SaaS Spreads to India and Beyond

Software as a service is a thriving and still growing industry with dozens of multimillion-dollar companies making their mark around the world. According to Gartner, global spending on the Software-as-a-Service (SAAS) market is projected to grow 17.9% in 2012 to $14.5 billion and is projected to be worth $22.1 billion by 2015. IPOs and acquisitions abound, making it an attractive market for both entrepreneurs and investors to play in.

Workday, a human resources, payroll, and financial management solutions provider, filed for a $500 million IPO at the end of July 2012. Workday may also be on Salesforce.com’s radar as a possible acquisition target, since SAP acquired SuccessFactors and Oracle acquired Taleo. It will be interesting to see how things work out. HubSpot, which provides an all-in-one inbound marketing software platform for small and medium businesses, earned $29 million in revenue in 2011 and made two strategic acquisitions. In June 2011, HubSpot acquired marketing software company Performable, and in August of that year, it acquired social business management platform Oneforty.

ON24 provides cloud-based webcasting and virtual communications solutions. The company reported revenue of $50 million in 2010 and has expanded its horizons to the international market. In June 2012, ON24 acquired Madrid-based IMASTE, the largest virtual-events company in Europe. These companies all have bright futures ahead of them, whether they opt for IPOs or not. Founded in 2006, Marin Software provides an online advertising management platform for advertisers and agencies. Marin Software’s tools allow advertisers to manage workflow, reporting, and optimization needs. In 2011, the company earned more than $36 million in revenue and expects to earn that much plus $18 million in 2012. By mid-2012 Marin’s management team confirmed that it is looking to choose bankers for an IPO by September or October.

There are some promising software-as-a-service companies in the One Million by One Million portfolio, too. We have chosen three of them to showcase as examples of a trend that we find quite intriguing: SaaS startups cropping up in India. Online customer acquisition techniques make it viable for Indian SaaS players to compete in the global market, and it is a category that VCs and angels have embraced actively.

First up is Freshdesk, a SaaS company that provides small and medium businesses with on-demand customer support software that offers multi-channel social support. Founded in 2010, Chennai-based Freshdesk was a finalist in the Microsoft BizSpark India Startup Challenge in 2011.

Freshdesk co-founder Girish Mathrubootham got the idea for the company from a post in Y Combinator’s Hacker News. The post mentioned that a major player in the SaaS support space had raised its prices. Mathrubootham saw that as an opportunity to provide small businesses with credible customer support software at an affordable price. Freshdesk has since grown into a robust company. In the two years since its inception, Freshdesk has raised two substantial rounds of funding. In October 2011, the company raised $1 million in a Series A round from Accel Partners. In April, Accel Partners stepped up again, teaming with Tiger Global Management to offer Freshdesk $5 million in Series B funding.

A platform-as-a-service company, OrangeScape was founded in 2003 with the intention of simplifying business application development. The company gained traction with the help of a Chennai manufacturing company for which OrangeScape built an HR application. Slowly but surely, the company grew, and in 2009 earned its first $1 million in revenue.

What caught my attention as I started working with OrangeScape is their proven ability to plug a distinct gap in Google’s enterprise solution. As you know, the Google productivity apps portfolio is getting very good traction within enterprises, and through our Thought Leaders in Cloud Computing series, we’ve heard from various CIOs who are moving from Lotus Notes or Microsoft Exchange to Google’s Office suite. One of the primary drivers of the switch is cost. A second is collaboration.

Currently, when enterprises switch to Google’s productivity suite, they still need to make provisions to move the large portfolio of home-grown long tail productivity apps that have been developed around the previous system, such as Lotus Notes or Microsoft Exchange. And in comes the Google App Engine as Google’s offering in this context.

Well, it turns out that porting long tail productivity apps to Google’s App Engine is a somewhat cumbersome job, and requires a lot of custom development. Building new apps is also not as simple.

Enter OrangeScape. The long tail apps can easily be ported to or developed on Google App Engine in a third of the time and cost using OrangeScape as an application platform. Voila, the entire productivity suite of an enterprise can become cloud-ready, quickly, efficiently, and cost-effectively!

Orangescape has raised funding from the Indian Angel Network, and has since launched additional SaaS products.

Finally, there’s Sensible Softwares, a Pune, India-based company that launched in 2009 with its flagship product offering BootStrapToday, an application life cycle management platform for software development teams. Sensible Softwares targets freelance developers and software development teams in small and medium companies located in the United States, Europe, Asia, and Australia.

An early-stage company with a small set of customers, Sensible Softwares is striving to claim its own piece of an $867 million market pie with a learning technology based debugging and testing engine that significantly reduces testing costs in a software development lifecycle.

I have long been a champion of Indian product companies, urging entrepreneurs to think beyond labor arbitrage and outsourcing. Today, I am thrilled to see that Freshdesk, OrangeScape, and Sensible Softwares are emerging as promising players in the Indian startup firmament and reaching for global market penetration.

But SaaS companies are sprouting everywhere, and in every niche. Happy Grasshopper, a Florida-based company that helps businesses effectively stay in touch with past and present customers, is one that is getting great traction in the real estate industry. Founded in 2007, Happy Grasshopper offers an email marketing service for keeping in touch with customers, prospects, and effectively soliciting referrals through conversational email messages. Happy Grasshopper is a 100% bootstrapped company that has generated revenue since its second month in operation.

Part of Happy Grasshopper’s rapid growth came courtesy of an endorsement written by Todd Clark, a real estate agent in Beaverton, Oregon. It didn’t hurt that the company was also featured in Realtor magazine’s “Cool Tools” section. Press coverage, blogging, channel partners, and an affiliate program all help Happy Grasshopper to continue attracting new customers. The company should reach $1 million in short order.

These are interesting and exciting times for One Million by One Million portfolio and for the SaaS industry as a whole. I look forward to watching how these companies progress over the coming years.