Understanding SaaS without jargons and mapping the Indian SaaS landscape across segments

Do you read about SaaS startups and wonder why they are becoming multi-billion dollar companies? Or what is their business model like and what metrics do they track? What are some upcoming interesting SaaS startups in India and why is India well positioned to produce potential SaaS unicorns?

If you are a beginner in SaaS, you should have most of these questions answered by the end of this piece.

India is among the fastest-growing Software as a Service (SaaS) markets in the world and is also home to some of the world’s leading SaaS startups. Technology has been the strength of Indian entrepreneurs and they have leveraged it to make India the hub of innovative SaaS startups. This piece is an attempt to understand various aspects of the SaaS landscape in India from a layman’s perspective, and we will divide this piece as follows:

1. SaaS vs Software — What’s the difference and why is SaaS eating Software
2. Map the SaaS landscape in India across horizontal and vertical players in sectors such as CRM, Sales, Marketing, Retail, Edtech, Fintech among others
3. SaaS startups attracting investor interest and capital
4. Key decisions and metrics to consider for a SaaS company
5. India’s road to a $1 trillion SaaS opportunity

SaaS vs Software — What’s the difference and why is SaaS eating Software

We are all familiar with Marc Andreessen’s “Software is eating the world”, published almost a decade back in 2011. But now, we are increasingly moving to a world where “SaaS is eating Software”. This has been happening since a while now, but Covid19 has accelerated the movement. But first, what’s the difference between software and SaaS? SaaS is simply software in the cloud which is subscribed/ rented, not bought.

Software is what an organization buys and installs on the organization’s servers. SaaS is software that organizations “rent” and is hosted “in the cloud” i.e it is accessed via the internet.

So, now why are companies preferring SaaS over Software?

Breaking it down by various aspects of the decision making process — Setting up and installation > Costs to use and maintain > Scalability and upgradation:

• Setting up and installation: SaaS follows an opex based licensing model with monthly fees vs a capex based model for traditional enterprise software. Initial costs for enterprise software are significantly higher than SaaS, given the expense of hardware acquisition, setting up a server, installing and running the applications on the organization’s computers or data centers. Whereas in SaaS, the organization adopts the “as a service” model, it doesn’t buy software — it buys the use of the software.
• Costs to use and maintain: In enterprise software, the organization has to incur costs related to providing power to the server, keeping the server cool, ensuring uptime and security, labour costs of inhouse IT to maintain the software, among others. In SaaS, all this is outsourced to the SaaS provider, and you just use the software.
• Scalability and upgradation: The inhouse IT team handles upgradations for enterprise software, and the organization carries the risk of a botched upgrade or a hardware failure — which can cause downtime or lost data. For SaaS, upgrades are pushed out automatically to all users, which means upgrades occur with no effort on the part of the user organization.

The above considerations would help us appreciate why organizations are preferring SaaS models over deploying their own software. Earlier, only large companies had the finances and resources to deploy software, but SaaS has led to “democratization of software”, leading to SMBs and mid-market firms adopting these SaaS tools.

Let’s take an example:

Internal communication tools used by an organization.

Earlier, companies used to build their own communication software, which used to be loaded on everyone’s desktop and the IT department was responsible was maintenance and upgrades. But now companies are increasingly taking to SaaS such as Zoom, Teams, Slack etc, where the software vendor is responsible for upgrades and not the in-house IT department. This has no doubt made internal communication a lot better! Today, companies of all sizes have embraced these SaaS offerings, across functions such as expense management, customer relationship management, among others.

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Indian SaaS Landscape

Software is something that has its applicability across all sectors — be it the mature sectors such as BFSI or new age sectors such as Edtech. All organisations are current/ future customers of some form of software. To understand India’s SaaS landscape, it would be helpful to segment the SaaS players into Horizontal and Vertical SaaS.

Mature Horizontal SaaS Players

Earlier in India, companies believed in building Horizontal SaaS in order to serve a larger market (TAM). Below are the Horizontal SaaS players across segments such as Customer Service, Marketing, HR, among others, which sell to companies across industries.

