The CSR SaaS industry is maturing. Over the past six months, there have been a number of events shedding light on the fact that the CSR SaaS industry is no longer a niche market led by a handful of small companies. What does this mean for companies needing SaaS software to manage their Corporate Social Responsibility (CSR) programs and initiatives?
And the news is good. This post is a bit long – but hopefully that’s okay. Let’s start with some background.
The SaaS market – a quick recap
SaaS, or software-as-a-service, is one of several market segments making up ‘public cloud services’. For a very brief list of common vendors that our CSR professional audience might run into: think Microsoft 365 and Zoho (office suites), Salesforce (CRM), Zenefits (Online HR), Slack (chat, communications), Atlassian (project management), and Benevity and YourCause (CSR). Leading market research firm IDC pegs SaaS market revenue at $43 billion for the first half of 2017, with its sister sector PaaS (platform-as-a-service) generating another $8 billion. Furthermore, if you follow market reports and trends, not only will you find optimistic projections for continued healthy growth, but you will note that current market revenues exceed projections from just a few years ago.
Why so much growth?
Because businesses depend more and more on software and data. As a result, they continue to look to cloud providers to standardize, store, secure, and provide the necessary delivery channels (think of all the employees needing remote or mobile access) for the software and data that they use every day.
So, SaaS is a big market. And as this post explains, the CSR SaaS industry is an increasingly important niche within the larger SaaS industry.
Interesting trends in the SaaS industry
There’s a lot of ‘trends’ material we could cover. For the interests of the CSR SaaS industry, let’s talk about three.
Trend #1: The land grab era is over. In fact, we may have entered a period of SaaS overabundance. VC Point Nine wrote about this last year, and the observations remain helpful as we begin 2018, including a timely update asking “Is the Golden Age of SaaS Behind for Investor?”. The takeaway trends:
- Competition is fierce
- Established SaaS players can represent barriers to new entrants
- Differentiation and value-add is critical to success and continued growth
The last point is perhaps the key to understanding the CSR SaaS industry.
By itself, the CSR industry has certain structural impediments that prevent it from enjoying customer adoption and growth rates like the larger SaaS industry. For example, while Corporate Social Responsibility programs are becoming more and more important to company culture and brand (see the 2017 Cone Communications CSR Study), the fact remains that participation and involvement is optional. Translation: use of the software doesn’t support a daily business function like office suites, chat channels, project management or even online HR. In addition, CSR programs often require specialized, non-SaaS-ish services, such as funds disbursement (which is actually more of a financial or fin-tech service).
Now, let’s look at this trend from the perspective of the larger, established SaaS players. As their ‘land grab’ opportunities dry up, they are looking to differentiate and add value. So while CSR SaaS providers search for their own competitive differentiation, these providers also represent opportunities to add a lot of value to the larger SaaS space (think acquisition) … especially given what we are learning from Cone Communications about the positive impact that CSR has on company brands.
Trend #2: From SaaS to PaaS. A little while back, Tenfold looked at 6 Emerging Trends in the SaaS Industry, noting the transition of leading SaaS companies into PaaS (platform-as-a-service) companies. PaaS extends the depth and breadth of the customer relationship because it provides access to multiple add-ons to the core product(s). By opening up a gateway to the code, PaaS supports app market places, and it expands the ecosphere of technology and service businesses feeding off of the core technology.
The success path that everyone wants to follow is Salesforce, which evolved from a CRM solution to a true platform when the Force.net platform was released, enabling the creation of a marketplace of apps to enhance the CRM offering. For example, consider Cheerity. Cheerity is a startup with a clever app for running social impact campaigns. Rather than spending investment dollars on lots of processing infrastructure, they integrated with DonateWell APIs to source charity data and disburse charity donations. APIs could turn Cheerity’s nimble social impact app into a product differentiator on a CSR PaaS platform.
Trend #3: Salespeople must think like consultants. The work of acquiring a customer is changing. As the industry becomes more competitive, SaaS offerings become more feature-rich … more complex … some might say more complete. Rather than hitting prospects with a feature list, great marketing and a few good case studies, today’s SaaS salesperson needs to be prepared to problem solve. And this is especially true today, when Accenture reports that 94% of B2B buyers research purchases decisions online, often before the sales process (traditionally understood) ever begins.
Let’s use CSR software as an example of SaaS sales complexity. Corporate Social Responsibility programs overlap with employee engagement, a discipline that was once the domain of HR departments. One customer seeking a CSR SaaS solution might be focused on charitable giving programs. The next customer, on volunteering (translation: employee engagement). A third, sustainability (yikes! that could involve CSR, employee engagement, and environmental impact). The salesperson fielding those calls better be prepared to think on his or her feet – like a good consultant – or risk losing the sales opportunity.
The CSR SaaS industry – notable developments
So what is going on in today’s CSR SaaS industry? Why do I say it is maturing – where is the proof?
For starters, let’s look at very recent events. A week ago, leading CSR SaaS vendor, Canadian-based Benevity announced its second significant investment in three years, from General Atlantic. While the terms of the deal were not released, it is expected that that deal size exceeds the $29m USD investment by JMI Equity in 2015.
