India's SaaS market can expect a boom in the next two years

03 December 2020 Consultancy.in 4 min. read

Indian companies are set to double their share in the global Software-as-a-Service (SaaS) market over the next two years, on the back of key strategic initiatives. A new Bain & Company report analyses the domestic market.

A core model of cloud computing: SaaS is a software delivery method where service providers host an application on their own servers, which a client can access via the internet. Reflecting a rapidly digitalising global business environment, India’s SaaS market has been going from strength to strength recently.

In just five years since 2015, the number of SaaS companies operating in the country has jumped from less than 5,000 to around 8,000. Another 1,000 plus SaaS businesses have raised some level of funding – double the figure from half a decade ago. SaaS financing is also growing in stature, evidenced by 40 plus Series C and above funding rounds this year, compared to around 10 in 2015.

Growth in India's SaaS market over the last five years

A thriving market no doubt, but this has not always been the case. “The domestic Indian market has traditionally been challenging to monetise owing to lower awareness and higher price sensitivity compared to global markets,” explained Arpan Sheth, senior partner at Bain & Company Mumbai.

SaaS businesses have taken a number stratregic steps to navigate this scenario and come out strong in recent years. One is to lure customers in via a freemium model, allowing them to experience the benefits of cloud computing and eventually drawing the investment. No doubt, this requires a capital injection from SaaS businesses in the near term, but the model has proven effective in the digital space.

If not freemium, SaaS companies have explored other innovative monetisation models that take the initial burden off the customer. For those choosing the conventional business model, the strategy has been to clearly and concretely lay down the benefits of their product, complete with performance indicators and metrics for returns on investment.

Strategies to tap into the global SaaS market

These methods have been instrumental to India’s SaaS boom, aided along by a rapidly expanding cloud market. Just last year, Boston Consulting Group (BCG) placed India’s public cloud market among the largest in the Asia Pacific region, with expectations that it will touch the $8 billion mark by 2023. 

Also among the driving forces is an expanding SaaS market worldwide, which grew at a compound annual growth rate (CAGR) of 20% between 2016 and 2019 according to Bain. By last year, the global SaaS market was worth $145 billion, with considerable wind in its sails for years to come. Bain predicts a CAGR of 15% in the lead up to 2022, taking the market to $230 billion in value.

Fortified by global growth and enticed by the expanding cloud market in India, a number of global players are driving momentum in the domestic SaaS market. An example of note is the Deloitte and Google Cloud global partnership, which launched in India in June this year with eyes on the growing market.

SaaS companies all continue to growth their market share in coming years

Within India, SaaS players a benefitting from growing digital adoption even among small and medium enterprises (SMEs), as well as the growing pool of SaaS use cases that has accompanied the global SaaS boom. On the back of all these factors, India’s SaaS market is expected to make its mark on the world over the next two years.

Bain estimates that SaaS companies in India held 3% to 4% of the global market share as of last year. By 2022, this figure is expected to reach anywhere between 7% and 9%, nearly doubling the market share and putting India on the SaaS map worldwide.

“Indian SaaS companies have evolved from the rise of a few upstarts in the 2010s to a multi-billion-dollar industry today. In addition, India now has a thriving ecosystem of enablers comprising domestic and global SaaS investors; over a hundred SaaS angels with four or more investments; incubators and accelerators such as xto10x and Flipkart Leap; and SaaS development events and initiatives sponsored by communities such as SaasBOOMi,” noted Sheth, highlighting the promise of the domestic SaaS market.