Source: INC42 Startup Ecosystem Report 2018 — SaaS snapshot

Most of the Indian SaaS unicorns today are horizontal players. Here are a few of the market-leading startups by segments:

• Customer relationship management: Zoho and Freshworks. Zoho was among the first SaaS companies to emerge out of India. It started by Sridhar Vembu way back in 1996. Till date, the startup has been completely bootstrapped by Sridhar. Freshworks was India’s first SaaS unicorn. (I have written about Freshworks journey here)
• Marketing automation: CleverTap and Moegnage. These startups provide their clients with a dashboard to help them gain deeper insights into the way their customers or users are engaging with their apps and websites.
• Contract management: Icertis enables enterprises to manage a different kind of contracts to help them ensure compliance, negotiate contracts and handle procurement in order to streamline their supply chain operations. Icertis became a unicorn in 2019. Sirion Labs is another young company working in this domain.
• HR Tech: DarwinBox operates a cloud-based human resource management platform used by companies such as Paytm, Delhivery, InMobi, Kotak group, among others. Belong, TurboHire etc. provide AI-driven hiring tools and platform. Leena AI is a young startup in this space that helps redefine every aspect of employee experience — Employee helpdesk, employee engagement, process automation, employee insights etc.
• Other segments: Naming a few more leading companies across different segments:
• Highradius helps its clients to automate their account receivables and payment processes so they can manage their cash flows more efficiently. The startup was bootstrapped for more than a decade. HighRadius raised its first outside investment in 2017 and became a unicorn in 2020.
• Chargebee offers subscription and recurring billing system for subscription-based SaaS and eCommerce businesses.
• Whatfix is a B2B SaaS startup that is helping companies accelerate user adoption of their software applications by easing the process of onboarding, training and support through its personalized and interactive step by step in-app guides

Upcoming Horizontal SaaS Players

Initially, companies were building to solve existing problems with a better product or at a lower cost than global peers. Now we are seeing many young companies solve problems that never existed before — problems with an ‘undefined TAM’. Few interesting new-age trends and Indian companies in horizontal SaaS I have come across:

