The SaaS market is projected to grow from $317 billion in 2024 to $1,228 billion in 2031. The widespread adoption of cloud computing is one of the most significant drivers behind this upward trajectory. According to a SaaS industry report, in 2023, organizations around the world used approximately 130 SaaS solutions for their operations. The North American region and the United States particularly is the home of some of the biggest SaaS companies and hold a major share of the Software-as-a-Service market.
USA SaaS industry overview
In 2023, the United States market held around 55% of the global SaaS market. The main factors behind United States SaaS market growth are advanced IT infrastructure, strong tech ecosystems with both industry leaders and startups, and top cloud computing services (AWS, Google Cloud, Azure) located in the country.
The most prominent SaaS providers are located in the USA. Microsoft, Adobe, Oracle, Google, and Salesforce, among others, offer a wide range of SaaS apps, from CRM systems and enterprise resource planning software to productivity tools and cloud services. Innovative startups are emerging regularly, but industry reports indicate that in a competitive and saturated market, we can see an increase in mergers and acquisitions.
USA SaaS market size and growth
By the end of 2024, the USA SaaS market is projected to reach $160 billion. The growth of the SaaS sector in the United States economy from 2023 to 2024 is 14%. According to forecasts, by 2027, the Software-as-a-Service US market will reach $225 billion with annual growth at a 12-15% rate. The SaaS industry attracts venture capital, and companies of any size continue to secure funds on a regular basis. The biggest adopters of Software-as-a-Service applications are healthcare, finance, education, e-commerce, and real estate industries.
There are several key drivers behind SaaS industry growth:
- Cost-efficiency. While using cloud-based solutions, organizations eliminate the need to hardware and on-premise infrastructure costs. With a subscription-based model used in SaaS, companies of all sizes can benefit from high-quality software without significant upfront investments. SaaS adoption by small and medium businesses lead to increased market growth.
- Remote work. Remote and hybrid work environments became a much more popular option in recent years. Customer demand for project management cloud-based software, virtual meetings tools, and collaboration platforms grew significantly. SaaS-based application development helps software companies to meet this demand.
- Scalability and flexibility. Software-as-a-Service cloud platforms provide better scalability for businesses with changing numbers of clients or growing companies. Subscription model allows organizations to scale costs and manage usage according to their needs, which is a key factor for budget-conscious startups that choose between SaaS and on-premise software.
- Digital transformation. Ongoing digital transformation in many industries requires companies to look for feature-rich software solutions. Instead of developing custom applications and investing in ongoing maintenance after launch, many companies choose SaaS tools instead.
These factors ensure ongoing revenue growth for the near future. However, there are some challenges and constraints:
- Security concerns. SaaS security is a serious concern for vendors. Customer data stored in the cloud can become a target for cyber-attacks and be accessed by malicious actors. These breaches can lead to significant financial losses, lawsuits, and reputational damage. Software-as-a-service providers in the USA increase investments in cyber security to avoid these repercussions.
- Regulatory compliance. SaaS businesses need to ensure compliance with local and international data protection laws and regulations. These include GDPR, HIPAA, FTC Act, and state laws. Regulatory compliance requires employee training, constant monitoring, and the development of clear data privacy policies.
- Competitive market. The USA SaaS industry is highly saturated and competitive, with many industry leaders and emerging startups fighting for customers. This competition may lead to pricing changes, reduced profit margins, and difficulties in customer retention.
Key SaaS trends
Software-as-a-Service market growth is associated strongly with technological advancements and new methodologies that impact the industry. Here are the key SaaS trends 2024 and beyond:
- Artificial intelligence and machine learning. AI and ML technologies enhance SaaS solutions functionalities, including data analytics, automation, and user experience personalization. AI-powered chatbots and virtual assistant integrations enable organizations to significantly improve customer support. New APIs and open-source AI models will enable smaller SaaS providers to leverage these technologies to improve their applications.
- Vertical SaaS. SaaS industry trends indicate that there is an increasing demand for industry-specific products. Vertical SaaS solutions are tailored to the unique needs of different industries, provide specialized features, and enable companies to ensure compliance more efficiently. In the future, we will see more SaaS applications developed specifically for healthcare, finance, real estate, retail, and other industries.
- Micro-SaaS. With many widely used CRM, ERP, project management, and remote collaboration tools used by millions of customers, established SaaS market services providers sometimes overlook more specific niches and audiences. Micro-SaaS approach refers to solutions that focus on providing highly specialized features for specific problems. It allows smaller providers to find their market niche and compete with established vendors. With the growing number of SaaS tools used by organizations daily, micro-SaaS applications will continue to find their audiences.
- Low-code and no-code platforms. These platforms allow users with little to no programming expertise to create software solutions. This democratization of the software development industry will lead to more SaaS platforms being developed by small businesses with no resources for hiring a tech team and can become one of the main drivers behind future market growth.
- Green SaaS. We witnessed a growing focus on sustainability and carbon footprint reduction across various industries, especially in North America and Europe. SaaS providers adopt green practices, such as using renewable energy for data centers and offering solutions for reducing environmental impact.
- Hybrid cloud. This approach to IT architecture integrates private cloud and on-premise infrastructure with public cloud servers. This setup provides organizations with more flexibility, deployment options, and optimized infrastructure. Companies in many industries leverage the hybrid cloud to store sensitive customer data on-premise and use the public cloud for various tasks that require processing power.
Wrapping up
The Software-as-a-Service model is becoming more popular due to advancements in cloud computing and increased demand for high-quality software solutions. The United States contributes more than half of the market’s revenue growth and is a home for the majority of industry leaders. With advanced IT infrastructure, a strong tech ecosystem, and venture capital available, we can expect that the USA will retain its leading position in the near future.
