A SaaS revolution is sweeping the world - and it has reached India as well. Forrester, the IT research firm, estimates that by 2016, the SaaS or 'software as a service' space will account for 26 per cent of the total packaged software market, with global revenues of $92.8 billion. (The SaaS phenomenon locates a wide of range of software in an Internet cloud, which those who need to can access, instead of installing the software on their computers.)
The big shift to SaaS, to be sure, has major software firms such as Microsoft changing their offerings. But, in India, the revolution is being spearheaded largely by young start-up companies rather than the established giants. Quick to gauge the tremendous potential SaaS holds for the small and medium business segment - who may find installing expensive software beyond their means - most SaaS start-ups have networked with other start-ups across sectors through referrals, word-of-mouth publicity and online marketing.
Founder: C.S.N. Murthy
Started in: 2007
Product: Kookoo - provides cloud-based telephony services
Subscription cost: Starts from Rs 2,000 per month, depends on usage
First client: Trident Hyundai
Competitors: On-premise solutions
These synergies are helping SaaS companies grow quickly. Reach Accountant, for instance, which offers accounting services in the cloud, started in early 2008, and already has over 150 clients. Nevales, a network security solutions provider which began operations only last year, has netted over 100 clients. These vendors seem to have filled a niche in a scenario where small companies often have apprehensions over signing up for products and services offered by corporations.
"I do not think bigger companies are friendly to start-ups," says Shivkumar Ganesan who runs Roopit, a classified service start-up. "When you are serviced by another start-up, you feel the comfort of going to a kirana store over a Big Bazaar outlet."
Interviewstreet Technologies, begun in 2009, is another cloud-based start-up. It helps in assessing job candidates online. Says Binny Bansal of online retailer Flipkart, which too began only three-and -a-half years ago, and soon became Interviewstreet's first client: "We just love their dedication and receptiveness."
For most start-ups, the cost benefit is the most important. On-premise software solutions - or installing the required software in the organisation's network - are way too expensive for young companies.
They often involve complicated procedures as well, unsuited to a young company: having to pay upfront, for instance, installing servers and power backup. Using SaaS, young companies can save at least 50-60 per cent of the cost of ownership of an on-premise software solution. "A talent management solution may typically cost over `25 lakh and take 12 to 18 months to implement," says Shyam Sunder, Chief Knowledge Officer at Ramco, a Chennai tech company that offers a cloud-based enterprise resource planning, or ERP, SaaS solution. "By then most of your talented people may have left you."
Value in Verticals For the cloud-based start-ups, a niche focus is a good strategy to enter the market and compete against the packaged suites offered by larger IT vendor s, says Sat i s h Kataria, Managing Director at Springboard Ventures, a company which offers mentoring and other services to start-ups.
Take Synage Software. It started as a web design and development company in 2005. A few years later, it needed a software solution for a collaboration project, but could not find it anywhere in the market. That was the motivation to develop a product on its own, DeskAway - with which Synage Software turned itself into a product company in 2007. After using the product for its own project, says Sahil Parekh, Synage's founder, the company went on to grab a few former Web design clients which were also very young companies. Synage is the only Indian company operating in this space. All his competitors - Basecamp, GoPlan, Central Desktop and others - are foreign.
Apart from saving on costs, client start-ups also find the cloud vendors very useful for their hiring, project management and accounting tasks. "It empowers them and helps them scale up their IT infrastructure as per the pace of the business," says Alok Mittal, Managing Director, Canaan Partners. Harshil Karia, Founder, Foxymoron, a digital marketing company, remembers doing a project for Cadbury's when his start-up was only a few months old. It called for immense planning and careful allocation of tasks and DeskAway proved particularly useful for him.
