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SaaS: A perfect storm brewing for India

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Software-as-a-service is a software distribution model in which applications are hosted by a service provider

Girish Mathrubootham launched his start-up Freshdesk five years ago along with Shan Krishnasamy, in a small conference room of his friend's office in Velachery, a residential area in South Chennai. He then moved to Keezhkattalai, a suburb and converted a warehouse into an office. The young venture established its first proper office in SP Infocity, a tech park. The software-as-a-service firm grew so fast that it had to literally break down the walls to expand its workplace. When its next door neighbour, an IT services firm, didn't allow it to expand into its territory, Freshdesk moved out of Block A to Block B in the same tech park. Freshdesk which has not stopped expanding its workplace, now has a 120000 square feet office, bigger than a football field.

“On Friday, we broke the wall again,” said Girish Mathrubootham, 40-year-old chief executive of Freshdesk, which was valued at nearly $500 million (Rs 3,352 crore) when it raised funding last April.

'Breaking the walls' represents the fast growth that Freshdesk, a software-as-as service venture has observed in the last few years. The firm which now has over 600 employees sells its customer support software to over 50,000 customers globally. Besides small and mid-sized businesses, it has also bagged large clients such as Sony Pictures, German fashion house Hugo Boss and Japanese automaker Honda. In the last seven months, Freshdesk has made four acquisitions including Framebench Technologies in February.

While India is still a long way from showcasing a Microsoft or a Google, SaaS companies like Freshdesk have sprung up across the country to create products that meet the demands of small and medium businesses world wide. Software-as-a-service (SaaS) is a software distribution model in which applications are hosted by a service provider or vendor. These applications are made available to customers over a network, typically the Internet.

“Indian start-ups have an edge, as mobility is also becoming a key requirement by small and medium businesses for software as a service,” said Rajan Anandan, managing director, Google Southeast Asia and India, in a statement at a tech event in Bengaluru. He is of the view that Indian start-ups are already building world class solutions for the mobile-first users. He said this strength combined with easy access to global customer base online will help India to become a very strong player in the global SaaS industry.

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For instance in Noida, RateGain is selling its software to about 12,000 clients in over 120 countries. It helps businesses including airlines, cruise lines, car rental providers and hotels streamline operations and sales. It does this by offering revenue management and real-time pricing data and analytics.

India's unfair advantage

“We are present everywhere except Antarctica,” said Bhanu Chopra, 39-year-old founder of RateGain. The firm which remained bootstrapped till December 2014 and raised venture capital last year, expects to earn revenue of $100 million (Rs.670 crore) in the next two years.

“We have been making money from day one,” said Mr.Chopra, who drives a white Porsche Panamera to his office in Noida.

Experts say that purpose built global SaaS products will see hyper growth and adoption by small and medium businesses. It will contribute to more than 75 per cent of the public cloud revenues driving the global SaaS industry to $132 billion (Rs.8.8 lakh crore) revenues by 2020, of which small and medium business SaaS is expected to reach $76 billion (Rs.5 lakh crore), according to a joint report released this month by Google and venture capital firm Accel Partners.

The report says the demand from small and medium businesses in U.S. is projected to double. There is also an expected explosion of demand from Europe.

It says that Indian start-ups have the opportunity to grab eight per cent of this revenue by creating purpose built innovative solutions targeted at small and medium businesses globally.

This means that Indian SaaS companies are expected to reach the $10 billion (Rs.67,085 crore) revenue mark in 2025.

In a market with demand fulfilment largely led by U.S., India’s competitive advantages will help Indian SaaS companies create $50 billion (Rs.3.3 lakh crore) in value over the next 10 years, according to the Google and Accel report.

“We anticipate several billion dollar (SaaS) companies will be created from India in the next decade,” said Shekhar Kirani, a partner at Accel, in a statement after releasing the report.

The report mentioned that there are over 500 SaaS start-ups in the country.

Mr. Kirani is of the view that there is now a sizable market opportunity and increasingly high quality entrepreneurs.

He said availability of local talent, favourable unit economics and a vibrant venture capital community in SaaS space is also driving this growth. “We’re already seeing many Indian SaaS start-ups creating world class products," he said.

Reverse innovation

These Indian SaaS companies are not just tapping rich countries. They are now also observing an increasing demand for their products from businesses based in domestic market and developing nations.

Capillary Technologies founded by IIT-Kharagpur graduates Aneesh Reddy, Krishna Mehra and Ajay Modani, launched the firm in India to solve the key pain points of the local retailers. Capillary's innovation which helps retailers understand customer purchase behaviour through artificial intelligence later found market in other countries.

It sells its technology to small and medium businesses including large retailers such as Benetton, Nike, Puma and Pizza Hut. The company has also become a case study of 'reverse innovation' for Harvard Business Review.

“If you solve problem in India, you can solve it anywhere,” said Aneesh Reddy, 31-year-old chief executive of Capillary.

The firm now has about 500 employees. In the last seven months it acquired two tech companies- machine learning firm Ruaha Labs and digital commerce solution provider MartJack. It earns about $20 million (Rs 134 crore) in revenue each year.

Everything done out of India

Unlike in the past when young ventures had to establish overseas offices, SaaS companies are now doing almost everything from India.

In Bhopal, online scheduling startup Appointy has attracted over 90,000 small businesses like salons, spas, and dance and yoga classes, in 100 countries without spending any money on marketing. Jalandhar, the oldest city in Punjab is home to Kayako.

It is selling its customer support software to over 30,000 clients including U.S. space agency NASA, European carmaker Peugeot, and Japanese gaming firm Sega.

“Earlier you had to sit in front of the customers. Now you can do everything from here,” said Sanjay Swamy, managing partner at Prime Venture Partners which has backed SaaS companies such as Synup and HackerEarth.

"We are observing a 'perfect storm' in the SaaS space and India has an unfair advantage," Mr. Swamy said.

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Printable version | Nov 18, 2017 9:36:20 AM | http://www.thehindu.com/business/saas-a-perfect-storm-brewing-for-india/article8349056.ece