• Personalized Video-based sales: Video is taking over text, across all segments, be it social media, education or sales. Now there are companies which enable organizations to create personalized video-based sales pitches. For instance, Rephrase.ai allows a company to deliver personalised videos to their customers using Generative AI. This obviates the need for customer sales executives to make individual sales videos for each client. This has the potential to change the way sales pitches are made! This also has applications in advertising, edtech (make personalized videos for students) etc. To understand more about Rephrase and synthetic media, do listen to this very interesting conversation with Rephrase.ai’s founder. Another company which is helping companies create personalized sales videos is Hippo Video. You might have also heard of InVideo — just as Canva made designing graphics and posters easy, InVideo allows users to create professional-quality videos using its templates, images, and music.
• Low/ No code SaaS: Low code tools are the flavour of the season. Globally, we have seen many no code players such as Glide, Zapier, Airtable, Wix gain a lot of traction. In India as well, there are no code platforms such as Appsmith is a low code project that enables developers to build internal tools. Hansel.io allows companies to optimize sales funnel and improve customer engagement by placing nudges along a user’s journey in the app, without writing a line of code. Another company doing something interesting in the augmented reality no code domain is Scapic.com, that helps companies build VR/ AR & 3D experiences. Companies, especially after COVID-19, are integrating video and voice into their own applications and products, and startups like 100ms.live/ are building easy to integrate tools to help them do that (Chinese company Agora is a market leader in the same segment but require more development effort).
• Future of Work: Covid has led to a new normal, and companies across the world have embraced remote work. They are trying to keep their employees engaged and build a remote-first culture. This has led to a host of new startups. Globally, virtual communication companies such as Zoom, Slack, Teams, Meet have gained a lot of traction. In India, Airmeet has been a key beneficiary of community conferences and meetups going virtual. A few global companies working on virtual events are RuntheWorld, Heysummit, Hubilo, among others. Another interesting startup I came across is letsdive.io, which is building a social space for remote teams where team members can play games, bond on common interests and do many activities together. Icebreaker, Tandem, Hallway, Remotion are doing something similar and building to ensure employees feel connected during remote work. For those looking to dive deeper into the remote work landscape, do check out this medium article.
• Artificial Intelligence/ Data Analytics: We all appreciate that data is the new oil. But that is only the case when that data is analyzed properly. Manthan offers cloud-based analytics products which help its clients to grow by taking data-driven actions to boost customer engagement. SynctacticAI is an end-to-end data science platform that handles the data life cycle management of a company and helps build smarter businesses at scale. Nextbillion.ai is building AI-powereda hyperlocal solutions, serving the unserved/underserved next billion users, starting with comprehensive and innovative mapping solutions.
• Easy data management: Related to the above segment, as the quantum of data each company handles today is ever increasing, we are seeing interesting companies come up in the data management domain. Hevodata enables companies to eliminate data silos and move data from any source to the data warehouse such as Redshift, BigQuery, and Snowflake in real-time, enabling enterprises to fully capture the benefit of data flowing through the many databases and software they currently use. Another company doing interesting work is Hasura, which provides developers with a GraphQL API to access their databases, or in simpler words allows the company to connect applications to existing databases where all the data is.
• Conversational AI/ Virtual assistant SaaS: Conversational AI technology has evolved from being just a chatbot. Now companies are developing Intelligent Virtual Assistants (IVA) that are trained to handle support queries, simulate the behaviour of an in-store agent and augment every stage of a consumer’s journey to complete the purchase process in the most optimized manner. Few companies building an IVA is Haptik (majority-owned by Reliance Jio) and Verloop.io. Another interesting company building a virtual assistant, focused on the next billion (‘Bharat’) users, is Jiny.io. Jiny’s assistive UI platform recognizes what is on a user’s screen and starts guiding contextually. Jiny speaks user’s native language and tells them where to click on-screen, something which is especially useful for users who do are not used to app flows such as Go to Cart, Swipe to Pay, OTP etc
• Sales prediction and Conversion/ Customer Insights: While CRM companies like Freshworks enable companies to communicate effectively with customers for better service, the need of the hour is to understand customers better, generate customer insights and predict your sales pipeline. Slintel is a young startup that enables companies to predict their next customer and prioritize their sales and marketing efforts. Squadstack helps companies improve their sales funnel and conversion through a hybrid of automation and manual efforts to qualify leads. Nektar.ai is building a digital sales assistant on top of CRM assistants to help them sell better. Zomentum is building sales solutions for managed services providers (IT channel partners) and provides data-driven insights on how these partners could provide more value to their customers (the B2B customer set). CustomFit.ai enables companies to convert traffic to quality leads by personalizing the website for each visitor.

Is there any other segment in horizontal SaaS that you find interesting? Would love to know, please DM.

Upcoming Vertical SaaS Players

Now coming to Vertical SaaS — companies serving particular sectors such as healthcare, retail, logistics etc. Some interesting vertical SaaS companies across segments in India I have come across:

