Why Cloud is the Center of Gravity for Enterprise Software

Techonomy is undertaking a major project to identify and honor cutting-edge cloud companies.

When most people think about tech businesses and the changes they bring to society, the first thing that comes to mind is big consumer-facing companies like Amazon, Apple, and Uber. And certainly those companies, their founders, and their innovations have a huge impact on the world.

But as vast and groundbreaking as those companies are, many of the most significant changes tech is bringing to society flow instead from so-called B2B software companies–those that primarily sell to and provide services to other businesses. That’s why Techonomy has embarked on a major project to identify and celebrate an entirely new development in technology–the importance of cloud-based, or “software-as-a-service” for business.

Business tech has long had a pioneering role, and in computing’s early years was pretty much the whole story. And even as tools for individuals emerged, they did so first in business. Today, even schoolchildren know how to use spreadsheets, but when that technology was first introduced in the late 1970s, it created a revolution in how companies handled data, first in finance but spreadsheets quickly became popular in numerous sectors. More recently, most workplaces have been substantially propelled forward by B2B companies like Salesforce, Slack, or AWS. Directly or indirectly, they make companies–and society–more efficient and productive.

Within the last decade or so, B2B software has been almost completely overtaken by a concept that was profoundly innovative both as a technology and as a business model: Software as a Service (SaaS). (Salesforce, Slack, and AWS are three especially prominent examples.) But the vast import of the SaaS revolution is, I would argue, underappreciated. Ten years ago, veteran venture capitalist Marc Andreessen declared that “software is eating the world.”  He could hardly have been more correct—but too little attention is given to *how* software ends up dominating our world. Think of it this way: In the not-so-distant past, a B2B software company like Oracle could easily charge seven figures to build and install a corporation’s database, and then tack on additional fees a few years later to manually update it. A consumer-facing company like America Online sent tens of millions of computer disks through the United States Postal Service to tempt the masses to install its software.

Those delivery methods now seem as obsolete as a fax machine. Effectively all enterprise software is today provided through the cloud, while consumer software is delivered through an app–itself connected to a cloud service. Most enterprise sofware companies are SaaS companies, and all SaaS companies are cloud companies. The SaaS/cloud revolution has been driven by two crucial insights: 1) Connecting through the cloud allows for constant, seamless updating. People below the age of, say, 40 probably have no idea how clunky, time-consuming and expensive it used to be to have to physically install new versions of software on your computer or computers, particularly if you were a business of a certain size. The cloud has made this process almost infinitely easier because now the vendor does it for you, on their own cloud server computers. 2) SaaS makes the pricing of enterprise software far more rational, to the satisfaction of both producer and end-user. The inefficiencies of pre-cloud enterprise software were paid for almost entirely by the business customers themselves. By breaking down software into a product that can be tailored and priced for a specific number of users and charged for by the month (or whatever time unit), SaaS introduced an irresistible flexibility into enterprise software, without compromising profitability for its makers. Not only that, but it guaranteed an ongoing future revenue stream of subscription revenue for cloud companies, making their financial results far more predictable.

Indeed, SaaS companies are becoming more valuable at an almost shocking pace. According to Pitchbook, in the first quarter of 2021 the median valuation for a venture-backed, late-stage enterprise tech firm was $15 million—up 50% in a single quarter.  

For all these reasons, we are excited to announce the first-ever Techonomy Worthy 100 Cloud Companies list, to be published this fall. It will honor the most successful and promising players in this model that has overtaken software delivery for now and the foreseeable future. We are specifically focusing on those companies with a valuation below $1 billion, in order to showcase companies that are not household names—yet. And simply being a good business is not enough to feature on our list. We are also screening for “worthy” companies that are benefiting all stakeholders, not just raking in profits. Our list will especially celebrate companies that are, for example, diverse in their employee and managerial ranks, engaged in their communities, and consciously working to reduce their environmental impact.

One fascinating insight that our list will clearly reveal: the traditional way of thinking about SaaS is no longer valid. The popular conception has primarily focused on database or storage services delivered through the cloud, most notably Amazon’s AWS cloud service. But today, SaaS touches every aspect of business and society: health care, construction, education, travel, hospitality, government, etc. Moreover, the combination of SaaS with AI/machine learning is an increasingly powerful model, in which the smart use of data generates even more value for customers. 

Many of the companies on our list may not survive in the long run; consolidation is always part of the Darwinian process of business. But the value they create for their customers and also to society is gargantuan, regardless. We’re excited to celebrate these companies and this fundamental shift in how software is created and distributed. If you think your company belongs on the list, please apply here.

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