The SaaS space in India is a fast-growing one and is gaining adherents with the tremendous advantages that it offers. At the same time, security concerns and a lack of adequate awareness about the true power of SaaS applications tend to arrest the growth of this technology. Read on to find out about the opportunities that abound in the SaaS space, especially for emerging companies.

No one can deny that the cloud is becoming all-enveloping in India and Software as a Service (SaaS), especially, inspires tremendous confidence.  Indian enterprises are fully aware of the advantages that SaaS brings – reduced capital expenditure, increased scalability and optimized service models.

According to Gartner, SaaS sales touched USD 9 billion in 2010 and are projected to reach USD 10.7 billion in 2011, a rise of 16.2%. Gartner also estimates that SaaS applications, which accounted for around 10% of the total enterprise software market in 2010, will be around 16% of global software sales by 2014.

Emergence of the SaaS space in India

Narasimhan Mandyam is the CEO of ImpelCRM, which has been successfully selling a SaaS CRM product in the Indian market for a few years now. He believes that India is the easiest market to penetrate in the SaaS space, thanks to the overall success of the entire economy. “The entire market is growing, and companies are looking for solutions that can scale up as their businesses grow. This is what SaaS offers. I can start small and then invest more in the cloud as my business grows, rather than make heavy investments upfront. This is of especial significance in a country where there are capital constraints, and where, capital, even when available, is generally deployed in productive assets.”

Pravin Agarwala, who heads the On-demand Division in India of SAP points out that the emergence of smaller buyer companies is also driving SaaS adoption. “The SME market is a big one that is not being adequately tapped, or is being serviced through unstructured software solutions,” he claims. “This is also a cost-sensitive segment, and if you can make software a commodity and offer a pay-and-use model, that is going to be a saleable option!”The SME segment, with TCO as a major driver, is the biggest adopter of SaaS today. Larger enterprises, on the other hand, look to the cloud for flexibility, scalability and improved manageability.

Research shows that India is a rapidly growing market for SaaS. According to Springboard Research, SaaS in India is expected to reach USD 352 million in 2012, with enterprise spending expected to grow at 60%, as compared to 46% in Asia-Pacific between 2008 and 2012.

The role of SMEs in this space

And the SaaS opportunity seems to be tailor-made for SMEs, from a vendor perspective as well. As Mandyam points out, “The biggest challenge in software lies not in building technology but in selling and distributing it. In traditional models, you need a well-developed sales force and distribution channels to be successful, something which an SME may not be able to afford. Now, with SaaS, it is as simple as paying for the right keywords on Google. At a significantly lower cost, you can enter pretty much any market in this country!”

India has around 35 million SMEs, ranging from small mom-and-pop outfits, to small companies with 500 employees and medium-sized ones with 2000 employees. All these companies need some kind of IT support, no matter which industry they are in; and they are generally in some niche, specialized areas which demand domain expertise of the vendor.

Nischal Khorana, who heads the ICT Consulting Practice at Frost & Sullivan notes that while the large enterprises are investing heavily in creating an awareness of SaaS, SMEs are taking a different tack altogether. They are creating niche solutions that are vertical- or function-focused. “SaaS thus offers ample scope to both larger and smaller vendors,” states Khorana. “Larger vendors can take larger slices of the pie and SMEs can aim for a niche market.”

Emerging trends

• SMEs are buying SaaS
• SaaS is being used for all processes and operations, as long as security issues are addressed. “I did not see this in the US, where silos of products still exist on the cloud,” emphasizes Mandyam. “In India, people are willing to look at an integrated solution, probably because we are a service economy.”
• Large companies are investing heavily in marketing to create an awareness of the space, while smaller vendors are exploring how they can leverage this disruptive delivery model through niche solutions.
• Vendors are looking for new ways of convincing the customer and the SaaS space lends itself to this. Explains Khorana, “Vendors can use the cloud to create a platform where the customer can try out the application. Trials, free download periods, proof of concepts, etc. are standard now. These touch and feel the applications are necessary to instil confidence in the solution.”

Predictably, the driving force of the SaaS space, at least for the time being, is CRM. But it is just as applicable for just about any function – HRM, collaboration solutions, etc. Customers are willing to adopt SaaS for solutions in any areas that are not ‘core’; here, some amount of ‘experimentation’ will not be too risky. “Once more confidence is built in the cloud, customers will probably move more of their core applications to it,” says Khorana.

And SaaS is for all verticals, though the BFSI segment has been slower to adopt the technology, given perceived security issues and loss of control over sensitive data.

Future outlook

Trends indicate that the SaaS market isburgeoning, but also that deployments in the spaceare not as extensiveas one would expect, since most customers have deployed SaaS applications in silos, without integrating them with other enterprise applications.

Khorana points out that over the next 3-5 years we can expect some degree of maturity, in terms of SLAs, delivery capability, and partnerships within the IT ecosystem, with larger enterprises tying up with vendors to deliver much-needed solutions to the market.

Mandyam is very positive about the future of SaaS. “There are 9 million SMEs in this country that desperately need some degree of automation, and they are going to find some solution or another through SaaS. That’s 40-50 million people over the next 10 years who will use SaaS in some way. This is huge! Larger than anything that you have seen in any country in the world!” he concludes.

Contributed by Kritika Srinivasan, with inputs from Ishma Siddiqi, Prayag Consulting for the NASSCOM EMERGE newsletter.

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