Piyush Gupta

SaaS and SME – Synonymous Impact of SaaS in SME growth and new ways of doing business SaaS as business model has proved its credibility and sustainability. The report discuses the fact that how the SaaS startups are supporting the Small and medium business houses to grow and compete with big global players. SaaS and SME – Synonymous ••• SaaS Evolution and Market What is SaaS?? SaaS is software distribution model, in which third party providers hosts application and enable consumers to access it over the internet. SaaS technology was emerged in late 1980s. Then, in late 1990s, emergence of application service provider industry had boosted the concept of SaaS further. But, unfortunately, due to technical barrier and lack of scalability, the concept is buried for some more time until it rises in the form of first SaaS startup as Salesforce in-. A Tracxn study reported that the number of SaaS-based startups in India has tripled over the last five years, from 3000 in 2014 to 8,336 as of 2019. Business Models – SaaS Startups Vertical SaaS Horizontal SaaS Solutions address specific sectors and aim to provide tools to businesses in specific industry sectors E.g. Healthcare by Practo, Manufacturing by Sage Aims to provide a broad service that can cover a wide breadth of the market, through different industries E.g. Salesforce, Zoho Source: Nasscom Report 1 SaaS and SME – Synonymous ••• SaaS Market Size and facts Global market size In 2018 global software & service industry is estimated to be USD 1.4Tn and forecasted to grow at an annual rate of 6% in the next 5 years to reach USD 1.7 Tn by 2022. Global SaaS industry is currently estimated to be sized at USD 73 Bn in 2018 and expected to grow to ~ USD 129 Bn by 2022. Source: Nasscom report, Secondary Sources Key reason encouraging the transition from on-premise to SaaS are greater agility enabling rapid innovation, reduced vendor lock-in, reduced time to market, reduced IT dependencies and continual access to latest software. Demand for SaaS is enhanced by the continuous development of world-class solutions which are targeted towards changing business needs and technological advancements. 2 SaaS and SME – Synonymous ••• Indian market size Indian B2B digital Services in SaaS is USD 0.9 Bn in 2018 which is growing at 1.5X the global industry. Source: RedSeer | Consulting, Secondary Sources “SaaS story began in 2010-11; as many SaaS startups emerged in India that could offer world class products due to talent availability that too at a significant cost advantage. With lack of maturity of Indian market, the startups built strong presence in foreign markets CRM solutions in SaaS have acted as a leveler of playing field for large enterprises and MSMEs by greatly reducing usage cost. The new solutions also offer ease of understanding and usage to the customers thus making their acceptance higher across industries The Indian cloud ERP market is comparatively less mature than other markets but expected to grow due to increasing demand from SME's. The increased competition and globalization have become the key drivers for SME's to deploy ERP on cloud to minimize infrastructure cost. ” Source: RedSeer | Consulting, Secondary Sources 3 SaaS and SME – Synonymous ••• Why SMEs is the target market for most of SaaS Startups ---?? Facts about Indian MSMEs • MSME’s in India account for ~38% of GDP in 2018 to the tune of USD 1.1 Tn • The 63.4 Mn non-agricultural MSMEs in 2015-16 forms the backbone of the Indian economy employing around 110 Mn people. • Manufacturing MSME contributed ~8% to GDP that amounts to ~ USD 230 Billion in 2018 • Unorganized small retail including food & grocery contributed ~ USD 700 Bn to GDP in 2018 • After GST, starting business became easier, MSME market expansion improved and logistical overhead lowered • Out of the total ~15 lakh companies filing GST as of 2018, ~20% are SMEs indicating the importance of this segment Key Drivers for SaaS in SME sector No huge initial investment SaaS operates on a pay-as-you-go model with no large upfront fees. You just pay a monthly or annual subscription fee to use CRM as a service. This is one of the reasons why SaaS is usually favored by midsize companies who are careful about how they invest their budgets into new systems – even if it’s considered business critical. Easier Management