India is eating SaaS

Change is easy to miss, hard to get right

Policymakers take pride in thinking that they create markets. Many believe that the 1992 World Bank report which called India as likely software superpower was responsible for the creation of $150bn IT services industry.

In emergent systems like markets, it is hard to say which inputs change the outcome. Internet was an important ingredient, the outsourcing industry was an unintended consequence of the internet. It made it possible for sending back office (R&D and Support) from US to distant parts in the world where it created efficiency.

Thomas Friedman, renowned New York Times journalist was quick to declare this in his book as World is Flat. He said “Several technological and political forces have converged and that has produced a web-enabled level playing field that allows for multiple forms of collaboration without regard to geography or distance, soon even language”

He was only half right. Ten years since his claim the Indian IT industry at $150 billion is only 10% of the $1.2 trillion US market.

What started with Internet will get completed with the cloud. Cloud enables to move front office i.e sales & marketing of software as well.

Business model type change is most potent.

As the world moves sales process from selling to assisted buying, front office need not be where the customer stays but where it is the most efficient to set it up. For the customer, there is no difference whether the software he buys is built, marketed from Alabama (US) or Alwarpet (Chennai). This decimates existing business models.

Business model changes are second-order effects, most fail to notice it initially. Leaders that do and act before others emerge as winners and those that do not perish.

Satya Nadella’s rallying phrase to lead Microsoft into the future is “Mobile First, Cloud First”. However after becoming the CEO, he did not hesitate to write off the big $8 billion Nokia acquisition while continuing to do big investments in the direction of cloud based business. LinkedIn at $22billion was one of the biggest acquisition for Microsoft in its entire history. Mobile is a big tectonic shift but do not create a business model change. Cloud on the other hand does.

Adobe was a leader in the PC application business. In 2007 its Rich Internet Application strategy was lead by a heavy client server led thinking. However, as recession-hit consumers stopped upgrading to their apps in 2011, they had to burn their boats to shift to an entirely cloud-based business. Fast forward seven years today Adobe & Shantanu Narayen serve as the ideal role model of a public company CEO that can navigate a business model change of cloud-based business.

New markets, technology changes are critical tailwinds to be in tune with however it is one that is related to business models that change fortune.

Change has global consequences

The business model change enabled by the cloud is called SaaS (Software as a service). It was earlier called as ASP — Application Service Provider a term coined by research firm IDC that meant software that can be rented

The first such software application that can be rented was built by Jostein Eikeland of Telecomputing in 1995. Like the pivotal moment of Wright brother’s first flight, no one noticed it. Not for several years until 1998. It is only in 2003 with the founding of Salesforce that SaaS found its way in business lexicon.

“It takes 30 years for a new idea to seep into the culture.” is a famous quote from Futurist, Stanford Professor Paul Saffo.

23 years since start SaaS has come far along, farther than how many trend watcher would have estimated. In 2018 roughly about one-fourth of software revenue is SaaS. At its current growth rate, it won’t be a surprise within a decade all software revenue is dominated by SaaS.

The world would be truly flat when more than half of that SaaS is from India.

When a helium-powered flight sporting a tagline #failsforce circles around San Francisco’s tallest building of Salesforce and creates a crack in it, it is quite telling on ‘Happy Feet’ of SaaS dance will play out.

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