For decades, enterprises leaned heavily on IT to build custom software that aligned with their unique needs and processes. One notable example is Walmart in the 1980s, which developed a proprietary inventory management system that revolutionized retail logistics. By investing heavily in a technology project like this, Walmart created a real-time inventory and supply chain tracking system that gave them unprecedented control over stock levels, reduced waste, and optimized restocking. This system became a cornerstone of the company’s competitive advantage, enabling it to scale rapidly and keep costs lower than competitors who relied on more traditional, manual processes and, to this day, helps power Walmart’s position as the largest company by revenue in the United States.
Bespoke software allowed companies to craft solutions tailored to their competitive advantages, creating differentiated ways of working that competitors couldn’t easily replicate. However, as enterprise technology matured, the complexity and cost of maintaining custom-built systems grew, and as IT teams grew and power structures ensued, they became more isolated from the functions they were meant to support.
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As internet infrastructure matured in the late 1990s, companies began exploring web-based applications to eliminate installation hassles and provide continuous updates directly through a browser. Salesforce, founded in 1999, is widely credited with pioneering the SaaS model by offering CRM (Customer Relationship Management) as a web-based service. Their tagline, "No Software," as paradoxical as it seemed, highlighted the departure from traditional software models and internal IT teams.
While Salesforce weathered the dot-com bubble, its traction reflected a broader trend: companies were increasingly frustrated with large, slow IT teams. In 2006, Amazon Web Services (AWS) launched, allowing startups and enterprises to host applications on Amazon’s infrastructure, dramatically reducing costs and accelerating SaaS adoption. AWS transformed IT with several key benefits:
- Lower Upfront Costs: No need to purchase expensive licenses.
- Scalability: Companies could start small and scale usage as needed.
- Continuous Updates: Software was updated seamlessly without disrupting users.
- Accessibility: Applications could be accessed from any device with an internet connection.
AWS was, at first, particularly transformative for startups, cutting the cost and complexity of launching technology by offering storage and compute as services. Larger enterprises also benefited, as AWS enabled them to modernize legacy systems, experiment with new applications, and scale infrastructure without significant capital expenditure. From the 2010s onward, companies like Dropbox, Slack, Zoom, and Google expanded SaaS into productivity, communication, and collaboration, and consultants like Accenture, Deloitte, and others charged hefty fees in moving enterprises off traditional IT systems and teams under the investment banner that would rule corporate boardrooms for well over a decade, digital transformation.
When we started Percolate in 2011, fully leveraging SaaS apps and cloud infrastructure wasn’t yet the default in most enterprises. But by 2015, that had changed. Even large enterprises transitioned to SaaS for ERP, HR, and security tools. Microsoft (Office 365), Adobe (Creative Cloud), and even the largest software company holdout, Oracle, migrated their products into SaaS offerings, while SaaS providers increasingly integrated with one another, creating ecosystems that facilitated interconnected workflows.
By the 2020s, SaaS had overtaken IT around the world, and the largest enterprise SaaS companies had become some of the world’s most valuable businesses by market cap:
- Salesforce: $300B+