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Indian SaaS startups need to turn inwards to move forward

There is a myth among the local VCs that small business in India only uses pirated software and will never pay. The reality, however, is that most attempts have been too early, mostly thrusting complex enterprise style software to a user base that...

ET CONTRIBUTORS|
Nov 12, 2019, 08.31 AM IST
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Localisation needs in terms of language, regulations, business norms, mobile first usage, are not trivial, and most global SaaS companies do not have the muscle power of Facebook and Google to set up India teams.
By Anand Lunia

The Initial Public Offering of Salesforce in 2004 heralded the coming of the Software as a Service (SaaS) industry. This was about 7-8 years after Netscape, Yahoo and Amazon had bumper IPOs. Today, a sizeable proportion of successes in startups in the American venture ecosystem come from SaaS.

Adoption of productivity software in business lags that in consumers due to various types of friction. Yet, this is one space where the big does not necessarily get bigger; there rarely are moats from network effects like Amazon or Uber.

So, older players will have to keep evolving or else players like Zoom will come and take the market away. The time may have come for India to follow a similar curve for adoption of SaaS. Three big enabling factors are in place today — electricity, broadband and payments infrastructure.

Payments reforms are still to play out fully, and companies like Google still have an advantage in swiping your card every month, while a local SaaS company needs to go through many hoops, including two-factor authentication. Most local SaaS companies are forced to charge upfront for six or 12 months, collecting money even via cheques and demand drafts. We should hope that UPI 2.0 will wipe out this advantage to global firms.

A big myth about the Indian small business owner is that he is a pot-bellied, tobacco chewing fellow, slouching and conducting his traditional family business from his red ledger notebook.

As a startup person working in the glitz of WeWork and Starbucks, you won’t be alone in being very far from reality.

A look at the profile of borrowers on Lendingkart will tell you that their small business borrowers are below 35 (60%), educated (80% graduates), and mobile savvy (about 50 third party apps). These people have chosen to stay back in small towns, have a business that is first generation (>76%) and are keen to build it leveraging technology. These young, savvy businessmen are already used to subscriptions on Hotstar, Prime and Indiamart etc.

They understand that there is no point in avoiding Cloud software in business transactions because GST anyway captures all they transact. They want to move beyond mere tax arbitrage and build long-term franchises. They also understand that if they do not adopt technology, platforms like Amazon, Udaan, Indiamart will disrupt them. They bank on Open app, borrow from Lendingkart, use UPI QR codes, track taxes online and have found ingenious uses of WhatsApp for business. Unbundling of business use-cases of WhatsApp is one big theme in small business software, as elegantly demonstrated by Okcredit, Khatabook etc.

There is a myth among the local VCs that small business in India only uses pirated software and will never pay. The reality, however, is that most attempts have been too early, mostly thrusting complex enterprise style software to a user base that is very happy with WhatsApp.

This brings us to the final question — who will win in this space? Will it be a repeat of what Facebook and Google did to own consumer internet in India?

Business networks are not as globally spread out as personal networks on Facebook and LinkedIn. Platforms like Salesforce and Slack will face challenges in terms of pricing and will not have a big network effect-led easing into India. Software that are ‘brands’, like Zoom and Superhuman, better be ready for some low-priced home-grown brands, because the Indian businessman is never one to pay a premium for global brands.

Localisation needs in terms of language, regulations, business norms, mobile first usage, are not trivial, and most global SaaS companies do not have the muscle power of Facebook and Google to set up India teams.

India now has over 25 unicorns, but none in domestic SaaS. Our SaaS talent, of course, has produced global successes like Zoho and Freshworks. Now, the time has come for this talent to focus inward.

(The writer is Partner, India Quotient)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

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