Software as a Service first established its roots in the early 1960s. But it was not until 1999 that the first ever SaaS company in the world came into being: Salesforce.
At the time, the SaaS business model was considered unsuitable for a large-scale operation. Fast forward to 2022, some of the biggest names today are SaaS companies, and the industry is estimated to reach a value of over $ 195 billion U.S. dollars by the end of the year.
Until now, this tremendous growth in the SaaS industry was relegated to the United States, which is currently the leading market for SaaS companies. But according to a recent EY-CII report, India will soon be wearing the crown of the Global SaaS Capital.
This comes at a time when volatile markets and looming recession have a cast a dark shadow on the funding season, which has only gone up by 4.5% in 2023 as compared to 2022. Nonetheless, with 17,040 SaaS startups, the SaaS ecosystem in India is not slowing down.
With these numbers, India is all set to establish itself as the next global SaaS hub. But how did we get here?
The Rise of Indian SaaS Landscape
Since the pandemic, the shifting industry dynamics, fear for business stability and increasing cost and staffing pressures encouraged small and medium businesses to embrace digital.
As a result, Indian businesses that didn’t prioritize digital now saw the SaaS model as an opportunity to cut costs, drive efficiency, and introduce customized solutions. They could experiment with various digital models without adding cost and scale them as they grow.
And the upshot? The Indian SaaS is set to account for an expected 7-10% of the global SaaS market.
Rise of Indian SaaS | Source
Now, with product innovation at its forefront, the Indian SaaS market is in its golden period.
Many SaaS startups have emerged with horizontal solutions to cater to a global market. The investment is massive, and the future is bright. But what sets the Indian SaaS solutions apart?
For starters, product leadership and innovation are the focus of most Indian SaaS providers. Followed by a remote sales and zero-cost marketing strategy, they are able to drive business growth and offer immense value to the customers.
Take iMocha, for instance. It is a leading skill assessment platform that aids businesses in hiring job-fit candidates. To stand out from the crowd, they focused on:
- product innovation to reduce hiring costs by 40% for the client
- remote sales to route all sales through digital channels
- Building an effective GTM strategy to create a strong online presence
This allowed the company a 400% growth rate in the last two years, along with 600 clients onboarded in the first year.
Additional Read: Explained: How Vertical SaaS is Taking Over Niche Marketplaces
The last two years have witnessed the entry of many such companies, including Browserstack, MindTickle, PostMan, and more into the unicorn club.
Let’s understand why.
Four Reasons Why India Is the Next SaaS Capital
Here are some reasons why India will soon surpass the US and China to become the leading SaaS market in the world.
1. Technology-First Mindset
The IT sector accounted for 8% of the country’s GDP in 2020 and is expected to contribute 10% by 2025. It is also estimated that the industry will see a nearly 10% growth in direct employees in FY22, with an unprecedented net addition of 4,50,000 to its employee base.
Over the years, we have seen many Indian startups dominating with newer product categories.
Whether it is testing tools for developers (PostMan, Browserstack), Sales and Marketing Solutions for SBMs (Agile CRM), Financial services platforms (IBSFintech), or data management platforms (Acceldata), their product innovations are leading the pack.
But the story doesn’t end here. The Union Budget FY23 also focuses on technology-enabled infrastructure. With an emphasis on startups in high-growth sectors such as fintech, edtech, agritech, and more, the government is adopting a progressive mindset towards software and innovation. This makes India a highly conducive destination for SaaS companies.
To quote the former Chairperson of Nasscom, Ms Rekha M. Menon,
“Fiscal 2022 has been a breakthrough year for the Indian technology industry. We’ve posted solid, broad-based growth, massively increased jobs, and are proud that we continue to be an engine for India’s economic growth, and a beacon for inclusion and diversity. We are excited about the opportunities in the Techade as we enter an era of exponential transformation and technology becomes indispensable to progress. We remain committed to catalysing the trillion-dollar digital economy with our focus on talent, technology, collaboration, and innovation.”
The country is clearly gearing up to welcome SaaS companies and strengthen its foothold in the software market.
