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Narrow becomes deep
Software packages can now serve a single function inside an organization, such as financial planning and analysis. Anaplan, which serves planning, is around a 7 billion dollar company. Zuora does subscription billing and is a multi-billion dollar company. Functions that look narrow turn out to be very deep.
SaaS reached anything that gets repeated inside a company, which set off a Cambrian explosion of specialized tools. A typical company now runs hundreds of SaaS applications, which looks quite different from 15 years ago.
Cheap to start
Low startup costs feed that supply. Cloud services, other apps, and APIs mean it takes one person with an insight, or a couple, to get started, though fueling growth gets expensive once an application starts to work. Entrepreneurs anywhere in the world can serve a global market from the start.
Why do narrow software niches become so big?
A function such as billing or planning exists in nearly every organization, so a product serving it has a huge pool of possible buyers. Depth builds up through edge cases, integrations, and workflows that customers come to depend on. Zuora was founded in 2007 around subscription billing and went public in 2018.
How do APIs let one person start a software company?
Services like Twilio handle messaging, Stripe handles payments, and cloud hosts supply servers, each available through an API. A founder can assemble a working product from them without building those parts. Before cloud computing, a startup had to buy and set up its own servers. Amazon Web Services opened its first storage and computing services in 2006.
Why does growth get expensive once an app works?
Acquiring customers takes sales, marketing, and support spending up front, while subscription revenue arrives a little each month. Each new customer can cost more than the first months of revenue it brings in. Investors track how long it takes to earn back that cost, called the payback period. Software investors often measure it in months.
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