India began its metamorphosis into a worldwide IT powerhouse more than two decades ago, ushering in a period of unprecedented riches and employment growth in the country. Now, Asia’s third-largest economy is poised to embark on the next big technological challenge: creating a new generation of Software-As-A-Service (SaaS) similar to Zoom or Slack.
The Covid-19 pandemic has compelled businesses worldwide to invest heavily in digital infrastructure, bolstering the power of software-as-a-service (SaaS) providers.
According to a KPMG poll, businesses spent an extra $15 billion per week on technology last year as they tried to build safe remote working environments.
SaaS companies create web-based apps that take care of everything from software security to performance. Zoom (ZM), and Salesforce (CRM), SAP Concur, the American juggernaut that owns workplace messaging software Slack, are among the most well-known SaaS businesses globally.
According to recent research published by consulting firm McKinsey & Co. and SaaSBoomi, a community of industry experts, India’s software-as-a-service Business could be worth $1 trillion by 2030 and create over half a million new employment.
According to the survey, India has roughly a thousand such companies, ten of which are unicorns or startups worth at least $1 billion.
“This has the potential to be as huge an opportunity as the IT services business was in the 1990s,” said Girish Mathrubootham, CEO of Freshworks, India’s most well-known SaaS firm. It filed for an initial public offering (IPO) last month, joining a slew of other giant Indian IT unicorns to do so this year.
Freshworks was started in the southern Indian city of Chennai more than a decade ago. It, like Salesforce, provides software to assist businesses in managing client relationships.
It also has more than 50,000 clients and is India’s first unicorn in the area, having raised financing from Tiger Global and Accel. In a 2019 investment round, the company was valued at $3.5 billion.
Other Indian SaaS companies have found success by focusing on particular markets. For example, Zenoti is a unicorn that specialises in spa and beauty shop software.
Six of India’s ten SaaS unicorns will reach that milestone in 2020, and investors all over the world will be watching. According to the SaaSBoomi study, investors invested $1.5 billion in Indian SaaS startups last year, four times increasing in 2018 or 2019.
According to Mohit Bhatnagar, managing director of Sequoia Capital India, investors are thrilled about SaaS because of the “huge adoption” of software over the last decade.
Despite its nominal size in the global SaaS market, investors believe India will eventually dominate the sector due to two factors: its large pool of English-speaking engineers and the inexpensive cost of recruiting them.
Software engineering has become one of India’s most sought-after career alternatives, thanks to the growth of the country’s IT industry.
Bhatnagar told CNN Business that India has one of the world’s largest developer communities. Many of them have worked for some of the world’s most prestigious tech firms.
Postman co-founder Abhinav Asthana credits his time as an intern at Yahoo in Bengaluru for inspiring him to create his application.
He devised a plan to create a tool to make API (Application Programming Interface) testing easier.
An API is a piece of programming code that describes how two applications communicate with one another. Postman claims that it has made it easier for programmers to collaborate on API design and development.
Asthana told CNN Business, “We studied how software was produced at these big firms, and we found API was a key concern.”
With a valuation of $5.6 billion, Postman is now India’s most valuable SaaS unicorn.
The low cost of doing business in India is a significant benefit. Entry-level developers in India earn 85 per cent less than their colleagues in the United States, according to a report by consulting company Bain & Company.
“It is preferable to have a million-dollar customer than a $10,000 client if you are creating a SaaS firm in the United States because you need to pay for sales and marketing in that country,” said Prasanna Krishnamoorthy, managing partner at SaaS accelerator Upekkha. “You may have small and mid-sized firms as well as huge ones when serving customers from India.”
Most SaaS startups target international clientele, similar to the strategy used by India’s IT behemoths TCS and Infosys (INFY). Most of India’s oldest unicorns, from Flipkart to Paytm, have focused solely on the domestic market, which investors perceive as a welcome development.
According to Asthana, Postman’s products are used by around 98 per cent of Fortune 500 businesses, and Freshworks’ initial client was Australia.
SaaS companies have a much higher chance of going worldwide than e-commerce startups like India’s Flipkart. They build software once and then can use it again and again.
“For a Flipkart to go worldwide, you need billions of dollars, but for a Freshworks to go global, you need much less capital,” said Mathrubootham, who is also a Postman investor.
It is because e-commerce companies must invest a significant amount of money in establishing physical operations elsewhere – they must hire delivery drivers, rent warehouses, and purchase merchandise.
Sequoia Capital’s Bhatnagar claims that Indian software entrepreneurs “mastered” the art of “remote sales” early on. “To be honest, the entire world has had to learn how to perform better remote sales in the last two years,” he continued.
Despite the jubilation, Indian companies must overcome significant challenges before delivering on the $1 trillion promise.
It may be difficult for Indian engineers trained in IT services to gain the discipline needed to build a product-focused organisation.
“You are selling bodies, and you say yes to everything the consumer says,” Krishnamoorthy said of IT services. On the other hand, SaaS businesses must turn down 99 per cent of [possible] consumers, according to him.
In comparison to Silicon Valley, India’s startup environment is still in its infancy. Despite the enormous scale of several domestic unicorns, Mathrubootham claims that India lacks a “global tech powerhouse product brand.”
However, he expressed hope that future SaaS firms will be able to change this. He went on to say, “It is my dream to see India as a product nation.”