• Fintech: Other than wallets, payments, lending, and insurance, are now seeing multiple SaaS companies in the fintech ecosystem. One interesting company I came across is Credgenics — it is a debt resolution and collections platform that enables banks/ NBFCs to facilitate faster resolution of stressed assets, helping them improve their non-performing assets (NPA). Creditmate and Prodigaltech are other companies providing a similar debt collection platform. Another company in the fintech SaaS domain is Nuclei, which claims to “inject consumer tech DNA in banks”. It is a merchant marketplace platform which once embedded within the Bank’s app, enables them to integrate and go to market with any 3rd party service or product quickly. Rupifi, a company operating in beta currently is enabling embedded credit for small businesses. It collaborates with aggregators and bridges them with lenders. The loan is then given to the companies that use these aggregators to sell their offerings to customers. Lendingkart recently launched its co-lending SaaS platform called Lendingkart 2gthr. This will enable banks and NBFCs to on-board within two weeks and disburse unsecured loans to MSMEs across India.
• Education: Recently, we wrote an article mapping the Edtech space in India. There are multiple companies providing tools to educators to enable them to go digital. Companies such as Classplus, Teachmint, Embibe etc. are enabling institutions and educators to go online, teach, evaluate, create and publish content.
• Logistics tech: The first wave of logistics startups saw trucking companies such as Rivigo and Blackbuck, and delivery companies such as Delhivery and Xpressbees. Now we are seeing a slew of logistics SaaS startups such as — FleetX — fleet management and predictive analytics platform that helps mid to large fleets to monitor and optimise their day-to-day logistics operations; Pando — freight management platform that helps enterprises digitise, monitor, and optimise their supply-chain operations; Fareye and GoBolt: help companies orchestrate, track and optimize their logistics operations. Say you order a pizza from Domino’s, the eatery uses FarEye’s service, which integrates into the system it is using to quickly inform the customer how long they need to wait for the food to reach them.
• Dukaan tech: Dukaan tech is definitely the wave of the season. We have seen the emergence of multiple companies allowing MSMEs and individuals to create their own online shop (read: a site/ app/ landing page) with features such as listing goods & services, ordering, payment etc. in literally few minutes. Some startups doing this are — Dukaan, MyStore by Khatabook, OkShop by OkCredit, Bikayi, Digital Dukaan by Dotpe, and the latest entrant has been Whatsapp, with its Shopping button for business accounts, making it easier for customers to discover a business’ catalogue. I have almost lost count of how many players are building a dukaan solution. Here’s a humorous take on how ‘Dukaan-Tech’ players are fighting it out.

• Agriculture: Cropin offers farm management solutions such as crop reports & insights, satellite and weather input based advisory, Farm to Fork traceability, among others. Intello Labs enables growers, packers, aggregators, exporters, food service and retailers to assess the quality of fresh produce across the value chain. Fasal aims to remove the guesswork from farming by capturing real-time data on crop growth conditions using on-farm sensors and notifying farmers to make informed decisions.
• Healthcare: Practo was among the first companies building a SaaS tool for doctors to efficiently manage their appointments and scheduling. Lybrate started with something similar. MedML is a health-tech startup focused on hospital administration and insurance claims. It claims to provide customized solutions according to the hospital’s needs based on healthcare and actuarial data. LiveHealth (CrelioHealth) is a diagnostic laboratory management tool that digitizes records, provides analytical reports and an online platform to manage the lab inventory, stock, and purchases.
• Productivity + Workspace management: Overseas, there has been a new wave of productivity and workspace management startups that are disrupting the incumbents and transforming the way we have worked since ages. For instance, Gmail is being disrupted by new email services such as Hey and , which have managed to garner their share of evangelists; Google Sheets and Docs are being disrupted by Coda and . Collaboration and note-taking are being disrupted by Notion.so and Roam Research. Though I haven’t come across Indian companies in these segments. Do DM me if you know of any interesting companies.
• Enterprization of consumer: While the Enterprise SaaS segment is well penetrated as we saw above, now we are seeing new tools emerge focusing on consumers first. That’s because consumers today aspire to become businesses tomorrow. Substack is one such company that has contributed to this movement. It helps individuals start their email newsletters, also giving an option to creators to make a livelihood out of writing paid newsletters. Podia, Teachable, and Thinkific are all SaaS platforms that allow creators to make and sell video courses and digital memberships. CreatorOS, Creator Stack, Spayee are envisioning to create a similar business in India, enabling creators and educators to turn their passion into a profitable venture.

Is there any other segment in vertical SaaS that you find interesting? Would love to know, please DM.

SaaS startups attracting investor interest and capital

Over the past few years, SaaS has attracted a lot of investor interest, and this has been greatly accelerated by Covid19. When most startups were finding it difficult to raise capital during the pandemic, Postman raised $150 million at a $2 billion valuation. The pandemic has disproportionately rewarded the listed SaaS firms. Zoom’s share is up over 400% since March, Shopify is up over 200%, and I believe the rally has just begun. Digital adoption has increased across all sectors and there might be potentially no going back.

