News & Analysis

Global Slowdown May Benefit Indian SaaS Companies

India’s software-as-a-service (SaaS) companies have had a good run over the past 12-20 months due to the impact that the pandemic-led lockdowns had on enterprises. Now it appears as though the predicted economic slowdown in North America and Europe could cause another spurt in demand for these products. 

A report compiled by the International Data Corporation (IDC) says the spurt, which could be fuelled by the large-scale layoffs that big companies may have to implement in the wake of the slowdown, could benefit SaaS startups handling applications and system infrastructure software. The sector posted revenues of $249 billion in 2021. 

These could witness another round of growth in 2022 and possibly the first half of 2023 as cloud and technology-enabled services are likely to be in demand from big companies attempting to cut costs and maintain control over their margins. In fact, experts believe software that directly impacts sales, marketing and performance management would ride economic slowdowns. 


Flexibility is the name of the game

As enterprises seek more and more avenues to adopt cloud based solutions in order to benefit from the flexibility that they offer by way of paying only for what they consume, some of these SaaS solutions would witness demand peaking towards the latter part of 2022. In fact, demand from governments is bound to increase, especially those that digitized on customer demand. 

The same holds good for the healthcare and education sectors as well though these could witness more stymied growth compared to the SaaS solutions around sales, marketing and performance management. These industries have shown resilience to economic slowdowns in the past and are likely to repeat the same. 

However, things may take a southward plunge for companies involved in manufacturing and enterprise asset management applications. The obvious reasons being the sluggish demand for such products from industries that would be going after a reduction in overall production itself. 


Time to relook at existing contracts

Another aspect to be noted is that customers have increasingly sought to consolidate their growth stacks onto a single platform instead of using multiple solutions. Large companies would be evaluating their existing contracts in order to reduce spends where they do not see a clear link between usage and enhancement of business metrics.

The focus from here on would be cost effectiveness to manage cash flows, given that several top enterprises have already missed earning targets. Given that SaaS cost structures are far more costly in Europe and the US, Indian entities providing similar services stand to gain, largely because of their process focus and leaner resource allocation. 

In fact, market watchers believe that all of this put together could result in better valuations for startups operating in the SaaS space. Research platform Statista predicts that Indian SaaS companies could generate revenues of over $116 billion by 2026, from the levels of $8.2 billion that they posted in the 2021 calendar year. 

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