global Workplace Analytics. “We plodded along at about 10% growth a year for the last 10 years, but I foresee that this is going to really accelerate the trend.” 

SaaS Tools Will Be the Last to Be Let Go

Over the last few years, SaaS tools have established themselves as vital for every business, which also explains their relative stability in today’s volatile market. Cloud infrastructure services like AWS and Google Cloud, for example, are seen as essential. While not every SaaS startup is going to come out the right side up, those which have made themselves indispensable will reap the benefits. 

Salesforce is a notable example. Salesforce manages almost every business-consumer interaction, including sales, marketing, and customer service, and runs a cloud platform too. It’s top of the list for investors and financial advisors today.

Zendesk is similarly critical to business users. Its primary strength is in streamlining customer support operations, which is even more important now that customers are in short supply. Like Salesforce, it’s not likely to hemorrhage users in a hurry. 

Likewise, Workday is the primary engine for HR and back-office finance in numerous large enterprises, making it difficult for users to cancel their subscriptions or switch to a different provider. Its customer base of larger corporations are also more likely to remain solvent than SMBs. 

SaaS May Be COVID-19’s Great Survivor

As one sector after another tumbles down the stock exchange, SaaS might be the biggest beneficiary from COVID-19. Thanks to its lack of reliance on logistics, in-person customers, or a physical supply chain, it’s been harmed less by the direct impact of the coronavirus. 

Additionally, SaaS tools have been helped by the global shift to remote working, and made themselves indispensable enough that they’ll be at the back of the line when it’s time to cut costs. There’s no such thing as a safe bet in the stock market, but the SaaS sector is doing better than most.