2. Startup Culture
India has the highest rate of recognising startups globally. It is also the third largest startup ecosystem after the US and China, with over 61,400 startups as of March 2022. SaaS startups are booming in India and are projected to thrive in the coming years.
In fact, a study by Zinnov consultancy and Chiratae ventures found that SaaS startups are projected to grow at a compounded annual growth rate (CAGR) of 55-70% to earn overall revenue of $116 billion by 2026.
Here are the key factors that are contributing to the growing startup culture:
- Given the innovative, product-driven approach, Indian SaaS startups are moving to enterprise technology and developing quality solutions for the global market. This has led to global and Indian investors dominating the SaaS space. As a matter of fact, funding to these startups is likely to increase by a whopping 62.5%, from $4 Billion last year to $6.5 billion this year.
- Massive adoption of cloud solutions by SMBs, a rich talent pool, and a robust IT sector are encouraging the Indian SaaS landscape to compete in international markets.
- The government has also played a major role in boosting entrepreneurship and offering financial assistance to startups.
Furthermore, Product 10x, a 2019 US-based SaaS-focused accelerator, intends to enter the Indian market soon. It works with SaaS startups to tackle scaling and fundraising challenges. Their emergence in the market comes at a pivotal moment as the country sees unprecedented growth in the SaaS industry.
Bonus Read: Building SaaS in India – Now is the Time
3. Low Operation Cost
Aneesh Reddy, the founder of Capillary Technologies, believes India has two advantages over the rest of the world. One being cost and the other being location.
India has the second-largest call centre industry after the Philippines. But what makes it an attractive choice is that its workforce is also skilled in software development and information technology apart from customer service and sales. This projects India as a low-cost option with world-class IT infrastructure.
Freshworks is a case in point. It was started by two former Zoho employees in 2010 and 2019, becoming the first Indian SaaS company to be listed on the Nasdaq. A telesales-oriented company like Freshworks can thrive in India because of the low operational cost the country offers.
Both Zoho and Freshworks are top SaaS companies that continue to operate from India even though a major chunk of their consumer base is in the US. This is an indicator of how India is rising as a base in the industry.
According to the CII-EY study, 50% of SaaS providers believe that for sales to increase, the emphasis must lie on driving product awareness. Content marketing through Blogs and whitepapers are new-age marketing techniques that can effectively help companies reach their target market.
If you’ve found your product-market fit, the next thing you should be looking at is your content-market fit.
4. Strategic Geographical Location and Cultural Proximity
The second advantage that Aneesh Reddy points out is India’s strategic location and culture.
Looking at the map, India is centrally located in the continent, with convenient connectivity to major Asian markets such as China and the middle-east. Even though SaaS is cloud-based software, geographical proximity helps new companies break into potential markets.
Apart from the physical location, India’s culture is also as close as it gets to other Asian countries.
The first principle of generating demand is knowing your market. What motivates a consumer differs from country to country. And so, to succeed in a highly competitive SaaS market, knowing what drives demand in the market is essential. India bridges that gap.
The value systems and social structure India shares with its neighbours starkly differs from the rest of the world. Where the west will appreciate creativity and an egalitarian set-up, the east values hard work and a hierarchical structure. By infiltrating Indian markets and making India a SaaS hub, other Asian markets also become conquerable.
Towards Global Domination
India is a developing country, and that’s what makes it better than the US and China. A country that is yet to meet its full potential is more responsive and accommodating to ideas of the new epoch. With India’s leanings towards this sector, the findings of the CII-EY report ring true.
According to Ashish Fafadia, a partner at Blume Ventures,
“Two things make SaaS click. One is that the canvas is wide enough, and there are verticals underneath. To that extent, SaaS is horizontal. Underneath SaaS, there are multiple areas, such as fintech, DevOps, etc., creating more volume and activity. Plus, businesses can be built much more frugally.
Secondly, SaaS businesses can be evaluated basis of the numbers, making it much more predictable.”
India is a canvas ‘wide enough’ with the potential it can offer SaaS companies in return. Convenient location, low operation cost, technology-centric, and startup friendly is how India will come to be known as the global SaaS capital of the world.
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