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SaaS cos to benefit from global recession

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Economic uncertainties in North America and Europe are likely to raise demand for SaaS solutions, with companies laying off thousands of employees globally, industry experts said.

According to a June report by research firm International Data Corp. (IDC), SaaS startups offering applications and systems infrastructure softwares earned $249 billion in revenues during 2021. Revenues may grow at a brisk pace from hereon, as more companies plan to migrate to Cloud and adopt tech-enabled services to cut costs, they said.

Neha Gupta, vice president, team manager at Gartner, said softwares directly contributing to sales and marketing initiatives and performance have grown during past downturns. “Enterprises will accelerate adoption of cloud solutions giving them flexibility to pay just for the capacity and consumption they need.”

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Industries such as education and healthcare, and governments, which were forced to digitalize to cater to consumer needs will further adopt cloud SaaS, Gupta said. “Consistent with prior cycles, it is likely that solutions such as customer experience, digital commerce, analytics, collaboration, automation, and marketing will witness growth during the downturn.” However, enterprise asset management applications and manufacturing have suffered during downturns.

Anand Jain, co-founder and chief product officer of CleverTap, a SaaS-based mobile marketing company, said customers have been looking to consolidate their growth stacks into single unified platforms instead of using multiple solutions. “Companies are evaluating their SaaS contracts, and cutting down on spends where they do not see a clear correlation between the utility and improvement in business metrics,” he added.

According to Jain and Gupta, chief financial officers (CFOs) and chief information officers (CIOs) will prioritise effective management of cash flows, as many companies have missed their earnings targets.

Sanchit Vir Gogia, chief executive officer of Greyhound Research, said the cost structure of SaaS companies in the US and Europe is far more expensive than Indian firms, which are leaner, and with readily available manpower for management and implementation of services. This makes them “more likely to sustain this difficult phase, and grow”, Gogia said, adding that SaaS companies offering performance-based metrics for business operations will continue to attract funding.

Chennai-based Ramco Systems is such a firm, according to Gogia, who said the company has become a default standard for payrolls in many organisations around the world.

Saket Agarwal, founder, and chief executive officer of SaaS consultant firm Onnivation, also said while valuations for most startups will take a hit due to the recession, SaaS firms will leverage this and grow at a faster pace.

“We recently saw the emergence of the sixth Indian SaaS unicorn (LeadSquared) in 2022 itself. Similarly, despite the challenging macroeconomic environment, it is SaaS start-ups that are keeping up with their hiring goals,” he added. Onnivation, through its investment arm, has invested in over 40 startups worldwide, including India.

He said demand will increase as SaaS products help companies maintain profitable revenue streams, which have become critical amid a variety of challenges.

According to an April report by research platform Statista, Indian SaaS firms are expected to generate revenue worth $116 billion by 2026. They generated $8.2 billion in calendar year 2021, and over 70% of this was generated from global sales.

That said, it’s not all hunky dory for the entire industry. 

While enterprise SaaS products are expected to continue their strong growth, experts pointed out that consumer SaaS companies could see a tough time, as they still fall in the discretionary spending bracket.

“Consumer software has a significant risk vector as they are the first products to be ditched and rendered non-essential by consumers during unstable macro-economic scenarios,” said Ankit Tomar, co-founder, and chief technology officer at B2B marketplace Bizongo. He added that rising inflation will lead to a decrease in discretionary spending by both businesses and households.

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