Pandemic may force consolidation in SaaS industry: Zoho’s Sridhar Vembu3 min read . Updated: 22 Jun 2020, 08:43 AM IST
- SaaS companies should be prudent, watch costs carefully and manage their business so as to not need external funding
- Challenging times will continue even after the lockdown restrictions are lifted
BENGALURU: Notwithstanding the market-wide disruption because of covid-19, industries such as e-commerce, software-as-a-service (Saas), healthcare and enterprise technology are likely to see growth and create investment opportunities. The India SaaS market is forecast to touch more than $20 billion by 2022 grow from $6 billion in 2019, according to Bain & Co.’s India Private Equity Report 2020, along with Indian Private Equity and Venture Capital Association (IVCA).
In an interview, Sridhar Vembu, chief executive, Zoho Corp., a SaaS firm, spoke about how the pandemic may impact the industry, the need for financial prudence and the challenging times ahead. Edited excerpts:
What kind of changes will SaaS companies witness due to the covid crisis?
The worldwide SaaS industry was already overcrowded and ripe for consolidation. That was also true in India. The pandemic may force that consolidation wave. Secondly, venture capital (VC) funding becomes tighter, as VCs become much more cautious. These trends mean that SaaS companies should be very prudent, watch their costs carefully and manage their business so as to not need external funding. That is a big change for most companies used to easy financing terms.
What are the measures taken by Zoho keep costs in control?
In the short term, we have put a freeze on hiring and are cutting marketing budget to brace for tough times. Being bootstrapped gives us the freedom to adapt to these changing times quickly. Having survived two major economic crises (the dot-com bust and the 2008 global financial crisis), we have been financially prudent.
Being away from urban centers has allowed us to not worry about real estate prices. Going forward, we intend to create jobs in smaller clusters in rural areas, with a hub in a bigger town. Even as a hunker down, we are investing in R&D and growing our product capabilities.
Our objective now is to survive and serve. Our top priority is to ensure that we can save jobs of our employees. We review the situation every month, and so far, thanks to our wide product portfolio and ability to restructure and adapt, we have managed to avoid pay cuts. Next, we are focusing on serving our community, country and the world. We have launched several programmes under "Swadeshi Sankalp: Made in India. Made for India initiative."
How challenging will the next one year be for business?
I expect very challenging times to continue, even after the lockdown restrictions are lifted and I will be glad to be proved wrong here. First of all, there is the issue of fragility and severe imbalances in the global economy hooked on debt. That has never been addressed and I am not sure that policymakers can kick the can down the road once again. Secondly, the virus itself is far from defeated, and that makes for a very cautious environment all around. That is not good for consumer spending which drives businesses up through the chain. The Indian market reflects these global realities, with added problems of our own due to issues such as non-performing assets in the banking system that predated the pandemic.
Given the uncertainty going forward, what will be Zoho’s strategy?
In such an environment, providing deep value in product offerings, and very quick payback of money invested in products is vital. We have always focused on making our products very affordable, and that focus will continue. We continue to invest in R&D, even as we remain cautious in terms of marketing spending. We are also speeding up our move towards smaller towns and rural areas.
How much will fund-raising be impacted?
For too long, the SaaS industry has relied on VC funding and IPOs, even at the cost of profitability. That model is not sustainable and certainly, as the funds are drying up, the underlying lack of resilience is exposed. While being bootstrapped and financial prudence has allowed us to not be directly impacted by the drying up of VC funding, our customers are affected by it.