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Why are there so many SaaS businesses?

30102020_Software as a service

Why are there so many SaaS businesses?

Amongst all the mania surrounding Software-as-a-Service (“SaaS”), we believe it is important to take a step back and ensure we are not missing the forest for the trees. Why is the sudden ubiquity of the cloud so important and how does it affect individuals and entrepreneurs today?

Much like the railroads in the late 1870’s, cloud computing represents a generational opportunity, providing a critical infrastructure enabling business. Prior to railroads, it was difficult to found businesses or build homes far away from the location where the necessary resources required for manufacturing could be found. Transportation costs were extremely high leading to the formation of towns and villages around key resource hubs.

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 Source: American Rails

Similarly, founding a web-based enterprise was resource heavy. An entrepreneur must pay for servers to support their site, and if they received too much traffic, often their servers would crash. Beyond just servers, a website owner would require storage and security. Traditionally all these services are capital intensive and lack scalability. With the advent of cloud computing, a web-based enterprise can tap into a global network of server farms via a usage-based pricing model for these capabilities. The provision of these servers for storage and compute is known as Infrastructure-as-a-Service or IaaS.

Suddenly, anybody around the globe has the infrastructure or back-end to support their own web-based business at a low cost. The result of an undifferentiated underlying infrastructure, provided by so few companies, has enabled small businesses to focus on created differentiation applications which sit upon that infrastructure. Hence, we are consistently seeing all sorts of new, pointy, software businesses in the media today, as entrepreneurs and founders no longer have to worry about the infrastructure supporting their business – and can focus on delivering highly differentiated, niche software for specific use-cases.

We at Montaka are convinced the months and years ahead will present opportunities to make attractive, multi-generational investments in both the providers of cloud infrastructure and other players in the space. We remain prepared and well-positioned to take advantage of these opportunities.

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Phillip joined MGIM in May 2019 as a Research Analyst and is currently completing a double degree in Actuarial Studies and Commerce at the University of New South Wales. Prior to joining MGIM, Phillip’s experiences included several investment banking internships.  

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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