SaaS Sector: Potential and Prominence in India
A key requirement for the sector to reach its potential is a sufficient level of investment in growth.
The Indian software as a service (SaaS) sector enjoyed a bumper 2021. According to Bain & Company’s India SaaS Report 2021, the sector received investments worth $4.5 billion – up 170% over 2020.
The good times are expected to continue, at least for the next decade. Earlier this month, the Economic Times quoted a Motilal Oswal report that projected the sector to jump from $2.6 billion in revenue to between $50 and $70 billion by 2030. This would give the sector about a 7-9% share of the global market.
In other words, the SaaS sector is likely to play an increasingly significant role in India’s growth story.
What is SaaS?
Put simply, Software as a Service refers to using the cloud to deliver software over the internet, usually for a subscription fee. It is actually not a new concept – your email would be an early example of SaaS. Today, however, SaaS encompasses a wide range of software that has applications across industries and functions.
As Oracle notes on its website, “modern cloud applications can span – and connect –everything from financials, human resources, procurement, and supply-chain processes to commerce, marketing, sales, and service solutions.”
In effect, it’s the change from having to buy a disk to install Microsoft Office, and storing all your data locally, to using Microsoft 365 and storing your data on the cloud, where it can be accessed and used from any location and shared among multiple users.
In 2021, the global SaaS market was worth $130.7 billion. It is projected to grow over five times to $716.5 billion by 2028. A little over a third of all software today is SaaS. By 2030, SaaS is expected to account for 80% of all software.
India currently has over 1,000 SaaS companies, out of which 15 are unicorns.
"SaaS has emerged as one of the biggest disruptors in the global technology industry over the last two decades. It continues to accelerate further as the world rapidly shifts to a cloud-based environment. The Covid-19 outbreak exacerbated the push to SaaS, which offers greater flexibility, functionality, and better remote productivity," the Motilal Oswal report says.
Advantages of SaaS
The main advantages of SaaS are convenience and lower costs.
Since the software exists online, it can be acquired and installed in a matter of hours. It also enables users to access information from any device with an internet connection and reduces the risk of losing data. If a computer crashes or a mobile device is lost, the data remains safe and secure.
The licensing costs tend to be lower as well, as do the maintenance costs. These are usually shared by multiple customers, thereby reducing the individual cost of the service.
The software applications are scalable. As a company grows, it can proportionally increase its use of SaaS products. This makes it ideal for small and medium-sized businesses, which may not have the cash to spend on a one-size-fits-all software solution.
A company that uses SaaS doesn’t have to worry about setting up data storage facilities and figuring out the different rules and regulations for data storage in different markets either. Instead, it can focus on its core business, knowing that its valuable data is in good hands.
Fuelling the next decade
At an event in February 2022 hosted by SaaSBOOMi, a community of SaaS company founders, Mr. Kushagra Gupta, Associate Partner at McKinsey, said, “We think in the next decade till 2030 this will be the largest value creation opportunity in India, not [just] in tech. We see it creating about a trillion US dollars in value by 2030 and creating half a million jobs in the process. At that point of time we would rival what the tech services industry did in 30 years, but we would do it faster, in 10 to 15 years.”
In a podcast series called McKinsey on Start-ups, host Daniel Eisenberg discussed the report produced by McKinsey and SaaSBOOMi, titled ‘The SaaS Landscape – India and the Valley’, with Manav Garg, founder and CEO of Eka Software Solutions and founding partner of SaaSBOOMi, and Sid Tandon, a McKinsey partner.
According to Tandon, one of the key requirements for the sector to reach its potential is a sufficient level of investment in growth. While the sector lacked capital in the past, with investment hitting new highs, funds are no longer a problem. Tandon stresses the need to use these funds to drive growth.
“The mindset of the founders and investors was to build a sustainable business and start producing profitability,” Tandon said. “And it is not a bad thing to build a sustainable business but at the rate at which SaaS is evolving, you need to have your pedal to the medal to invest in growth … we expect that mindset to shift more aggressively towards a growth mindset than it had been in the past.”
Of course, chasing growth without having the right product would be fruitless. Therefore, the report also recommends that companies make sure they define and understand “the Product-Market Fit before starting to invest in growth”.
According to Bain, emphasis also needs to be placed on customer success. Indian SaaS companies must demonstrate their value to their customer’s business and facilitate their customer’s success in addition to their own.
That way everybody wins.