Indian startup – Freshworks Inc. is a software-as-a-service (SaaS) company that has become the first-of-its-kind Indian SaaS company to get listed on the US stock exchange, Nasdaq. It raised $1.03 billion from its IPO. The company issued its share at $36 per share. It registered a growth of over 32 per cent growth on the very first day and was trading at $47.55 per share at the end of the day. With the listing, 10 per cent of Freshworks’ employees became “crorepatis”. Out of the 500 employees becoming crorepatis, roughly 70 are below the age of 30.
India has the third-largest startup ecosystem with the valuation running in billions of dollars for more than 50 of the startups. As reported by the TFI, more than 50,000 companies have been registered as startups under Department for Promotion of Industry and Internal Trade. While the IPO success of Freshworks brought a smile to the faces of all, the fact that the SaaS sector is about to overtake the IT sector of India shortly was given a miss by many. The SaaS sector of India pacing ahead of the IT sector is a story that must be told.
What is SaaS?
Software as a service (SaaS) is a software licensing and delivery model in which software is licensed on a subscription basis and is centrally hosted. SaaS is also known as “on-demand software” and Web-based/Web-hosted software. SaaS is considered to be part of cloud computing. This service allows businesses and companies to make use of software for a variety of reasons. From managing customer-company relations to ensuring early resolution of disputes, companies can make use of SaaS to digitally streamline and hasten their services, thus creating a booming business environment.
SaaS has been incorporated into the strategy of nearly all enterprise software companies. Global IT and research firm Gartner forecasted that software as a service (SaaS) remains the largest market segment on public cloud services and is forecast to reach $122.6 billion in 2021.
India’s Growing SaaS Sector
India is fast emerging as a leader in the SaaS sector. For India, the success of its IT sector has been a story to tell around the world. Now, the SaaS sector promises to outgrow the IT sector itself, and the effects of the same on the Indian economy will be tremendous. According to an estimate by consultancy firm Zinnov, in the last five years, for example, the number of active SaaS companies has doubled to more than 1,000, and the revenues of the sector have grown five-fold.
According to a report by Forbes, between 2025 and 2030, the software products companies from India will surpass the IT services sector by market value. The market value of India’s cloud software companies could touch as much as $1.8 trillion by 2030 if they grow aggressively. Forbes quoted a study by two firms, Chiratae and Zinnov, which found that Indian cloud software companies could cater to 10 per cent of the global SaaS demand at current growth rates of about 50 per cent every year. Even better, if the SaaS sector of India can push itself a little further and acquire a growth rate of 70 per cent every year it could even grab almost a fifth of the global demand.
Over the next five years, the SaaS sector of India could go on to employ 2,00,000 people, from the current 50,000. Furthermore, given the sector’s growth in India, during the same period, its revenue is expected to rise from about $5.3 billion to between $42 billion and $75 billion.
What is also acting as a catalyst for the Indian SaaS sector is the fact that the business environment and massive talent pool in the country help keep overall costs down compared with the larger multinational rivals. The rise of Indian SaaS companies is also drawing multinational companies to India, who want to be a part of the success story which is set to blossom in the next five to ten years.
Is the SaaS Sector Mirroring India’s IT Sector Boom?
In 1998, the Indian IT sector contributed 1.2% to the GDP. By 2017, the figure rose to 7.7%. According to NASSCOM, the sector aggregated revenues US$180 billion in 2019, with export revenue standing at US$99 billion and domestic revenue rising to US$48 billion, growing by over 13%. As of 2020, India’s IT workforce accounts for 4.36 million employees. India’s IT sector boom came in after the 1991 reforms. In the early 2000s, the sector received a much-needed impetus with the Information Technology Act of 2000, National Broadband Policy of 2004 and Special Economic Zone (SEZ) Act of 2005. Indian IT companies have set up thousands of centres within Indian and around 80 countries across the world.
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The Modi government is propelling the rise of India’s SaaS sector, much like how the Atal Bihari Vajpayee government had strived towards pushing India’s IT sector growth. The Modi government launched two programs; Startup India in August 2015 and Stand-up India in April 2016 to utilise the unearthed entrepreneurship skills ingrained in Indian society.
What Do Leaders of India’s SaaS Sector Have to Say?
Praveen Bhadada, managing partner for emerging technologies at Zinnov told Forbes India, “There are about a dozen unicorns in the sector today and another 150 to 200 companies that are small but growing strongly, with revenues ranging from a million dollars to anywhere between $10 million and $50 million.”
Rohit Choudhary, co-founder and CEO at AccelData said that while much of the Indian SaaS sector is focussed on the US market, there are also highly specialised companies that are emerging, which are finding customers in India. “We work with five telcos in India and Asia Pacific.”
The hero of the day, Girish Mathrubootham, who is the co-founder and CEO of Freshworks told Quartz, “Being a public company is not about doing an IPO. It’s about being truly being successful year after year.” He added that to be a world-class athlete in the SaaS space, Freshworks has to “perform, train, and stay disciplined.”
Manav Garg, co-founder and CEO of Eka Software Solutions has his eyes firmly set on one goal. He is eyeing to overtake global SaaS giants like Salesforce, as he said, “I think for me, the key would be now from here, once you’ve proven this thesis that Indian businesses can be global, how do you convert a company into an institution?” Therefore, “whether we can rival Salesforce, definitely, I don’t think that’s even a question.”
India’s SaaS sector is one to watch out for. Its story has just begun and is already promising to be one of the biggest in India.