Founders: Ravishankar, Kaushik Thakkar and Sunija Rishi
Started in: 2010
Product: Subscription-based network security solutions for SMEs
Subscription cost: Rs 2,500 per month
First client: Nutech Industrial Spares and Services
Clients: Over 100
Competitors: Cyberoam, Sonicwall, Watchguard, Fortinet
"No software vendor in India offers a parallel product," he says. "There were a few foreign vendors but since this was a home grown solution, we went in for it and now we are quite used to it."Kick the clunky
There are other fixes SaaS vendors offer, too. Shashank N.D., founder of Practo. com, a two-year-old start-up offering clinic management solutions to doctors, found it extremely difficult to compute 'tax deduction at source' or TDS, and service tax with Tally, a software accountants in India widely use. Shashank also did not want to give away the entire design of the product he needed to any vendor. He found Reach Accountant two months back. This application allows a company to directly make all income and expenditure entries, which accountants can remotely verify and work out all taxes payable at the month-end. It proved a perfect fit for Shashank.
Start-up vendors have an easier time with the shorter sales cycles as well. "Small and medium businesses, or SMBs find us online, check the product, sign up and start using without even contacting us," says Parekh of Synage.
SMBs find SaaS start-ups particularly useful because they need products with intricate customisation. Bigger vendors cannot address such requirements without incurring overheads which they would, in turn, pass on to the client.
"We have a support team which is constantly in touch with clients and addresses any customisation demand," says C.S.N. Murthy, founder of Ozonetel Systems, a cloud telephony services company which started in 2007. Murthy and team have created two SaaS applications using a home-grown hosted telephony platform.
Start-up clients working with startup vendors find it much easier to sort out niggling issues. Adhil Shetty, Founder, Bank Bazaar, a two-and-a-half year-oldstart-up, was at the Indian Institute of Technology, Kharagpur six months ago, looking for software programmers. He screened 80 candidates and shortlisted 30 for final interviews using customised tests developed by Interviewstreet.
Founder: Sahil Parekh
Started in: 2005
Product: DeskAway, a SaaS application providing a central system to collaborate and track work virtually
Subscription cost: Rs 500 to Rs 5,000 per month, depending on usage
First client: Parksons Games & Sports
Clients: Around 700
Competitors: Basecamp, GoPlan, Zoho Projects, Central Desktop
Shetty knew its founder, Vivek Ravishankar from before, through a mutual friend at online retailer Amazon. "At the outset, there were a few problems: the tests would crash before candidates completed them. However, we were able to iron out the wrinkles within six months," says Shetty. Beyond SMB
With an estimated 2.5 million SMBs in the country, this segment is large enough a market for the cloud vendors. But will they ever graduate to the bigger companies? Some start-ups, after having consolidated themselves, are now eyeing the big corporate pie. i-Web technologies, for instance, which provides SaaSbased solutions related to customer relationship management, and is three years old, today boasts clients like the Life Insurance Corporation of India. "It adds to the credibility of start-ups if they have big corporates as clients," says venture investor Kataria.
Synage is working on a non-SMB or enterprise version of DeskAway which will target larger companies, charging them more too. DeskAway already has clients like Etihad Airways, World Bank and Nasscom. But its focus will still remain the SMB market, Parekh says.
Founder: Robin Moses
Started in: 2008
Product: SaaS-based accounting software
Subscription cost: Rs 999 to Rs 2,999 per month, depending on usage
First client: Robots Alive
Competitors: Tally and other desktop software
Companies may prefer to keep critical business applications out of the cloud. It is for this reason, according to the Forrester survey, that SaaS business applications will never take over 100 per cent of the packaged business application market. Companies would prefer hybrid models, with business-critical, competitive applications staying onpremise.
Thus, Flipkart, which is using Interviewstreet, faces no security issue in getting software programmers screened through a cloud application. But, for processes like call centre management systems, it continues to use on-premise software.
The choice for small companies is clear: either spend heavily on complex on-premise solutions or use 'pay-as-yougo' SaaS solutions. The younger and smaller a company is, the more it would prefer the latter.
While cloud-based SaaS companies are empowering users to scale up, investors say their spread in the market will depend on the distinctiveness of these applications. Kataria at Springboard Ventures, who is currently screening eight start-ups with cloud applications, to choose one, cites the example of iDuple. com. It offers a package of a handheld device with a browser and all necessary web software required by an SME or start-up on the cloud. "That is the kind of differentiation needed," he says.
Concludes Mittal of Canaan Partners, which recently invested in two start-ups: "Start-ups should look for application areas that would not be possible without the cloud. It is those applications that will be the game changers."