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We are not only seeing all investors wanting to invest in SaaS companies, but also the emergence of specialized SaaS focused funds such as SaaS Venture Capital in US, Atlanta Ventures in SEA, accelerators and SaaS focused communities such as Upekkha and SaaSBOOMi in India. So what makes SaaS so attractive for investors?

• Recurring revenue: SaaS companies’ revenue is structured like a recurring annuity stream — customers pay monthly/ annual subscription charges for using the software. The best SaaS companies have net revenue retention of >100%. Recurring revenue makes SaaS a predictable and measurable to a large extent, reducing uncertainty around future growth — something which investors love.
• High Gross Margin business and potential to be very profitable at net profit level: Gross margins for SaaS companies typically range from 60–80%, with the primary COGS being network and delivery costs, as well as services personnel (e.g., maintenance, training, implementation, etc.). Businesses in other sectors such as retail (eg. Myntra), transportation (eg. Uber) have lower gross margins at 40–50%, so they need 2x as much revenue to earn the same absolute number of margins. High gross margin gives the business the ability to invest in acquiring new customers through sales and marketing (S&M) and grow faster. In fact, most SaaS companies spend 40–50% of their revenue on S&M, leading to a negative operating profit margin during the initial years. But once the business has achieved a certain level of scale, SaaS businesses have the potential to be very profitable due to the aspect of recurring revenue and low marginal costs highlighted below.
• Moat- high switching cost: Fundamentally, B2B businesses tend to have more sticky customers. Since the time and resources spent to switch from one software to another company-wide is high, there is a huge moat in serving B2B customers with a good product and customer service experience.
• Moat- Economies of Scale: Marginal cost of SaaS approaches zero as the business scales. In SaaS, a large part of the cost of software production is fixed — these costs do not change regardless of how much you sell, though as the business scales, these costs are shared over a larger number of customers. Hence the marginal cost, i.e. the additional cost of serving one more customer is nearly zero, unlike say a car manufacturing company where any additional car to be manufactured will require variable costs (the materials, some labour, storage, shipping, sales). Ofcourse, there are some variable costs such as the server cost, but it’s significantly lesser as compared to fixed costs. This becomes a moat since it’s cheaper to service the product with every additional customer acquired. This also helps the business to grow much faster than businesses in other sectors.

Case in Point — Zoom. For the 6 months ended July 30, Zoom had a gross margin of 70%. Zoom is among the few profitable SaaS companies. After years of investing in growth, Zoom now is net profit positive, with a net profit margin of 21% during the mentioned period. Further, as we can see from the financials, while revenue grew by ~270%, operating expenses grew by 130% illustrating the concept of lower marginal costs.

• Easier exitability given numerous publicly listed SaaS companies: For any investor, exitability is very critical. SaaS is one of the few sectors in venture investing which has numerous publicly listed companies, many of which have been very well received by the market. There have also been exits through acquisitions, such as Cisco acquiring India based Cloudcherry last year. Slack (a publicly-traded SaaS giant) also got acquired in December’20 by Salesforce at a whopping $27.7 billion.

Solid fundamentals + a clear path to exitability has made SaaS among the hottest sector for investors

Key decisions and metrics to consider for a SaaS company

As Sajith Pai notes in his weekly newsletter — summarizing learnings from a Public SaaS talk by Prasanna Krishnamoorthy of Upekkha — the core SaaS flywheel includes 5 key components: Market Choice, ICP (Ideal Customer Persona), Problem choice, Pricing choice and Game Play choice. These 5 components are as important as the overall goals of customer acquisition, retention, expansion etc. (the outer flywheel components in the image below). For understanding each core flywheel component, I would recommend reading Sajith Pai’s piece mentioned above.

