Funnel Vision #22
Outlook of the Indian SaaS Industry
The world is shifting towards an online-first economy and SaaS Industry has emerged at the cusp of this transformation. With its globally-renowned capabilities in the software industry, India is uniquely placed at the helm of this change. India boasts of 11 B2B SaaS unicorns and the space attracted $1.5 bn funding in 2020. With the right & timely support from the all-ecosystem partners, this massive value creation opportunity stands to generate ~$1.5tn total enterprise value and provide jobs to ~1.2mn + by 2047. The Indian SaaS industry is predicted to attain revenues of $150-200 bn by 2047 and capture 10% of the global market, establishing India’s dominance in the global SaaS industry.
Key trends shaping the growth of the SaaS industry
Continuous product innovation - SaaS companies now continuously develop new products to expand their share in the global market. They iterate in agile ways to release new offerings every 12-18 months.
Growth drives valuations – Companies that grow at >50% annually command ~ 25x EV/Revenue multiple compared to ~10x for companies growing at <25%. The industry median is at 14x creating trillions of dollars in value.
Investment in Sales & Marketing and New GTM Strategies – Indian SaaS industry has underinvested in growth as compared to global peers. More companies now rely on PLG-” Product led growth” – a model in which the product itself drives customer acquisition and expansion. PLG focused companies collect live feedback and develop new enhancements which nudge customers to drive expansion and reduce churn.
Remote Selling trend to continue post-pandemic - Instead of being hampered by lack of field presence in Europe and other key markets, Indian SaaS companies can drive sales digitally, a massive tailwind for the local ecosystem. Field sales can be directed for critical customer segments and touchpoints.
Global software spends split in favor of SaaS – Penetration to potentially approach 85% by 2047, up from 35% in 2020.
Key Competitive Advantages for Indian SaaS Industry
The Indian SaaS Industry is expected to grow on the back of the following competitive advantages in the years to come:
Low-Cost Structure - Indian IT Industry has thrived due to significantly low personnel costs (upto 80%) compared to giants in the developed markets. The gap is expected to decrease in the upcoming years; however, it will remain a key competitive advantage for Indian SaaS companies.
Abundant Engineering Talent - India adds over 1.5 million engineering graduates to its workforce annually. With the wide pool of skilled talent and a 100K+ strong SaaS developer workforce, SaaS companies in India have a distinct advantage for the foreseeable future.
Effective Customer Service - With the second-largest English-speaking population in the world, the country has developed a strong BPO industry that has expertise in providing round-the-clock service to companies around the globe.
Strong Startup Ecosystem - India has the 3rd largest startup base. The startup ecosystem, supported by government initiatives like Startup India, has emerged to be a key growth driver.
Key Sectors to drive growth
To achieve global dominance and foster job creation in the decades leading up to 2047, Indian SaaS industry and the stakeholders need to focus on following verticals:
Healthcare- The world is going through a digital healthcare revolution as more disease outbreaks are predicted in the coming decades. Focus companies: Innovaccer, Tricog, Vizi (Medikabazaar), Carestack, Tenwave.
Logistics- - The development of smart cities and new mobility solutions is gaining huge traction, hence increasing innovative logistics solutions. Focus companies: Locus, Fareye, Freight Tiger.
BFSI- The global fintech market is expected to grow at a CAGR of 15-20% on the back of tech based open finance solutions.4 Companies like Khatabook, LendingKart, Namaste Credit are crucial.
Analytics & Big data- As huge data points are created globally, analytics solution providers like DataWeave, Whatfix, CropIn, MoEngage are gaining prominence.
Cybersecurity- As businesses increasingly adopt digital solutions and data breaches become ever more frequent, the need for online security solutions like Prophaze and Indusface is projected to grow at a CAGR of 10-15% running into 2050.5
Renewable energy- As economies increasingly become carbon-neutral in the coming decades, renewable energy based SAAS startups like SolarLabs, SenseHawk, SafEarth, MinionLabs are gaining traction.
Key Challenges
The growth potential of the SaaS Industry is huge in India; however, the following challenges are impeding the growth:
Tech Talent Crunch - While India has over 1.5 Mn engineering graduates annually, there is a crunch of skilled developers to lead product development. This has resulted in skyrocketing salaries for good techies, leading to an increase in the companies’ costs.
Data Security Concerns - India does not have any anti-piracy or data security laws. This makes it difficult for SaaS companies to protect their IPs from being used by competitors. Moreover, clients are sceptical about their data being stored in India.
Slow Adoption in the domestic market - While Indian SaaS companies continue to thrive in the global markets, they face challenges in the domestic market. Small and Medium Enterprises are reluctant to move to SaaS due to the following reasons:
The government should play a central role in providing policy and infrastructure support to the growing industry. Special courses should be curated to develop design thinking and nurture product management talent in academic institutions. The government needs to lead by example by adopting SaaS products within its departments and should encourage entrepreneurs to adopt SaaS.
The entire ecosystem needs to come together to raise India’s competitiveness in the global SaaS Industry – SaaS leaders, Investors, Corporates and the government – all should rally as one to benefit the country and its communities for decades to come.
Meet the Author
This issue of Funnel Vision has been authored by Archit Garg and Shantanu Chate.
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That’s all for this edition!
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