What’s driving the SaaS story?
Software as a Service, or SaaS, has turned the traditional software application model on its head with features such as zero capital expenditure (capex), no hardware requirement, and try and buy. According to a February report by research firm, Gartner Inc., the global SaaS market is estimated to reach $75.7 billion by 2020 and a 2016 Google-Accel Media report expects the Indian market to touch $10 billion by 2025. What is fuelling this demand? And why are venture capitalists, or VCs, finding this sector hot?
Many factors are contributing to this, notably technology and cost. But as always, there’s more than meets the eye.
Till about a decade ago very few had heard about e-commerce. Digital advertising was not mainstream. Payment companies were only the good old banks. There was nothing called “asset-light” company.
Traditional applications like ERP were no longer relevant to the core functionality required in these new industries. Their business processes were quite different and ones not directly mapped by the traditional applications. Building something specific, required internal skills for development, maintenance, support. Customizing an off-the shelf application too much did not meet the business processes.
So, what will enable an e-commerce provider manage its dynamic marketplace on the web? Enter software platforms such as Demandware, Magento, Shopify. The advent of digital marketing meant marketers could identify and target prospective customers more precisely. CMOs now have a variety of tools that help them with this e.g. HubSpot (marketing automation), MailChimp (email Marketing), SurveyMonkey (digital surveys). With mobility, companies need enterprise messaging on the go. Slack, Flock, are some of the solutions in this space.
Each of the above SaaS applications, crafted a solution for a specific need and created a segment which was not well defined or absent earlier. Some Indian names include–KissFlow (BPM), RateGain (travel), LogiNext (logistics), and KnowCross (hospitality).
Even industries which were using the traditional software were changing rapidly. Processes in HR, finance, service required new capabilities which meant significant re-tooling for the traditional application providers. Workday (HR), Anaplan (finance), Zendesk (customer service), Veeva (CRM) – these applications brought considerable new functionality/ usability in their respective domains. Indian examples include CRMNext, Zoho, Freshdesk, iCertis, CloudCherry and more.
Look up, look around—There are many more smaller sized companies than the larger ones. True the world over, true in India. They require the same capability as their larger peers but at different price-performance points. They cannot afford to invest 6 months in implementation of the application. Nor do they require high-touch sales efforts. Digital marketing has made it easier to acquire such customers, and self-service technologies made it simpler to service and hand-hold them.
Along with start-ups, this makes the potential market larger and attractive. With traditional solution providers, primarily focussing on the enterprise or large customers, this space is better available for SaaS providers to target.
From a technology standpoint too, there have been few significant changes.
A release cycle for new version of an enterprise software used to take anywhere between 12-18 months. Today this has shrunk by more than half.
Efficient, inter-operable, object/container based software stacks like Java, MEAN, LAMP make it quicker to develop new applications. DevOps, GitHub, Jira make productionization and implementation easier and synchronized. Pre-packaged mappings, self-help guides, system driven navigation make for simpler and intuitive on-boarding. Most leading SaaS platforms publish API – application programming interfaces—that help platforms talk to one another effortlessly.
Another key enabler on the software front has been open-source technologies. Each and every component of the application stack is today available in an open-source environment. These are proven, enterprise class products originally developed by leading tech giants Google (Angular), Facebook (MySQL), etc. or by a live and thriving community like Apache.
Last but not the least – Cloud! The infrastructure elasticity and economics of Cloud is possibly the single most important factor. Low cost, high-scale, no-capex—fits perfectly well to the SaaS model Need we say more?
Sales executives at one of world’s large application software company are paid 1.4x for every $1 in order, if it is SaaS edition; if it is on-premise they get only 0.6. The VC exuberance doesn’t look like too irrational after all.
Makrand Jadhav is director at Pricebid.co, a SaaS platform for “Bid Pricing & Approval”, which is owned by AutoSum Infotech Pvt Ltd.