India’s SaaS ecosystem gets bigger and better

The success of Software-as-a-Service (SaaS) can be attributed to the distribution model leveraging the cloud and the Internet, but also the business model and its pricing flexibility based on actual usage. Also, the phenomenal growth of product startups particularly in deep tech and their immense capacity to innovate, create new use cases, disrupt existing ones, the quality of talent available and more, has helped usher this growth.

The Indian SaaS market is presently a shade lower than a $1 billion and growing at 36%. It’s also the combinatorial power of other emerging technologies such as Artificial Intelligence, Machine Learning, Natural Language Processing & IoT, powering the SaaS offerings that are driving this kind of growth. This consumption-based model is dynamic in its pricing and factors in business complexities including buyers’ behavior to offer a whole range of subscriptions based on per user, per feature, volume-based, value and outcome-based, freemium models and more. This is ideal for businesses to experiment with multiple SaaS providers simultaneously since the barrier to exit is now lowered. SaaS has also driven the trend for business leaders increasingly becoming the buyer, beyond just IT.

The example of Zoho is truly inspiring – a bootstrapped company that has been profitable all along and has positioned India globally in this space as a true global competitor. Inspirational leaders help spawn innovative ideas in others. On cue, companies such as Freshworks followed. Its annual recurring revenue (ARR) has already crossed the $100 million mark with more than 1.5 lakh customers. India now has multiple SaaS companies that have revenues north of $5 million. ARR, and certainly many more over the $10 million threshold. These new-age SaaS companies truly raise the bar collectively and give immense confidence to funders that the Indian product ecosystem including talent, networks, stable business atmosphere, et al is coming of age.

Arguably, now Indian SaaS companies have a better understanding of domestic business conditions than their global counterparts and are using this advantage most effectively towards customisation & implementation to increase market share. This also goes beyond India to adjacent markets like South East Asia and the Middle East since deployment and on-boarding, especially to more complex Enterprise SaaS, involves professional services involvement. Over time as India becomes a global SaaS player, there is no reason it can’t be the SaaS hub for adjacent geographies including Asia Pacific and the Middle East markets, as an example.

The discussion or debate on horizontal SaaS vis-à-vis vertical is all too common and vociferous. There are successful case studies on both sides. If there’s a Zoho and Freshworks on the horizontal front, then there are also vertical specialists such as Practo in healthcare, RateGain for travel & hospitality or Manthan for retail and consumer industries. Horizontally-focused companies have a wider addressable market and perhaps more global competition, while the vertically-focused ones bring in greater depth in domain and functional expertise. For startups, to go vertical or not, would depend on deep domain knowledge about a specific industry vertical they bring to the table. The new winning formula seems to be packaging of cloud plus deep tech plus vertical domain into point use cases and trying to be world-class. It may be difficult to disrupt existing players who have established a high level of trust and performance with their end clients. But then again, trust is pretty much a hygiene factor and it isn’t really a point of differentiation any longer.

Is SaaS secure? Well, BFSI & Healthcare are some of the most regulated industries which see the interchange of very sensitive data. And, in both cases, there has been a steady state of adoption. Granted, the core banking software may not still be residing on a vendor-owned cloud, but I do believe that too will slowly happen. Similarly, in healthcare, the adoptions are in Electronic Health Records (EHR), online aggregation, e-commerce, etc. And this sector decidedly needs a greater push in digital adoption. Cost and flexibility are overriding factors that will soon turn the tides even for highly regulated industries. Other sectors – manufacturing, retail, logistics, education, are all currently in different stages of adoption, with some very evolved as we speak. For example, most analytics and AI workloads have a distinct advantage on the cloud because of the compute power and elasticity.

To add here, just by having servers sitting right next to you is no guarantee that your data is safe. In reality, SaaS vendors are able to invest much more than businesses in security. The world of cyber-security gets more complex by the day. However, when clients sign up for SLAs with their SaaS service providers, they’d be well advised to ensure that “ownership” of data remains with them unequivocally and never with the vendor. The terms and clauses are pretty technical and complex so an expert’s advice is always recommended.

Despite the obvious benefits, not just in India, but even globally, the percentage share of SaaS remains humble. We need a far greater push to sensitise this idea, dispel myths, particularly in other industries and also nudge the government towards friendlier policy-making which will encourage greater investment in the cloud as a whole. As a technology industry, we have barely scratched the surface when it comes to use cases that can be delivered via SaaS to benefit all the industry verticals globally, and over time, India can be a big player there.

Views are personal.

The author is chair, NASSCOM Product Council .