David Cummings on Startups

Lack of SaaS Consolidation

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David Cummings

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Villi Iltchev has an interesting post up titled Why SaaS Consolidation is Not Happening. As more and more money has been invested in SaaS over the past 10 years, the logical expectation is that there would be a corresponding number of exits. Only, the number of material SaaS exits has been relatively small.

Here are a few of the challenges with SaaS consolidation as enumerated by the author:

  • Supporting and scaling multiple clouds is daunting.
  • Customer Success is the vendor’s responsibility in SaaS.
  • Distribution in SaaS is much less impactful.
  • Sales productivity does not get better.

I agree and expect to see a number of small-to-medium SaaS companies rolled up over the next five years (see What Happens to Small SaaS Companies). Once the 10 year horizon is done for venture funds, and a number of their SaaS investments are only growing modestly, look for a number of exits to private equity firms that will roll them up and maximize cash flow.

What else? What are some other thoughts on the lack of SaaS consolidation?

Comments

One response to “Lack of SaaS Consolidation”

  1. Bobby Norwood Avatar
    Bobby Norwood

    Having recently been a part of one of these (and then another), I know the pain very well. In our case, product integration (scaling multiple clouds, more broadly) was a massive challenge. The market is full of products that are clearly cobbled together and work with varying degrees of success. I’m not saying this is halting transactions, but I would argue that is affects the realized returns on consolidation.

    Upon further reflection, there is likely a great business opportunity to assess, triage and then correctly integrate platforms built by different teams with different philosophies. Having seen the pride of authorship that always exists on all sides, a third party would have been preferable to arbitrate and then execute.

    Reply

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