1. Reads
  2. Lite

SaaS, SaaS Market Size and SaaS Industry Trends: All You Need to Know

Sep 24, 2021 1:46 PM 5 min read

On Wednesday, Freshworks became the first Indian software-as-a-service (SaaS) startup to list on Nasdaq, following a $1bn IPO and attaining a market cap of $13bn. The 11-year-old California-based firm, which started its journey in India and competes with Salesforce and Zendesk, was valued at $3.5bn in a financing round in November 2019.

With Accel, Sequoia Capital India, Tiger Global and CapitalG on its cap table, Freshworks (now trading under the FRSH ticker on Nasdaq) develops and offers over 50,000 businesses a variety of tools from CRM to help-desk software through a SaaS-based model. It hit revenues of $169m within the first six months of this year (up from $111m during the same period last year), with losses dropping to $9.8m from $57m a year ago.

Freshworks’s big-bang market debut sheds light on India’s burgeoning SaaS industry - one that is expected to be worth a stunning $1trn by 2030 and create over half-a-million jobs.

What is SaaS?

Rewind to the '90s and you might recall how the only way we could update a software was by buying the same from stores (usually in the form of CDs), opening it on our desktops, and then installing it. Needless to say, this was a tiresome and lengthy process - especially so for big companies, whose software needs are massive and ever-growing.

Over the years, this tedious model evolved when software updates became available online, from where we downloaded and then installed them.

Then came SaaS. It eliminated the need for users to download or install any updates - or, indeed, the software itself. Instead, the software could now be accessed through a web browser (or a mobile application) and operated online like any other website. Think of replying to workplace messages on Microsoft Teams or editing your photography on Adobe Lightroom.

Basically, SaaS can be defined as a software licensing model in which the product (i.e. the software) is centrally hosted on a common server and accessible to consumers via a subscription-based delivery model.

This is why it is also known as "web-based software" or "on-demand software". Some popular examples of SaaS are Zoom, Google Docs, Slack and Adobe Creative Cloud.

FYI: Broadly speaking, SaaS falls under the broad umbrella of cloud computing, which involves the on-demand delivery of computer system resources as a whole. Its sisters under this classification include desktop as a service (DaaS), managed software as a service (MSaaS), infrastructure as a service (IaaS), mobile backend as a service (MBaaS), platform as a service (PaaS), datacenter as a service (DCaaS) and information technology management as a service (ITMaaS).


The Evolution of a Revolution

Despite the hype today, the Indian SaaS phenomenon is a surprisingly young one. Even a decade ago, SaaS was barely heard of in the mainstream, with talk being limited to obscure pockets of the IT world.

The first "wave" of successful Indian SaaS startups (names like Zoho, Wingify and Freshworks) primarily targeted SMEs in the US. The growth model was one typical of Indian IT - capitalise on India's large and low-cost labour pool to offer cheaper prices to American companies looking to cut their costs, with all talk and transactions done over the internet.

SaaS, SaaS Market Size and SaaS Industry Trends: All You Need to KnowOver time, the industry matured and a new wave of players (like Druva, Zinier and Icertis) began targeting larger enterprises across the world. This helped the segment scale up. Before long, big names like Microsoft and Infosys began paying attention and planning M&A targeted at securing a slice of the growing SaaS pie.

A more recent incarnation - dubbed as "SaaS 2.0" - entails the decentralisation of the entire process and a bottom-up approach where on-demand software is used not only for pan-company operations but for collaborations within teams or between individuals. Like Github between developers or Slack amongst employees. Some popular Indian names engaged in this third "wave" include Postman, Hasura and Julia Computing.


SaaS Going Global

But how can we be sure of the promise and potential of Indian SaaS?

For starters, it has borrowed a leaf out of the IT book, using the same tactics that helped the latter become the international behemoth that it is. These techniques include low labour costs, targeting Fortune 500 firms, aggressive pricing of its services, widespread knowledge of English etc. And there’s strength in numbers too - India has nearly a thousand SaaS startups, 10 of which are unicorns (six having reached that milestone in 2020 alone). According to Bain & Company, India’s SaaS startups have the potential to gain 7-9% share of the global SaaS market, setting to gain $18-20bn in revenue by next year.

Moreover, it's relatively easier for a SaaS enterprise to go global than, say, an e-commerce one. That's because the former is less capital- and labour-intensive. Once you have the software, you're largely set. What's left is marketing and expansion and regular deployment of updates.

Besides, SaaS itself is a promising industry worldwide. Investors are bullish - and not least because COVID-19 has made remote or hybrid working a necessity and cloud computing the next big thing. (SaaS entrepreneurs were acquainted with remote working and remote sales well before the pandemic struck - an added benefit.)

Furthermore, these companies aren’t subject to intense regulatory scrutiny like Big Tech, don’t depend on China for materials or markets, and are relatively immune to the nuances of supply chain disruptions and international trade conflicts. No wonder, then, that investors are “high on the cloud”.

That said, data security is a major concern since clients' data is stored on the vendor's external servers (and data breaches are skyrocketing). Latency, issues with integrating large volumes of data and customization limits are some infrastructural roadblocks (which will likely be improved with future updates). There's also the philosophical opposition to SaaS as a violation of the principles of free software (Richard Stallman called it SaaSS i.e., Service as a Software Substitute).


Reinvention is the Mother of Success

The meteoric rise of SaaS mimics a similar trend across industry sectors towards the adoption of subscription-based business models.

This realignment stems from the same philosophy that drove the likes of Uber, Ola and Lyft: consumers are concerned about regular and reliable services as much as - if not more than - permanent ownership. Elsewhere, the winds of change are blowing in a similar fashion. Be it in social media (think Twitter), the creator economy (think OnlyFans), podcasting (Clubhouse), video games (Twitch) or blogging (Substack).

News media is the most obvious example to illustrate this shift. Years of declining print sales and negligible online ad revenue (where Big Tech ruled the roost) pushed news platforms to offer readers subscription packages to access all articles and/or for an ad-free experience. This sea-change was only accelerated by the COVID-19 pandemic.

Today, subscription-based models are fast-becoming the industry standard. Think of The New York Times (here’s an interesting interpretation of NYT as a SaaS company), The Economist, ET Prime, or even yours truly at TRANSFIN.!


The cut-throat world of Business and Finance means that there is fresh News everyday. But don't worry, we got you. Subscribe to TRANSFIN. E-O-D and get commentaries like the one above straight to your inbox.