and Maintenance For the most part, a SaaS solution is managed and maintained through the SaaS provider. This takes the burden off of a small business owner to have to manage the availability of their own applications. Many small business owners won't require an internal IT department with the help of a SaaS platform. Seamless Third-Party Integration Complete Accessibility Many SaaS offerings already come with thirdparty integration built in. Small business owners will be able to run multiple services that can all work together, thereby mimicking the infrastructure of far larger enterprises. CRM solutions, ERP platforms, and e-Commerce portals can all be linked together at a relatively low cost. Because SaaS solutions are accessed through the web, they are available on virtually any device. From smartphones to laptops, anything that has a browser can generally connect to the solution. This makes it easier for small business owners to work while on the go. 4 SaaS and SME – Synonymous ••• Major SaaS Startups and Funding details Freshworks Time Dynamo Revenue – INR 4 Billion Revenue – INR 4 Billion Market Valuation - $ 3.5 B Market Valuation - $ 3.5 B Total Funding - $ 399 M Total Funding - $ 399 M Revenue Growth – 59% from 2018 Revenue Growth – 59% from 2018 Web Engage: B2C Multi-Channel Marketing Automation Total Funding - $ 2.2 M Investors - Sequoia Capital, Accel Partners, Google, Tiger Global Management, Accel, CapitalG, Sequoia Capital India Zoho Corporation: Cloud Software Suite and SaaS Applications Investors - Blume Ventures, Rajan Anandan, Social Capital, BlackSoil, Capillary Technologies, GTI Capital Group, Nitin Singhal Investors - Sequoia Capital, Accel Partners, Google, Tiger Global Management, Accel, CapitalG, Sequoia Capital India Chargebee: Subscription Management Platform CleverTap: Mobile Marketing Platform Revenue – INR 31.90 Bn Revenue Growth – 31.90% for FY 2019 Total Funding – No public information Investors – Boson Motors, Zentron Labs, Zenede Total Funding - $ 38.20 M Market Valuation - $ 385 Mn Investors - Accel Partners, Insight Venture Partners, Steadview Capital, Tiger Global Management, Accel, Insight Partners Total Funding - $ 76.60 M Investors - Sequoia Capital, Accel Partners, Tiger Global Management, Recruit Holdings, Accel, Sequoia India, Sequoia Capital India Investment in Indian SaaS companies Source: Nasscom report, Secondary Source 5 SaaS and SME – Synonymous ••• FreshDesk Freshworks is a company that provides SaaS customer engagement solutions for organizations of all sizes. It develops a suite of products that includes Freshdesk, Freshservice, Freshsales, Freshteam, Freshchat, Freshcaller and more. The company's products are designed to work tightly together to increase collaboration and help teams better connect and communicate with their customers and coworkers. Financial Matrix Founded in 2010, it has raised the funds of $ 399 Mn till date in 8 rounds of funding. In latest funding scheduled in November 2019, it has raised $ 150 Mn. Source: Craft, Secondary Source Freshworks has reached the valuation of $ 3.5 billion in just 10 years and has made its entry into India’s unicorn in the SaaS space. Source: Craft, Secondary Source 6 SaaS and SME – Synonymous ••• Freshworks Income Statement Particulars FY 2018 FY 2019 Revenue 2.5b 4.0b Revenue Growth % 59% Net Income 170.0 M 300.0 M Source: Craft, Secondary Source SaaS to PaaS – Transition to new model The SaaS segment of cloud services accounts for 68.7% of the market share, yet the market has the slowest growth compared to Platform as a Service (PaaS). PaaS, which only accounts for 13.6% of the cloud market share, grew 50.2% year-over year. By comparison, the SaaS market only grew 22.9% yearover-year. It is no surprise that PaaS are outpacing SaaS as companies look to integrate more personalized technologies. Companies reluctant to transition entirely to the cloud often look to hybrid-cloud offerings. Global PaaS Growth Story Source: Marketsearchfuture, Secondary Source 7 SaaS and SME – Synonymous ••• Sources of the Information 1) 2) 3) 4) 5) 6) CLOUD – Next wave of Growth In India 2019 – Report by NASSCOM B2B Digital Services Landscape in India – Impact on MSMEs 2019 – Presentation by RedSeer Consulting Craft Owler Ministry of Corporate affairs database Article – Market research future.com 8