When we talk about software, you might remember those floppy disks or CD-ROMs you brought home to install the Windows OS or the newest antivirus program around. Now things are way easier: you don’t even have to install and run the software. All you need is an internet connection, a subscription, and a web browser to access it: yer a wizard, Harry.
SaaS is now a huge market. The Cloud 100, a yearly ranking of the top private cloud companies made by Bessemer Venture Partners, Forbes, and Salesforce Ventures, shows that they're worth US$ 500B, close to 20% of all the world’s unicorns combined. As the billionaire hedge fund manager Ray Dalio said this year, “SaaS is entering a new future”.
The thing is: whether we're talking about software on floppy disks or in the cloud, there's a high chance they come from the same place. 80% of the top 100 global SaaS companies are still located in the US. 66% are only in Silicon Valley.
Luckily, and by that we mean after a lot of work, things are changing and SaaS is having its best moment ever in Latin America. We've shown that in detail on our newest The LatAm Tech Report (which you can download for free, btw).
Want a glimpse of that? We've got you covered.
Even before the covid-19 pandemic, the ever-growing ease of using software was already expanding the SaaS industry at a rapid rate. We can explain what exactly this ease means with three key differences from the past of SaaS. Software is now accessible, convenient to set up, and a driver of higher engagement. What's not to love?
Software “in the cloud” can be accessed from anywhere with an internet connection and a computer with a web browser. There's no restriction on location or device.
This leads to advantages such as improvements in the core functionality of the software, by enabling automatic upgrades whenever needed, and cost-efficiency, by not needing a physical supply chain.
Accessibility is a huge advantage not only to the software's users. It's an advantage to the whole market, making product development and delivery more sustainable.
Software installation time has been reduced from several weeks to a few minutes. And like accessibility, the convenience of setup might seem to you like another nice-to-have. But this actually delivers high strategic value.
Before, it was the IT department's work to install certain software on a system and do the manual setup. Now it’s a minute's work - each user can open their browsers, login, and use the services without a hitch.
That's a lot of costs saved for the stores that offered software installations to their customers, or companies that needed to hire employees just to do that boring, boring chore.
We all have been there once: frustrated because that software is so old that nothing gets done. The good news about the growth of the software as a service industry is that competition begets improvement.
SaaS solutions are designed to be feature-rich while improving their customers' experience. Users get easily motivated to not only stay in that software but also to allow integrations with different software.
In a work environment, that means a higher level of employee engagement – and this proved to be highly useful for remote work during Covid-19. That's one of the reasons why the HRM (Human Resource Management) segmentation of SaaS has the highest market share.
The Covid-19 pandemic just accelerated the natural trend of SaaS growth, with a growing demand for systems that made online life possible. But exactly which segments inside SaaS most benefitted from the changing habits?
As we've mentioned, remote work bolstered human resources management software. Working from home also benefits solutions in segments that range from cybersecurity to resource planning (ERPs). Just to keep it between us Latinos, it's no wonder that Brazilian startup unico raised its Series D this year, and that solutions like Conta Azul and Omie keep growing in the same country.
Other softwares that have benefitted from living online are the e-commerce enabling ones. In Latin America, e-commerce grew 63.3% in 2020, the first year of the pandemic, in comparison to 2019. Back in December 2019, projections pointed to a 12.5% growth. SaaS companies such as the Argentinian Nuvemshop and the Brazilian Olist gained important momentum even after the worst moments of the pandemic – both raised large rounds and became unicorns in 2021.
The startup ecosystem is relatively new in Latin America. But with growing internet connectivity in the region, it has kept up with global trends. LatAm’s largest market, Brazil, has created as many unicorn startups in 2022 as it had in the past 20 years.
And not only that. In some cases, we even went beyond global trends and drove innovations from the inside out. Consumer fintech is the best example of that, but our SaaS startups are also on the move. Why is that?
Firstly, we have a massive population of entrepreneurs and they have been seeing growth in their businesses because of SaaS. Software needed to be built in the region to better help these entrepreneurs face local challenges, from accounting and invoicing to inventory and shipping.
Secondly, with the pandemic, many SMEs went online out of necessity. They need affordable and effective software solutions now more than ever. André Baldini, CEO of Superlógica, says it better:
“SaaS companies that sell to SMEs understand the pain of these companies better and have managed to address real problems with solutions that make sense for the day-to-day of these businesses. With this, they can build closer relationships that allow greater experimentation.”
And boy, do we need experimentation to explore all the challenges LatAm has, and by that we mean opportunities.
This leads us to our third factor: in comparison to more mature SaaS ecosystems, we have low costs of development and a lack of competition between local players. That means more space for affordability and experimentation.
(We're approaching global standards more and more, though, so seize this opportunity while you can.)
The following graph shows the growth in revenue of SaaS only in Brazil:
Back in 2017, SaaSholic, Rock Content, Signal Hill, and Redpoint eventures interviwed a bunch of SaaS CEOs and concluded some of the key factors of the SaaS landscape in Brazil:
Brazil's in order to gain a larger market share of the SaaS market in the next years, as per The LatAm Tech Report. Annual SaaS spending in the country was € 1.5B in 2020, around 1.6% of that of the USA. By 2025, the SaaS market size in Brazil is expected to triple to € 4.5B, or 2.4% of the USA's for the same year. That means we'll take a bigger piece of the pie in the future.
Using Brazil as a proxy, the numbers show that LatAm was already in a good and growing position for SaaS – and then took full advantage of the growth acceleration opportunity offered by the changing habits due to covid-19. Excluding Brazil, LatAm’s SaaS market size in 2025 would range from € 2B to € 3B.
Latin American countries have been in the market for a good time now. With all the factors that are leading to an acceleration in this industry's growth, SaaS startups in LatAm are predicted to evolve drastically in a short period – especially those in segments with less global competition and more need for localized solutions.
Now that you know why software as a service is at its best moment in Latin America, want to know exactly which SaaS segments have strong or weak competition in LatAm, and what challenges Latin American founders in the industry will face in the future? Download The LatAm Tech Report.