India has SaaS, the next big thing in technology, and it could be worth $ 1 trillion

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

The Covid-19 pandemic has forced businesses around the world to make huge investments in digital infrastructure, which has fostered the influence of companies that provide software as a service or SaaS. Last year, companies spent an additional $ 15 billion a week on technology as they faced creating secure remote work environments, according to a KPMG survey.
The Indian software industry as a service could be worth $ 1 trillion by 2030 and create nearly half a million new jobs, according to a recent report by consulting firm McKinsey & Co. and SaaSBoomi, a community of industry leaders.

There are about a thousand of these companies in India, of which 10 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 in the 90s,” said Girish Mathrubootham, CEO of Freshworks, The best known SaaS company in India. He introduced himself to go public last month, joining a number of other major Indian tech unicorns that will be made public this year.

Freshworks was founded more than a decade 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 India’s oldest unicorn in the sector, which has raised funds from investors like Tiger Global and Accel and has over 50,000 customers. The company was last valued at $ 3.5 billion in a 2019 funding round, according to data firm Tracxn.

Others Indian SaaS companies they have found strength to focus on specialized companies. Zenoti, for example, it is a unicorn that creates software for the spa and beauty salon industry.

Of the 10 of India SaaS unicorns, six achieved this milestone 2020, i investors around the world pay attention to it. Last year, investors spent $ 1.5 billion on Indian SaaS companies, four times more than in 2018 or 2019, according to the SaaSBoomi report.

Bullish investors

Investors are excited SaaS due to the “massive adoption” of software over the past decade, according to Mohit Bhatnagar, CEO of Sequoia Capital India.

Girish Mathrubootham, CEO and founder of Freshworks, a "SaaS" or "Software as a service" company founded in Chennai, India.
Although India is a small player in the global SaaS market, investors say the country could end up dominating the sector due to two things: its large group of English-speaking developers and the relatively low cost of contracting. the bear.
Thanks to the rise of India’s IT industry, software engineering has become one of the most sought after professional options in the country.

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

Abhinav Asthana, co-founder of Postman, noted his experience working as a fellow at Yahoo in Bengaluru as a decisive element in the decision to build his product.

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

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

Now, Postman is The most valuable SaaS unicorn in India, valued at $ 5.6 billion.

International customers, Indian engineers

The low cost of operating in India is a big plus. According to a report by consulting firm Bain & Company, the salary of developers entering 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 U.S., it’s better to have a $ 1 million customer instead of a $ 10,000 customer, because you have to pay for sales and marketing in that country,” Prasanna said. Krishnamoorthy, partner of SaaS accelerator Upekkha. “When you serve customers in India, you can have them small and small medium and large companies. “

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

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

SaaS companies are much better placed to become international than e-commerce companies like Flipkart of India, for example. They write software once and then can use it several 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 get to the whole world,” said Mathrubootham, who is also an investor at Postman. This is because e-commerce companies require a lot of money to set up operations. physical elsewhere: they have to hire delivery drivers, rent warehouses and buy inventory.

Bhatnagar, of Sequoia Capital, said Indian software entrepreneurs were “mastering” the art of “remote selling” fairly early on. “Honestly, in the last two years, everyone has had to understand how to make better distance sales,” he added.

Despite the euphoria, there are some hurdles that Indian companies must overcome before fulfilling the $ 1 trillion promise.

Indian engineers trained in the IT services industry may have difficulty developing the discipline needed to build a product-focused business.

In IT services, “you’re selling agencies and you say yes to everything the customer says,” Krishnamoorthy said. SaaS companies, on the other hand, have to say no to 99% of [potential] customers, he added.

And India’s home ecosystem is still relatively immature compared to Silicon Valley. Despite the massive size of some self-produced unicorns, Mathrubootham said the country does not have a “global technology product brand.”

But he hoped 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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