SaaS: A Nuanced View On Its Evolution

After spending time with several online plays in segments like real estate (Housing.com, Nestaway, Roomys), edtech (SimpliLearn, iNurture, BYJUs, Toppr, TalentSprint, Vedantu), ecommerce, which are all essentially marketplaces (Shop Clues, SnapDeal, Amazon), and of course BigBasket, which ensures online grocery delivery.

Additionally, segments like ekincare, DocsApp for health-tech, Goglytta.com for employee mobility/work from home solutions, Logisitics Now for data-driven logistics, AIBono, Ninja Kart for Agri-tech, Taxi for Sure (now Ola) for transportation, Livespace for Interior Design and finally, Zomato and Swiggy who are leaders on food delivery. In spite of starting at different ends of the spectrum i.e., consumers, restaurants, order processing, in-house versus out-of-house production, logistics, payments (revenue sharing), and the notion of a platform fee or subscription for certain categories of consumers and partners.

Without an exception, all of these platforms support caters to its ecosystem that drives a virtuous cycle. The question, can these become platform plays that can be licensed as a whole or in parts, ie like a classic SaaS product.

While startups are getting creative in terms of their creation and execution of online platforms – it is important to keep in mind how investors perceive this space. As investors, we are always looking at firms that are solving a real problem, pertinent to India, and can this be a global play. Let us take ekincare as an example – the SaaS platform that addresses the needs of the digital health ecosystem, ensures that corporates prioritize employee wellness initiatives.

The Urban Company, formally UrbanClap, has created a very solid platform ecosystem for home-related services across major metros, they have the formula of utilization, customer satisfaction, the pricing right, and have scaled to all major metros. It would make imminent sense to license this platform to partners in other geographies who do not have access to a digital platform to help to expand their global footprint? RedBangle is yet another evolving platform play in the media and entertainment space.

Lipikar is a leading platform for regional content creation, consumption, catering to its own ecosystem, earlier Vuze was attempting to create a similar platform in the news space, today online news platforms like Daily Hunt, News in Shorts have evolved in similar directions.

An innovation ecosystem online offering that solves content issues, enables access and helps monetize subscription/advertising revenue is a need of the hour to a struggling news media industry where the traditional print medium is already on its way down. As always, data-driven intelligence driving content is a pivotal digital innovation – the capability to analyze readership/viewership data on the fly and drive click-baits or engagement with the audience is the name of the game.

Intense multivariate testing to identify suitable headlines for the target audience or running live dashboards to analyze user preferences to drive virality is crucial to winning in today’s era of multi-screen distraction, content glut and false information!

If platform plays are done right, the platform(s) themselves can be licensed to several large customers and partners in the same segment, globally. For example, a few of the above companies are already getting inbound inquiries, however, in the investment world; this is still a big NO! My personal view as an investor is that these licensed platforms will be SaaS models for the future, may take time, but it will happen!

This is not to say that pure horizontal technology plays that are consumer/enterprise-oriented are still going to continue to happen. Newer technology offerings will still be launched with great effect, especially in the space of developer platforms, DevOps, database, middleware, client-side frameworks, security, etc. However, there is the confidence that the platform plays that are solving niche or broader problems for the consumers/ businesses will evolve as a whole or in parts, into next-generation SaaS plays.

Strangely enough, OpenSource initiatives like GNU, OSF, Apache are great examples of a secure quality curated platform that caters to producers of code and consumers of code i.e., end-users and enterprises. So are evolving platform plays in entertainment and gaming.

Platforms need to be instantiated once, scaled, and refined to deliver robust results; India is a great backyard for this first instantiation, and then one can look at the licensing angle from both revenue and geographical expansion. There is optimism that we shall see some great forays from this slightly differentiated lens in the SaaS world.

Remember Facebook, Google, Amazon Apple and Microsoft are already leading platform plays, and together these companies have a cumulative cash balance in excess of $650B. The difference is they have deep pockets to set up and execute their platforms in different geographies. Smaller companies may need to resort to a licensed play to partners in different geographies.

Some Factors To Consider

If the above trends become the norm, there are some interesting aspects to consider. How does one create a revenue model, which is SaaS and deals with enterprises adopting the platform, i.e., fees and transactions? Alternatively, how do you run the platform in different geographies and with different partners, which could entail SMEs, and their respective consumer ecosystem? How traditional consulting would and service companies serving the enterprises transform to platform-related services by collaborating with platform plays, how would these impact revenues?

And, finally – How would investors look at the above, will they change from the current view of making a platform play successful, versus using the first instantiation to create a new revenue stream which may have fewer customers, but are equally scalable, and eventually more valuable because of profits? Why, because they have already cracked the consumer virality issue through that critical first instantiation, at scale. How would the entrepreneurs deal with this transition?

A platform play as a quasi-product requires a disciplined approach and platform licensing sales are time-consuming and could entail multi-year contracts that need a very different approach based on the vertical, the geography, and partners.

Overall, it may not be a boxed SaaS product world anymore; the continuum has already arrived and will get established and we will see more and more licensed platform plays on a SaaS model!

(Note: From an investor’s point of view)

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