tech-company, business-model, product, pricing, saasI want to know if SaaS apps in a particular small niche (like ToDo Lists or Project Management Solutions) have a long tail distribution. With long tail distribution I mean several companies that are profitable and build around the same idea but not well known or popular outside a particular geography or customer segment.
The niche I have in mind is mainly around business process apps like CRM, Invoicing, Payroll, HR, Expense Management etc.
The short answer is yes. But let’s unpack that a little.
Let’s call the market you’re interested in, business process automation software (BPA). This was one of the biggest waves that took IT to the heart of every medium-sized business and better, back in the last century. The best-known names are the broad market players, and these each developed their own ecosystem for third parties to add value to a core system. Then there were vertical specialists, delivering, say, bill and expense management for healthcare. And then around the outside were thousands of small players, focusing on geographies, or sectors, or fine niches.
So the historic market was absolutely characterised by long tail, as you put it.
Most of the major players have some kind of SaaS offering. Sometimes this is a strategic proposition - it looks like the future. Sometimes it’s defensive - a way of trying to defend market share, but the less preferred option. On the buying side, customers have become much more focused on ensuring that systems aren’t silos, but there are routes for data and workflows to pass in and out.
So unsurprisingly, your chosen market has continued to be “long tail.” It seems to me that there are three drivers that keep that in place.
First, BPA is critical, but not core, to businesses of any scale. Coca Cola depends critically on its information and process flows, but the core of their business is brand. So changing or supplementing BPA is a practical decision, and there’s a constant incentive to drive in greater effectiveness and eficiency. That means sales people can get appointments.
Second, credible BPA must offer interfaces for other data and software. That means that it’s inherently feasible to create BPA componentry that can be integrated with some or all existing systems. That creates a clear path from customer pain point to solution, which sustains a creative and dynamic startup scene.
Third, most BPA has a well-established and significant value. That means there’s a well-trodden way of turning work into cash, which enables startups to be cash generative relatively quickly (particularly in the SaaS case which makes it feasible to bypass strategic purchasing buying cycles and sell straight to individual managers or power users).
For those reasons, I think it’s reasonable to expect that this will carry on being a ‘long tail’ industry unless or until there’s some major disruption. It’s hard to think what that might be - but that’s generally the case in established markets, until the disruption happens. However, it does seem to me that in markets where gathering and utilising big data is becoming core, my first driver is now falling away. And if corporations are seeking agility, some parts of BPA may be greatly commoditized.
It doesn’t have anything to do with being long tail – the latter has to do with being able to earn a living off of the many crumbs and tiny niches that are being ignored by leading industry players.
What you’re observing is merely the early stages of an industry consolidation curve.
Basically, the two first periods in an industry or product’s lifecycle (introduction, then growth) coincide with the entrance of plethoras of rivals. Growth is such during this time that scores of companies can coexist while earning money. As you reach the maturity phase, weaker actors begin to fold, M&As occur, new entrants become less frequent because the barrier to entry gets increasingly hard to overcome, and in the end the industry as a whole begins to consolidate.
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