The Rise of SaaS in India: Trends and Future Outlook

The Software as a Service (SaaS) industry in India has grown over the past decade – from a nascent industry to one of the most dynamic and fastest-growing markets globally. Now, with its unique mix of a large pool of skilled technology professionals, cost arbitrage and an increasing start-up ecosystem driven by the growing need for digital transformation, India’s SaaS sector is at a stage where it can be considered a global powerhouse.

The growth trajectory of SaaS in India

Over the recent past, it has been noted that the Indian SaaS space has continued to record a robust growth rate of ~30% on a year-on-year basis. The growth was mainly driven by rapid adoption of cloud computing, increase of digitally run companies, the adoption of working-from-home culture and online collaboration.

Source: News articles

Revenue from India’s SaaS market is expected to grow from US$ 7.18 billion in 2023 to US$ 62.93 billion by 2032, indicating a CAGR of 27.3%. As of 2023, the country is home to more than one thousand SaaS companies with over 150 companies having annual revenues more than US$ 1 million.

Key trends driving the SaaS boom

• Talent pool and innovation hub: With a strong talent pool in the software development and engineering space, India is a suitable destination for SaaS product development. This robust startup ecosystem includes not only experienced professionals, but also young and ingenious talent who are constantly using their capabilities resulting in the ongoing innovation and creation of new solutions in the SaaS territory. According to the World Economic Forum, India ranks among the top countries for STEM graduates, with 34% of its tertiary education degree recipients in 2022 specializing in STEM fields, surpassing countries like the US and UK.
• AI and machine learning integration: The incorporation of Artificial Intelligence (AI) together with Machine Learning (ML) in SaaS products is significantly up scaling the market. Indian SaaS firms employ these advancements in developing services such as predictive analytics, customized user experiences and automation tools which enhance the product’s value proposition. For example, Freshworks utilizes AI for customer service improvement while Postman uses ML for optimal API management.
• Remote work and collaboration tools: Due to the onset of the COVID-19 pandemic, the adoption was high for remote work tools developed by Indian SaaS companies. Remote collaboration systems, including virtual meeting software, project management solutions and cloud-based document sharing platforms are some examples that were introduced by Zoho and Freshworks. These tools have now become an integral part of daily workflow for majority of the working class.
• Increased focus on data security and compliance: As the adoption of SaaS continues to expand, data security is becoming increasingly critical, and regulatory compliance is growing more stringent across various countries worldwide. This shift towards secure processes is essential, as it not only enhances confidence among international clients but also promotes overall trust in the industry.
• Government initiatives: The Indian government has actively supported the technology sector through various initiatives and policies. Initiatives like "Digital India" and "Make in India" have created opportunities for greater investments in technology infrastructure, playing a critical role in the success of SaaS companies.

Opportunities for SaaS

As developed economies are experiencing saturation in the SaaS space, emerging economies such as India, are tapping into other emerging markets that present substantial opportunities for growth and expansion. Indian SaaS companies are already venturing into creating a presence in regions like Southeast Asia, Africa and Latin America where their digital evolution is catching up with the developed world. This creates an interesting opportunity to offer diversified and affordable solutions in such markets.
India has a large population of STEM graduates, aiding the country in strengthening its positioning in the SaaS sector. With an abundance of skilled workforce, SaaS firms in India can bridge the resource gap faced by the rest of the world and enhance its service delivery.

Outlook

The prospects of SaaS in India appear attractive, and several factors will help the sector further expand to new heights.

• Expansion of the addressable market: The addressable market for SaaS in India is expected to expand significantly in the coming years. As more businesses, especially SMEs, move towards cloud-based solutions, the demand for SaaS products will continue rising. In addition, this trend will also provide opportunities for other companies that offer SaaS, as traditional industries such as manufacturing, retail and agriculture are becoming digitised.
• Rise of new SaaS unicorns: The Indian SaaS ecosystem may experience more startups scaling up and going global, leading to a rise in number of unicorns. A NASSCOM report projects about 50 software as a service unicorns by 2030 due to high demand for digital solutions and availability of venture capital funding.
• Increased M&A activities: The Indian landscape is poised to see increased Mergers and Acquisition (M&A) activities as companies seek to strengthen their presence in the market and increase their product catalogue. Additionally, there are chances that major global technology firms along with private equity firms would invest into Indian SaaS providers, supporting them with investment needed during rapid scaling stages.
• Innovation in product offerings: Companies will have to continue to stay innovative to be competitive, as the SaaS market matures. This will make the development of better and more suitable software solutions possible through use of technologies such as AI, Blockchain and Internet of Things (IoT). Companies that incorporate these technologies successfully into their products would be best placed to capture a larger share of the global markets.
• Growing focus on customer success: As competition increases, customer success will become a key differentiator for SaaS companies. Consequently, Indian SaaS providers must create strong customer relationships and offer proactive assistance to gain high customer satisfaction and retention levels.

Conclusion

The adoption of SaaS in India validates the advancement of the country into newer technologies and its capacity to cut across market competition. With a strong startup ecosystem, ever-increasing pool of talent, and favourable conditions, India is geared to emerge as a giant in the global SaaS market. Nevertheless, to sustain this growth, there is a need for Indian SaaS companies to continue to generate new ideas, expand their geographical reach and face business hurdles that could possibly arise.