Indian SaaS Market: Good times ahead

The Indian SaaS market is on track to achieve a remarkable milestone, with projections indicating a growth to USD 50bn ARR (Annual Recurring Revenue) by 2030 from USD 13bn in 2022. Investment in SaaS companies has surged from USD 0.8bn in 2018 to USD 6bn in 2022, driven primarily by the increasing digital transformation and adoption of cloud solutions. The Indian SaaS industry is poised to sustain its growth momentum in 2024, building upon the momentum acquired in the previous years.

Let’s look at some key trends and growth drivers that could shape the Indian SaaS landscape in 2024.
Abundant talent pool
India possesses a vast pool of skilled engineers and developers adept at building SaaS solutions. This pool offers a distinct advantage to Indian companies in terms of economical talent and enables them to invest more in cost-effective product development. With lower talent costs, R&D and customer acquisition costs compared to global locations, Indian firms can leverage this advantage to innovate and expand their offerings.

Large market opportunities in SMBs
There is a substantial demand for SaaS solutions from Small and Medium Businesses (SMBs) seeking to embrace digitisation and enhance their market reach and customer experience. SaaS companies must adopt a mobile-first strategy and tailor their go-to-market strategies to address the largely untapped SMB segment to increase adoption and ease of usage. In India, where personal connections play a significant role, human interaction will be crucial in selling the product.

Focus on vertical solutions
While horizontal SaaS solutions (e.g., CRM, HR, etc.) have traditionally dominated the market, there
is a growing preference for vertical-specific solutions tailored to specific industries such as healthcare, education, finance, and logistics. Vertical SaaS companies stand to gain a loyal customer base by offering integrated solutions aligned with users’ systems and workflows. This trend is likely to gain further traction in 2024 as companies look for more specialised solutions.

Generative AI for SaaS
The emergence of Generative AI presents new opportunities and challenges for SaaS solutions providers. With a large pool of AI talent in India, SaaS companies can capitalise on this trend to develop innovative categories of services and revenue streams. R&D will see an uptick, and the previous technology stack used by the SaaS companies may need rewriting. GenAI focuses on creating algorithms capable of generating new content, including text, images, and code. This has a wide range of potential applications in the SaaS industry, such as personalising user experiences, automating tasks and workflows, and generating new product and campaign ideas for market testing. Data accuracy and governance will be the key to harnessing Gen AI for SaaS solution
providers.

Expansion into global markets including US, Southeast Asia and Middle East markets

Leveraging the success and reputation of matured Indian SaaS companies, other SaaS players are eyeing expansion into the US, South-east Asia and the Middle East markets for their enterprise customer base and large market opportunities, as well as their similarities to the Indian market.

Government initiatives
Government schemes like ‘Digital India’ and ‘Make in India’ have played a pivotal role in fostering industry participation. The National Policy on Software Products and its various programmes have played an instrumental role in the growth of the SaaS sector. The Indian Software Product Registry has helped in the creation of Indian Software Product Companies, bringing all software products to one single platform to gain access to the Government eMarketplace.

A vibrant SaaS ecosystem to support growth of SaaS companies
India has built a strong ecosystem to support entrepreneurs in the SaaS segment. Incubation and Innovation centres of leading academic institutions such as Society of Innovation and Entrepreneurship of IIT Mumbai, accelerator programs of corporates, SaaS-focussed organisations and events such as SaaSBoomi and national industry groups such as NASSCOM and IVCA are playing a strong role in the development and growth of companies in this space.

Investment outlook
Despite a slowdown in investments in the SaaS segment in 2023, investors remain bullish on SaaS. Annual investment in SaaS in India reduced from USD 4.1bn in 2022 to USD 1.2bn in 2023. The deceleration in transactions is primarily due to unfavourable market conditions, global recession, war in the Middle East and Ukraine, rise in the interest rates and investors facing losses from their investments in some highly valued start-ups have led to the current wait-and-watch situation. Throughout this, public market has been the bright spot for investors who have been more focused on preparing their scaled-up portfolio companies for public market listing. Corporate governance and compliance are key topics of discussion in the boardrooms.

The investment scenario will see an upside in the SaaS segment in the second half of 2024, after the general elections. However, investors’ approach will be of more caution and less risk. There will be an increased interest in companies that are scaled up, generating revenue, are profitable and have a proven business model. Investors will target deals in series B and series C funding stages. Venture Capital and Private Equity funds have a dry powder of more than USD 20bn which they have to invest. A lot of domestic and India-focused venture capital funds have raised money in 2023, hence there is no paucity of capital. These funds will be more aggressive in scouting for good assets and promoters to invest in.

Prospects for the Indian SaaS industry look promising, driven by technological advancements, market expansion opportunities, and supportive government policies. With the right strategies and investments, Indian SaaS companies are well-positioned to emerge as global leaders in the digital economy.

source:-  Express Computer