India has SaaS, the next big tech innovation, and it could be worth $ 1 trillion

Now, Asia’s third largest economy is ready for the next big technological frontier: offering a new generation of software vendors like Zoom or Slack.

The Covid-19 pandemic has forced businesses around the world to invest heavily in digital infrastructure, increasing the influence of companies providing software as a service, or SaaS. Last year, companies spent an additional $ 15 billion per week on technology as they scrambled to create secure remote working environments, according to a KPMG survey.
India’s software-as-a-service industry could be worth $ 1 trillion by 2030 and create nearly half a million new jobs, according to a recent report compiled by consulting firm McKinsey & Co. and SaaSBoomi, a community of industry leaders.

There are nearly a thousand such companies in India, 10 of which are unicorns, or startups worth at least $ 1 billion, according to the report.

“This can be as big an opportunity as the IT services industry was in the 90s,” said Girish Mathrubootham, CEO of Freshworks, India’s most famous SaaS company. he deposited for a Initial Public Offering last month, joining a chain of other great indian tech unicorns that go public this year.

Freshworks was founded over ten years ago in the city of Chennai, in southern India. Like Salesforce, it provides software to help companies manage relationships with their customers. It is also the oldest Indian unicorn in the industry, having raised funds from investors such as Tiger Global and Accel, and has more than 50,000 clients. The company was last valued at $ 3.5 billion in a 2019 funding round, according to data company Tracxn.

Other Indian SaaS companies have found their way into focusing on niche businesses. Zenoti, for example, is a unicorn who creates software for the spa and beauty salon industry.

India’s 10 SaaS unicorns, six have reached this milestone in 2020, and investors around the world are paying attention. Last year, investors poured $ 1.5 billion into Indian SaaS companies, four times more than in 2018 or 2019, according to the SaaSBoomi report.

Bullish investors

Investors are delighted to SaaS due to “mass adoption” of software over the past decade, says Mohit Bhatnagar, Managing Director of Sequoia Capital India.

While India is a small player In the global SaaS market, investors say the country could potentially dominate the industry for two reasons: its large pool of English-speaking developers and the relatively low cost of hiring them.
Thanks to the boom in the computer industry in India, software engineering has become one of the career options sought in the countryside.

“India actually has one of the largest developer communities in the world,” Bhatnagar told CNN Business. Many of them have worked in some of the world’s largest tech companies.

Abhinav Asthana, the co-founder of Postman, pointed out that his experience working as an intern at Yahoo in Bangalore was instrumental in the decision to create his product.

He had the idea of ​​creating a tool that would simplify the API (Application Programming Interface) testing process. An API is programming code that defines how two applications communicate with each other, and Postman says this has made it easier for engineers to work together when designing and building their APIs.

“We saw how software was created in these global companies and we saw API was a key issue,” Asthana told CNN Business.

Now Postman is India’s most valuable SaaS unicorn, with a valuation of $ 5.6 billion.

International clients, Indian engineers

The low cost of operating in India is a big plus. According to a report by Bain consulting firm & Society, the salary of entry-level developers in India is 85% lower than that of their counterparts in the United States.
Abhinav Asthana, CEO and co-founder of Postman in India.

“If you’re building a SaaS business in the United States, it’s better to have a million dollar customer than a $ 10,000 customer because you have to pay for sales and marketing in that country.” said Prasanna Krishnamoorthy, Managing Partner at SaaS. Upekkha accelerator. “When you serve Indian customers, you can have these little and medium-sized businesses, as well as large. “

Most SaaS companies focus on global customers, similar to the strategy followed by india IT giants such as TCS and Infosys (INFY). Investors see it as a welcome change, since most of India’s oldest unicorns – from Flipkart to Paytm – have concentrated mainly in the domestic market.

Almost 98% of Fortune 500 companies use Postman’s products, according to Asthana, while Freshworks’ first customer was based in Australia.

SaaS companies are much better placed to go global than e-commerce companies like Flipkart in India, for example. They write software once and then are able to use it multiple times.

India produces billion dollar startups.  Now they have to start making money

“For a Flipkart you need billions of dollars [to grow internationally], but for a Freshwork you need a lot less capital to go global, ”said Mathrubootham, who is also an investor in Postman. This is because e-commerce businesses need a lot of money to set up physical operations elsewhere – they have to hire a delivery service. drivers, rent warehouses and buy inventory.

Bhatnagar of Sequoia Capital said Indian software entrepreneurs “mastered” the art of “distance selling” early enough. “Honestly, over the past couple of years the whole world has had to figure out how to make better distance selling,” he added.

Despite the euphoria, Indian companies must overcome certain obstacles before they can deliver on their $ 1 trillion pledge.

Indian engineers trained in the IT service industry may struggle to develop the discipline required to start a product-oriented business.

In IT, “you sell bodies and say yes to whatever the customer says,” Krishnamoorthy said. SaaS companies, on the other hand, must say no to 99% of [potential] customers, he added.

And the Indian startup ecosystem is still relatively immature compared to Silicon Valley. Despite the massive size of some local unicorns, Mathrubootham said the country does not have a “global technology product brand.”

But he hoped that future SaaS companies could change that.

“It is my personal dream to see India as a nation of products,” he added.

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