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For a detailed understanding, one book I would recommend reading is Value SaaS Basecamp Guide. Other than the flywheel components, the book covers aspects such as:

• How is the US market different from the India market: US customers are called as DIY (Do It Yourself) customers, while Indian customers are called DIFM (Do It For Me) customers. SaaS founders talk about how it is easier to earn a dollar than to earn a rupee, thus helping us understand why most revenue for SaaS companies comes from the US. It is difficult to build a scalable SaaS startup focused on selling in India due to multiple reasons — low perceived value of software, low ARPU, high costs of in-person education and sales, and hand-holding in the DIFM approach as highlighted above. This adds up to the cost of sales and reduces the capital for sales and marketing to acquire customers, making the startup unscalable.
• Role of a website in SaaS businesses: For a SaaS business, the website is the showroom and plays a significant role as the first entry point for any customer. Use a BAF methodology for building the website — Benefits > Advantage > Framework
• Product Positioning and Messaging: Use a product positioning template and a messaging framework to convey information about your product to the target customer
• How to get the First 10 customers: As Lenny crowdsourced and shared in this article, you can either get your first 10 customers through your network, or by tapping the platforms/ communities where your target customers hang around or through some Media/ PR. It is recommended that you go beyond your first connections for the early customers, since you want to know if there is a real demand for your product vs. purely relationship-based sales.
• Defining the Buyers’ Journey: Setting up a leads funnel which starts with awareness and eventually makes its way to purchase and ideally to a happy customer who can champion your brand.

To understand the SaaS business model and metrics, listen to this talk by David Skok. This talk addresses concepts such as bookings and ARR, LTV/ CAC, Rule of 40, customer churn vs dollar churn, the unit economics of SaaS businesses etc.

Road to a $1 trillion opportunity

Indian SaaS has a trillion-dollar opportunity lying ahead. As Mr. Suresh, Founder of Kissflow says, “The current size of India’s IT Industry is $167 billion and it is growing at 8% year-on-year. (Source: NASSCOM). At this rate of growth, it will take us another 25 years and up until 2042 to get to $1 trillion”.

If we look overseas, there are many multi-billion dollar market cap companies. Zoom has a market cap of over $150 billion. Even all Indian SaaS companies combined will not cumulatively be valued at over $100 billion, indicating the huge potential for growth for Indian SaaS companies!

How is India uniquely positioned to achieve this?

• India has a perfect combination of talent availability, market accessibility and cost advantage to build world-class products with a local team. Not only does India have really high-quality tech talent, but it is also available at a much cheaper compensation than in the US. Earning in dollars and spending in rupees gives an unfair advantage to the Indian SaaS companies vs. global competitors.
• Similarly, the ability to provide 24*7 customer support, with a mix of automation and manual (in-person) support is another clear advantage over other global competitors. If you can service the client better and provide support, it does not only help win the deals because of cost advantage, but also builds great word-of-mouth as the customer NPS remains high.
• We are seeing second-time entrepreneurs and ex-leadership of the present unicorns in SaaS (Zoho and Freshworks have built a startup mafia) building companies now. Even first-time entrepreneurs have someone to look up to and a playbook to get inspiration from.
• Further, the Indian SaaS ecosystem has matured over the years, from both entrepreneur and investor point of view. As I mentioned earlier, there are SaaS accelerators such as Upekkha which are helping young entrepreneurs build a sustainable SaaS business. SaaS community SaaSBOOMi hosts interactions, podcasts and masterclasses for entrepreneurs to share learnings on SaaS playbooks, Go to Market strategies, Best practices etc.
• Moreover, Indian investors earlier wanted to fund tried and tested models, such as “Salesforce of India”, “Hubspot of India”, and used to ask — “What company like this has become a billion-dollar company before”. But now Indian VCs are open to funding businesses in unexplored territories, businesses which can become category leaders in a market with “undefined TAM” at present, such as Whatfix, Hasura, Browserstack etc. This has instilled confidence in entrepreneurs to solve problems that never existed before or that were never solved before.

We are currently in Phase 2 of our SaaS revolution — While Phase 1 saw companies such as Zoho, Freshworks, Chargebee, Druva, iCertis etc, the second phase is being led by Postman, Hasura, Khatabook and many others. The time has come for Indian enterprise software and we will definitely see many global companies emerge out of India!

If you have any questions or thoughts on the above, would love to hear from you- comment below or DM me.

If you are building something in SaaS, would love to hear from you. If you are someone looking to join high-growth venture backed startups in India (SaaS or otherwise), feel free to reach out.

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