Manav Garg
Software as a service is one of the most important sectors in tech today. While its transformative potential was quite clear before the pandemic, the sudden pivot to distributed workforces caused interest in SaaS products to skyrocket as medium and large enterprises embraced digital and remote sales processes, significantly expanding their utility.
This phenomenon is global, but India in particular has the opportunity to take its SaaS momentum to the next level. The Indian SaaS industry is projected to generate revenue of $50 billion to $70 billion and win 4%-6% of the global SaaS market by 2030, creating as much as $1 trillion in value, according to a report by SaaSBOOMi and McKinsey.
There are certain important long-term trends that are fueling this expansion.
The rise of Indian SaaS unicorns
The Indian SaaS community has seen a flurry of innovation and success. Entrepreneurs in India have founded about a thousand funded SaaS companies in the last few years, doubling the rate from five years ago and creating several unicorns in the process. Together, these companies generate $2 billion to $3 billion in total revenues and represent approximately 1% of the global SaaS market, according to SaaSBOOMi and McKinsey.
These firms are diverse in terms of the clients they serve and the problems they solve, but several garnered global attention during the pandemic by enabling flexibility for newly remote workers. Zoho helped streamline this pivot by providing sales teams with apps for collateral, videos and demos; Freshworks offered businesses a seamless customer experience platform, and Eka extended its cloud platform to unify workflows from procurement to payments for the CFO office.
Other SaaS firms stayed busy in other ways. Over the course of the pandemic, 10 new unicorns emerged: Postman, Zenoti, Innovacer, Highradius, Chargebee and Browserstack, Mindtickle, Byju, UpGrad and Unacademy. There were also several instances of substantial venture funding, including a $150 million deal for Postman, bringing the total amount raised by the Indian SaaS community in 2020 to around $1.5 billion, four times the investment in 2018.
India’s path to leadership
While the Indian SaaS community has made admirable progress in recent years, there are several key growth drivers that could lead to as much as $1 trillion in revenue by 2030. They include:
The global pivot to digital go-to-market
The number of enterprises that are comfortable with assessing products and making business decisions via Zoom is increasing rapidly. This embrace of digital go-to-market fundamentally levels the playing field for Indian companies in terms of access to customers and end markets.
In the years ahead, instead of being hampered by a lack of field presence in the U.S., Western Europe and other key locales, Indian companies can drive digitally enabled marketing and sales with tailored vectors for target customer segments, directing field sales investments to critical customer segments and touch points. Along with product-led growth models in several segments and strong analytical capabilities, this shift represents a massive tailwind for the SaaS ecosystem.
While large enterprises have historically relied on fully in-person sales processes, we could now see as much as 80% of sales functions having some sort of remote component, with 50% existing in a hybrid state, per the report. This will require a strong focus on digital marketing and product-led models. Small companies, which previously had 70% of their interactions with the Indian SaaS community via inside sales, are poised for a total reversal, with 80% of overall sales activities ripe for digitization.
Superior base of developers to build deep tech offerings
With the largest concentration of developers in the world — approximately 3 million, 50% more than the U.S. — India is home to a huge number of people who use software and technology on a daily basis. This privileged access to key market segments means Indian SaaS companies are uniquely positioned to understand the needs of their customers and translate deeper insights into better products that win globally.
By focusing on developers’ most urgent needs and driving widespread adoption of their products, Indian companies can eventually create network effects and achieve dominance in the category. As a result, these firms are identifying a particularly strong opportunity in the developer tools market, which could be worth as much as $160 billion by 2025, per IDC data.
Customer success: Inherent advantage in serving enterprises post-sale
Post-sale customer experience in SaaS has gained prominence of late and the future will be no different. While product-led initiatives have been the growth mantra for a while, the industry is also recognizing that post-sales customer experience is key to sustained revenue growth.
Research shows that net retention rates of 120%-130% are critical to driving high growth and creating value. A study by The Temkin Group revealed companies that earn $1 billion annually can expect to net an additional $700 million on average within three years of investing in customer experience. SaaS companies, in particular, can expect to increase revenue by $1 billion.
There are many different strategies for boosting customer engagement, from leveraging analytical tools to assess customer behavior. But the common thread is investing in a previously under-explored area, and this is where the opportunity lies for SaaS businesses.
Thanks to their deep expertise in service and support and lower cost structure, leading Indian SaaS companies are in a good position to offer customers winning combinations of superior products and white-glove professional services that differentiate them from global competitors.
SaaS is not a winner-take-all market
One fundamental difference between consumer technology and enterprise technology is that the latter has room for robust competition and upstart players. In the consumer world, there is only one Facebook, one Google, one Amazon — but at the enterprise level, Salesforce has just under 20% market share in the CRM space despite its status as a household name.
Behemoths will always exist, but by taking an intelligent approach to differentiation and identifying relevant subdomains and microdomains, SaaS companies can find new and better ways to serve their clients, develop new product offerings, penetrate markets throughout the world and scale their businesses in a resilient fashion.
Challenges to overcome
The opportunity before the Indian SaaS community is very real, but realizing it won’t be easy. These firms must take several steps to meet the most optimistic projections:
Ramping up the talent pool
According to the SaaSBOOMi report, 77% of SaaS leaders in India say their biggest challenge is ramping up critical talent. Indian companies need to invest more in the product management, R&D, sales, marketing, and services and support talent pools. To keep pace with global competitors, Indian firms must increase the size of talent pools in these areas by three to six times.
Developing talent is crucial. At global SaaS organizations, best-in-class product managers serve as “mini-CEOs” for their products. Indian firms, in contrast, tend to rely on engineers-turned-product-managers who have strong technical skills, but lack the necessary business orientation. This can be addressed by having senior product managers mentor their more junior counterparts, working with them to understand how products fit into overall strategy and touch upon sales and marketing processes in addition to the technical details.
To cultivate talent, Indian SaaS companies can implement mentorship initiatives, academic courses, internship programs that match the scale of the industry, more inclusive recruiting strategies, and open and employee-centric management practices.
Pursuing GTM-centric growth strategies
Growth requires a growth mindset. On average, Indian SaaS companies with annual revenues of under $5 million are growing at a rate of around 50%, compared to 150%-200% for their global peers.
Some of this can be attributed to underinvestment in go-to-market efforts, as global SaaS leaders spend more than three times as much in this area as Indian firms. In addition, global SaaS leaders spend 90% more on customer success to increase retention, which has been a challenge for Indian firms. It’s clear that this underinvestment in this crucial component of marketing mix is an area that needs to be addressed.
This is a multifaceted priority. Indian SaaS firms must implement feature-rich systems to analyze their sales and marketing efforts, including sophisticated demand generation engines enabled by analytics that track and ROI and conversion rates. This transparency can lead to more targeted efforts and reduce churn. It can also support technology-enabled interventions to identify high-risk customers and trigger outreach.
The future of SaaS is bright, and while nothing is guaranteed, it is likely that India will take an even bigger place in that limelight. With the right approach, it won’t be long before the Indian SaaS community becomes a large-scale employer of talent, a significant contributor to India’s GDP and a creator of unmatched products.
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