The giant Indian SaaS wave will take over the world by 2025
Article by LogiNext CEO, Dhruvil Sanghvi
I’ve been keenly looking at the SaaS space for over a decade now and the last seven years have been devoted to building LogiNext, a transportation automation SaaS platform. I’ve also invested in a handful of technology startups riding this wave. What is SaaS? Software as a Service. What does it mean? To give a very mainstream example, Netflix is a SaaS company that sells software to you and me to watch licensed videos on demand. YouTube premium is SaaS where you’re paying x amount every month and there are several other such softwares in the enterprise domain like Slack which follow a SaaS model. In the enterprise realm, there is a per license monthly fee that a company charges its clients. For instance, if a 100 member company wants its employees to use Slack, they’d purchase licenses for the employees and the company would be charged accordingly by Slack.
Meet the Indian SaaS giants
SaaS as we know it today was pioneered by Salesforce in 1999. Everything comes into natural progression and SaaS evolved from ASPs (Application Service Provider) which were being developed with the intention of serving software at lower price points to make it more accessible. Freshdesk and Zoho are the torch bearers when it comes to building SaaS from India for the world. These enterprise software companies present two different flavours as well- Freshdesk was founded in 2009, and just became the first Indian SaaS company to be listed on NASDAQ! On the other hand, Zoho was founded in 1996 (moved to a SaaS model in 2005), is completely bootstrapped and valued at around $1 billion.
Apart from this, there are Chargebee (subscription management and recurring billing software), Zenoti (salon management software), Druva (data protection and security software), Postman (collaboration platform for API development), iCertis (contract management software), CleverTap (customer engagement and user retention), LogiNext (Logistics automation software), and thousands of others upcoming startups.
Growing at a CAGR of 30% according to a NASSCOM report, Indian SaaS revenues are at around $4 billion in FY 2021. And more than 75% of these revenues come from international markets. Globally, the cloud based software model has created a market of $250 billion + and Indian companies getting a larger share of this pie is happening exponentially. There are atleast 200 Indian SaaS companies generating an ARR (annual recurring revenue) of more than 1 million and this number is quickly growing. By 2025, I am optimistic that Indian SaaS revenues would be north of $15 billion and the number of SaaS startups will also double.
Beauty of the SaaS model
A question now arises, why are investors so bullish on the SaaS model? Why has so much money been pumped in to scale and replicate this model in several industries? The answer lies in the business model.
Firstly, high gross margins. A SaaS model drastically brings down costs for software as consumers (be it individuals or enterprises) can buy according to the usage and not spend on the infrastructure. Also, once software is built and deployed on the cloud, there is zero maintenance. In the earlier times, when a lot of software was on-premise, a dedicated support team would be required and there would be multiple servers to maintain each deployment. With SaaS, there is only one deployment that is served via the cloud. Of course, there are physical servers that the cloud company like AWS maintains but as a business, one does not have to get into that hassle. This results in gross margins of 85% which is not possible in any other business model.
Secondly, the stickiness of the model. And here, B2B SaaS has a huge upper hand. A B2C SaaS consumer may switch from Netflix to Amazon Prime but for businesses, this switch is not that simple. Once a business is convinced about using a SaaS product, the likelihood of sticking around is very high. This also means that sales cycles are relatively long but once a user starts seeing value, the client will be with you.
Thirdly, expansion possibilities. Once a user is with a brand, the brand firstly needs to keep the customer happy but then there is a huge possibility to upsell. A company can always give more to its customers and encourage the user to spend more with them and derive more value in return. In enterprise SaaS terminology, this is measured by NRR (Net Revenue Retention Rate) which includes all revenue from expansion (for instance a customer moves from a basic $10 plan to a pro $15 plan), downgrades, and cancels. A healthy growing enterprise SaaS company has NRR in the range of 120%.
All these factors make the SaaS model a darling of business owners. Be it investors looking to get multiple X returns or founders and business owners looking to bootstrap and grow on the basis of revenues.
What makes Indian SaaS companies special?
All this is great but then why the emphasis on the Indian SaaS startup wave? Well, the answer for this lies in the global exposure and the talent pool of Indians. The Indian IT services wave was the first one that brought Indian technology talent into the global limelight. Strong technology colleges in India and a massive population studying and shining abroad have resulted in a pool of extremely smart Indians running global tech businesses. Alphabet CEO Sundar Pichai, Microsoft CEO Satya Nadella, Adobe CEO Shantanu Narayen, are the topmost amongst a host of Indian-origin CEOs leading major tech giants across the globe.
Not only leadership qualities, but the sheer size of technology talent in India also makes it a breeding ground for hundreds of more tech startups. Another reason for the rise of Indians in the tech industry is also the fact that companies get access to very high-quality talent at a relatively lower cost. Salaries are rising for Indians and that is a good trend but the cost of talent remains one of the major reasons why Indian SaaS companies are gaining ground globally. Putting these trends together, one can clearly see that Indian SaaS companies have the domain expertise, the vision to build global companies, and are cost-effective.
Overall, the last two years have seen a major rise in the startup scene in India. Even through the pandemic, technology startups are the only sector that has given a glimmer of hope. India saw a euphoric rise in the number of unicorns in April 2021 where 6 unicorns took birth in 4 days (unicorns are companies valued at over a billion dollars)! These valuations and euphoria are only because technology platforms and technology, in general, are seen as the next big wave which is and will penetrate lives even more deeply.
These are some of the factors on which I’m super bullish about Indian SaaS companies taking over the global scene in a much larger fashion by 2025-2030. Stay tuned!