Last year leading software provider to the nonprofit sector, Charleston, SC-based Blackbaud completed the consolidation and integration of prior CSR-provider acquisitions into the company’s operations and marketing. No longer will you search for products like MicroEdge (foundation grant management) or AngelPoints (employee volunteering) among the Blackbaud offerings. Instead corporate and foundation markets are served by an integrated product suite known as Blackbaud Corporate Social Responsibility solutions.
In August 2017, another leading CSR SaaS provider, Texas-based YourCause acquired competitor Good Done Great. This transaction represented significant market consolidation, as over the prior two years, Good Done Great had acquired two other CSR brands, AmeriGives and WPG Solutions. YourCause’s investment partner is Providence Equity.
And finally, at Saleforce’s Dreamforce 2017 conference in November, the partnership between CRM leader Salesforce and global charity brand United Way kicked into a higher gear. For some time, United Way Worldwide had been working on a digital fundraising solution based on Salesforce technology. This effort appears to have evolved into Salesforce’s newest ecosphere offering, Salesforce Philanthropy Cloud. While this may have felt like a re-run of the original United-eWay SaaS solution from the 2000s (which was later merged with CreateHope, spun out into Truist, and sold to FrontStream), Salesforce is a game-changer in any market they enter. Consider that Salesforce expects any ecosphere that it creates to generate 2.8 times the revenue generated from the core software sales.
So what does all of this mean?
I realize there is a lot here to digest, but that is because there is a lot happening within the CSR SaaS industry. It is not just a niche any longer. And the notable developments reflect and reinforce the trends we have highlighted. Here are your takeaways:
- Capital is focused on the CSR SaaS industry. Cloud-based CSR vendors have been around ever since Charitableway, CreateHope and KindMark first appeared in 1999-2000. And we have seen both investors and vendors come and go. This is different. Serious money is changing hands. Benevity has received ’round two’. YourCause is consolidating providers. And capital comes in many forms. Blackbaud is the 800-pound gorilla of nonprofit software – will they become the 800-pound gorilla of CSR software? Salesforce doesn’t enter markets that it doesn’t dominate.
- Market maturity is good for customers. As capital flows into markets and those markets mature, customers are usually the beneficiary. Yes, it can be a pain when one vendor buys another – and yours is the vendor acquired – but those are short term pains. Software becomes standardized. Infrastructure is more stable. Larger investments are made into security. Service gets new levels of attention. Accountability, transparency like SOC audits, compliance standards all improve. Experienced management settles in. And best practices usually win out.
- Expect more consolidation … and new entrants. A few CSR SaaS providers will control the top of the market. And the Fortune 500 / 1000 clientele will naturally aggregate around them. Remember the (really) old saying: “Nobody ever got fired for hiring IBM.” The Small and Mid-sized Business (SMB) markets, however, will remain viable for new entrants. Larger vendors with complex enterprise platforms often develop operating structures that change the dynamics of deal profitability, encouraging them to look past middle market and small market opportunities. Entrepreneurs will continue to look at CSR / philanthropy and think “Wouldn’t it be fun to do something good with my skills and ambitions!”
- Differentiation is critical. Increasingly, customers will want to know why your CSR product and your company is different, better. Value adds and even partnerships become more and more important. This will be especially true for the providers who are not the 800 pound gorillas. Expect providers to segment markets more effectively to align with differentiation.
- Don’t be surprised if tomorrow’s CSR vendors of choice are not yesterday’s. My background has included time spent with United Way, KindMark, Kintera, AmeriGives, Good Done Great and YourCause. Even in the past three or four years, we rarely ran into Salesforce or Blackbaud in a sales situation. I suspect that is now changing.
- PaaS is here. Pulling out the crystal ball … I mentioned before that one of the trends in SaaS is the emergence of SaaS companies wanting to become PaaS companies … follow the Salesforce success story. With Salesforce’s Philanthropy Cloud announced, we know that CSR PaaS is almost here. One or more competitors may morph. But let’s not stop our thinking there. Some of the most active SaaS / PaaS companies are sitting right next door … in the Online HR SaaS space. And as noted, there is overlap between CSR and Online HR in the form of employee engagement. Don’t be surprised if one or two very large Online HR PaaS platforms enter the CSR space.
Bringing it home
These are dynamic days for the CSR SaaS industry. Competition is up. Capital is flowing. Vendors are consolidating. New entrants could be poised to enter the game. And all of this should mean good news…
Good news for large companies that want better software from more stable providers that have more experience managing CSR programs.
Good news for middle market companies looking for greater differentiation to meet specialized needs.
Good news for employees, donors and volunteers, who simply want the best user experience possible, with more accountability around donation disbursements.
Good news for charities who depend upon CSR fundraising strategies to deliver much needed donors and donations to support their important work.
And good news for our communities and our neighbors in need … the ultimate beneficiaries of all of this hard work to bring them needed resources more efficiently, less expensively, more frequently, and with greater certainty.
As always, if we can help you with a CSR question, problem or program, please contact CSR Matters today!