While the information technology hub of Bengaluru has been compared with Silicon Valley in the US for start-ups in the sector for years, Chennai is trying to mark a place in the IT map as the hub for software as a service (SaaS).
Many SaaS majors which compete directly with global leaders in their respective segments have Chennai as a home. For instance, Zoho Corporation, founded in 1996 as AdventNet Inc, launched its first cloud business app, Zoho Writer, in 2005. It competes directly with companies such as Microsoft in this market.
Similarly, Freshdesk, started by Girish Mathrubootham in 2010, has been challenging the global leader in this space, Zendesk. It is one among the top three global SaaS-based customer support service entities, the company had said. It is also considered one of the few poised to soon grow beyond a billion dollars of annual business.
Unmetric, OrangeScape, HappyFox, ChargeBee, GoFrugal, KiSSFLOW and Indix are among this list of new-age product companies that have came up to the top of the list from the city, in the recent past. There are at least 50-100 entities with roots in the state, according to sectoral sources.
Availability of talent and a system favouring the industry has set the base for this growth over time, and would remain the strong factor, they said.
“For decades, Chennai has been the home of enterprise software companies, like Ramco Systems, Selectica, Temenos, I-Flex Solutions and Zoho. The city is home to some of the best engineers from this part of the country, entrepreneurs who are hungry to win in the global market, and an ecosystem that provides everything they need — from access to investors and capital to the infrastructure — to succeed,” said Mathrubootham, founder of Freshdesk.
Sridhar Vembu, founder & chief executive officer (CEO) at Zoho, says: “Chennai has always had a good pool of software talent. Combined with that, there is the anchor company or clustering effect. As Zoho has grown to be the largest software product company out of India, the Chennai cloud ecosystem has benefited from our growth.”
The sector believes the country has a structure where multiple hubs flourish and each cluster will have its own character and culture, intricate support mechanisms and type of start-ups.
“Chennai is fast emerging as the SaaS hub in India, in answer to Bengaluru’s e-commerce hub and Pune’s IT R&D. The incredible pace at which the Chennai start-up system is growing will see it being established within the next decade or so,” said Mathrubootham.
As to the key factor which would help the city to remain atop the SaaS sector, they again point to the talent pool. Tamil Nadu claims to have the highest number of technical universities in the country, 18 per cent. The state is home to 55 universities, 2,267 colleges, 527 engineering colleges and 447 polytechnics. The state government says around 400,000 engineers and technicians are added to the pool each year across specialisations — mechanical, civil, electrical & electronics, computers and communication, chemicals, biotechnology.
This has provided SaaS entities ample scope to grow their companies without having to look far, said a sector expert. Chennai’s broad and deep talent pool is a major attraction for these companies. It is fairly easy to get started, said another expert.
Additionally, companies in India have the advantage of running cost-effective R&D, sales and marketing operations, which enables them to grow globally at a faster rate.
“Talent pool is the single biggest element, combined with an overall peaceful atmosphere in the state. It is possible to scale up operations in Tamil Nadu and serve a global market. The fact that Tamil Nadu's colleges attract talent from all over India is also a huge plus for companies located here,” said Vembu.
He added the challenge here, as in other major cities in India, is the rising traffic, congestion and the associated degradation in overall quality of life. To some extent, Chennai and other major cities are paying for their success. “We believe quality of life would be a major factor in the next generation of companies that come up,” he said.
According to Mathrubootham, the main challenge would be the lack of marketing or promotion of Chennai as a SaaS hotbed. “Together, companies here are worth billions and venture capitalists have only now begun to take notice,” he added.
The industry leaders, however, feel the first generation entrepreneurs in the SaaS and enterprise software companies have not only moved to establishing their own start-ups but also in mentoring the next generation of entrepreneurs in the city, important for healthy growth of the sector.
Multiple events and meetings organised by various organisations allow aspiring entrepreneurs to network with experienced peers and SaaS enthusiasts. Leaders from some of these companies has recently started a move to publicise the prowess in the segment, through the event SaaSx. It is “an event organised by SaaS entrepreneurs for SaaS entrepreneurs, to share, learn and grow SaaS business from zero to $10k to $100k to $1m,” saySaaSx organisers.
Efforts are on to connect the entrepreneurs on a community level and support structures, such as a network of angel and venture capital investors in place, are expected to help the growth of the segment in Chennai, they added. For instance, Freshdesk has raised $94 million so far in several rounds of fund raising, from Accel Partners, Tiger Global and Google Ventures. Indix, a product intelligent platform, earlier raised around $16 mn from Nexus Ventures and Avalon Ventures, according to reports.
These companies do not disclose their income. There are rumours that Zoho has close to $200 million annual revenue. Freshdesk said earlier that in 2013, it grew 500 per cent, in 2014 by 300 per cent and in 2015, the target is to grow 250-300 per cent, in terms of both number of customers added and revenue.
According to an announcement by Gartner in January this year, SaaS is expected to grow from $246 mn in 2014 to $707 mn in 2018. Fred Ng, senior research analyst at Gartner, said: “The growth of cloud services varies by country and specific cloud service type. The Indian market is unique in that demand is consistently high for all types of cloud services.”
- There are at least 50-100 new-age product companies with roots in Tamil Nadu, according to sectoral sources
- The state claims to have the highest number of technical universities in the country, with a share of 18%
- The state is home to 55 universities, 2267 colleges, 527 engineering colleges and 447 polytechnics
- Around 400,000 engineers & technicians are added to the State's talent pool each year across specialisations