India’s Big Opportunity In SaaS

It was clear to me way back in the nineties that India’s journey forward as a center of excellence in software would not gain legitimacy without some home grown product companies. Amidst the outsourcing boom, however, it was impossible to gain traction for the idea. Since March 2007, I have often orchestrated discussions on my blog on why India was still lacking in product companies. In June 2007, I interviewed Sridhar Vembu, the now famous founder of Zoho. Soon after, in my Forbes column, I introduced him as the smartest unknown Indian entrepreneur.

Well, Zoho does everything that you would do with Microsoft Office. It also has a hosted customer relationship management service that is free for very small companies and only costs $10 per user per month for larger ones. It competes with Salesforce.com which charges $65 per user per month.

Vembu has a very exciting opportunity ahead of him. What the Chinese have done in manufacturing, he is showing that the Indians can do in software: undercut U.S. and European software makers dramatically. Not in information technology services. Not by body shopping. Vembu has done something few Indian entrepreneurs have been able to achieve–build a true “product” company out of India. This is not a headcount-based business model.

A brief primer would perhaps help put things in perspective. “Product” companies build once and then market and sell the same thing multiple times to multiple customers. “Services” companies that do custom software development have to use “bodies” to do customer-specific development over and over again, with limited leverage. Theirs is a head count-based business model. Recently, popular software-as-a-service companies have come up with the model of “renting” software over the Web, thereby offering “products” as “services” while maintaining the scalability advantage of products.

Vembu has first done a network management product. Then he has done productivity suite Zoho as a software-as-a-service.

True, Vembu is a rare species in India these days. As far as I know, he’s one of the very few entrepreneurs who has been able to execute on the premise of building software “products” and/or software-as-a-service out of India. He has a big vision, and so far, he has executed flawlessly.

Today, exactly four years later, I am happy to report that Sridhar is no longer the only product entrepreneur using this model. In fact, in the SaaS domain, we’re beginning to see similar businesses. What Zoho has done in CRM, other entrepreneurs are looking to do elsewhere. Girish Mathrubootham, a former Zoho product executive and a 1M/1M entrepreneur, has started Freshdesk, a company taking on the customer support software space with a similar strategy. The company has already started gaining paying customers. [Read: The 1M/1M Incubation Radar: Freshdesk from Chennai, India]

Market research firm IDC forecasted in 2009 that “the harsh economic climate will actually accelerate the growth prospects for the SaaS model as vendors position offerings as right-sized, zero-CAPEX alternatives to on-premise applications. Buyers will opt for easy-to-use subscription services which meter current use, not future capacity, and vendors and partners will look for new products and recurring revenue streams. As such, IDC has increased its SaaS growth projection for 2009 from 36% growth to 40.5% growth over 2008.” IDC also predicted that by the end of 2009, 76% of US organizations will use at least one SaaS-delivered application for business use, and the percentage of US firms which plan to spend at least 25% of their IT budgets on SaaS applications will increase from 23% in 2008 to nearly 45% in 2010. All these predictions have held true. SaaS and Cloud have taken over the IT domain all across the business firmament.

To me this also read like a forecast for how the Indian IT services industry would lose significance, as their bread and butter – complex software integration projects at large enterprises – would start diminishing in scope. India, I thought, needed to leverage the SaaS wave, not get washed away by it.

SaaS has quickly become an increasingly crowded space – over 700 companies saturating the sector, addressing various slivers of business functions. Just within CRM, there is Salesforce.com, Zoho, and Netsuite for contact management; iContact, aWeber, and ConstantContact for email marketing; InsideView for opportunity intelligence; LucidEra for business intelligence; Genius for opportunity alerts; Jigsaw for business contact data; Hoovers for business information; Xactly for sales compensation; Apptus for contract management; EchoSign for contract signing; Webex, DimDim, ON24, and Citrix for webinars; Marketo for lead nurturing, and numerous other technologies for sales and marketing organizations to navigate. Look outside of the general CRM space, and there are SuccessFactors and Taleo for talent management, Concur for expense management, so on and so forth.

All of these categories and SaaS applications, however, have one thing in common. An Indian software team applying the Zoho strategy could easily carve out a significant market share by dramatically undercutting the price-point of these products. Take the example of Marketo, which we recently profiled on Entrepreneur Journeys. It’s a wonderful lead nurturing software that costs $1000 a month. I would LOVE to use it for 1M/1M, but $1000 is much too expensive for my purse. Can an Indian entrepreneur give me Marketo at $100 a month? Or $50 a month? Heck, if you can come up with the product, I will let you market it to the entire 1M/1M customer base, because, in some way, shape or form, we ALL need that product.

This, in my opinion, is India’s BIG opportunity in SaaS. Indian entrepreneurs, I hope to see hundreds of such companies emerging out of India, and selling into the Western market, under-cutting existing players, and making esoteric technologies currently unaffordable for small businesses – available, affordable, ubiquitous.

Good luck, and please join 1M/1M. We will do our best to help you become successful in executing on this strategy.