The Indian Software as a Service (SaaS) market has the potential to create $1 trillion in value and generate half-a-million jobs by 2030, according to a report.
The report created by SaaSBOOMi in association with McKinsey, titled – ‘Shaping India’s SaaS landscape’, noted that SaaS companies in India are collectively generating about $2-3 billion in annual revenue, employing 40,000 people.
The report said that the SaaS segment has experienced unprecedented growth over the past year, as enterprises, academics and governments scrambled towards digital transformation in order to make their products and services available online and conduct business remotely during Covid-19.
Software, including SaaS, now comprises $600 billion of the $3 trillion global enterprise IT and communications spending market. But with an 8% annual growth rate, its upward trajectory is almost twice the pace of the overall market. According to the study, the global SaaS market is expected to cross $500 billion in revenue by 2025, growing at an annual rate of 18-20%.
Manav Garg, Founder and CEO of Eka, explains in a blog, “Indian SaaS companies have leveraged these tailwinds to reach new heights in terms of both scale and scope in this period.”
There are nearly one thousand funded SaaS companies in India, ten of them are valued at over a $1 billion to achieve unicorn status. The startups now generate $2-3 billion in total revenues and employ nearly 40,000 people.
According to the findings, if Indian SaaS providers can execute to their full potential, they could potentially generate annual revenues of $50-$70 billion by 2030 and win 4-6% of the global SaaS market. This represents a value-creation opportunity up to $1 trillion.”
He further says that today, 55-60% of global IT and operations workflows are delivered from India, which hosts 3 million developers, the world’s largest pool. This deep talent pool and our right legacy of IT services bestows us with a strong foundation to target untapped potential in new segments.
“We see these markets are “India’s right to win”. Beyond our affinity to horizontal SaaS solutions, vertical SaaS and developer tools are two large sectors that lend them well to India’s strengths,” said Garg.
Vertical specific software needs deep domain expertise that our IT professionals have in spades. As the world moves from legacy on-premise software to SaaS, this opens up a large new vector for Indian companies to target. Today, SaaS accounts for 35% of the overall software pie but is poised to take a much larger slice over the next decade.
Scale matters for startup growth
The biggest requirement for Indian SaaS startups would be to adopt a “growth-first” mindset. To reach the $1-trillion milestone, the Indian pure-play SaaS ecosystem needs to be six times larger than it is now.
The report highlights five key areas where SaaS companies could improve to scale the industry. They need a razor-sharp focus on underpenetrated target domains, more powerful go-to-market strategies, an engine that continuously identifies and scales new businesses, more product differentiation and velocity and a better and scaled-up talent pipeline.
The report also shows that Indian SaaS companies are under-investing in their go-to-market efforts: those with revenues under $5 million spend only about 25% of revenues on GTM compared to 80-90% spent by global leaders.
“Underinvestment may be causing Indian companies to miss important growth opportunities. Companies would need to learn to prioritize scale and long-term market leadership over near-term profitability and invest at the level of global peers in go-to-market and product,” says Garg.
Greater investment, more collaboration in SaaS space
Investments are rising in the Indian SaaS industry, reaching about $1.5 billion in venture capital funding in 2020, but India would need to triple or quadruple funding to achieve its full potential, the report said. Specifically there has to be an increased outlay for early-stage companies, sees the report. Currently this is only 25% of the total $1.5 billion invested in 2020 – the shape of this pyramid needs to change with this slice being much bigger.
The report also observed that the Indian SaaS ecosystem needs to increase funding to three to four times from the current levels to reach its potential over the next ten years. This would require concerted support across all stakeholders — industry associations, government, corporates, and investors to scale talent by three to six times.
As Nasscom President Debjani Ghosh said, “To create awareness around the potential of SaaS in India, it is imperative for the government to collaborate with industry associations, investors, and corporates, and drive large-scale training programs by partnering with universities and institutions.”
While there are challenges ahead, these are not insurmountable, the report said pointing out that India has an exciting opportunity to propel itself on to the world stage as a SaaS force to be reckoned with. By creating massive world-class products and platforms, the Indian SaaS community can contribute meaningfully to India’s GDP in terms of both revenue and employment.