It would be hard for one to miss the recent Freshworks IPO.
At the time of writing, it is trading on the NASDAQ at a market capitalization of ~US$12.0 billion. This was a momentous occasion for the Indian ecosystem, and a further re-affirmation that global SaaS companies can be built in Asia.
Similar to the likes of Freshworks and Zoho in India, there has been a more recent wave of SaaS companies in Southeast Asia. The region has been dominated by consumer internet companies such as Grab, Gojek, Sea Limited and others, with B2B SaaS successes an anomaly.
However, that has changed over the last 12 months, with the successful unicorn minting of Patsnap and Trax.
That begs the question – is it time for SaaS to shine in Southeast Asia?
The ingredients of success are already present
In many ways, the key foundational factors needed to build a successful SaaS business are present in Southeast Asia.
The region’s cultural diversity and supply of tech talent is not just more affordable compared to those in the US or Europe, but are equally skilled in software and engineering. Well run SaaS companies can in essence, benefit from a lower cost base while still maintaining decent pricing.
The end result is even higher margins than traditional SaaS businesses built overseas.
There has also been a policy push by Southeast Asian governments that aid this. In particular, there has been a shift towards increasing development of cloud infrastructure, which in turn, proves conducive for building SaaS businesses.
Singapore has been the clear leader in this strategy, with the government driving several initiatives. Whether this is attracting major cloud infrastructure players to the region, or pushing digital subsidized initiatives for SMEs, the country has been the flag bearer of the SaaS wave in the region.
Others have followed suit in recent times. Malaysia introduced a “Cloud First” strategy and Indonesia too is following in these footsteps of developing sophisticated cloud infrastructure.
So it’s clear that the ingredients needed to build a SaaS business, i.e., the supply side of the equation is very much present. This naturally shifts the attention to the demand side.
The regional vs global argument
A majority of the early successful companies in the region had one thing in common – they almost exclusively focused overseas.
Most firms such as PatSnap, Zopim and others focused on the US. The reason for this was natural. The US has a sizable, mature population of customers that have been accustomed to paying for subscription services.
Southeast Asia, on other hand, has always been more culturally more price sensitive – with business models typically being more transactional in nature.
However, while the competitiveness of these businesses and their ability to sell overseas is encouraging, there is no reason that they cannot sell to the Southeast Asian region itself. Thankfully, there have been encouraging signs that the region is warming up to SaaS businesses.
In Singapore, 65% of SMEs alone are using digital solutions, primarily geared towards accounting, HR and customer relationship management. Of these, 3/4th of them are using a SaaS solution. This is higher than many Western counterparts and proves that SMEs are also witnessing the benefits of subscription services.
On the larger end of town, Southeast Asia is also home to the regional headquarters of many global organizations like Facebook, Amazon and Microsoft.
For enterprise focused SaaS businesses, this provides a perfect testing ground for start-ups to find product-market-fit, refine go-to-market, and gain valuable feedback. So, even if they do have aspirations to land larger accounts in the US and Europe, they can very well begin by servicing companies based in Southeast Asia.
What lies ahead
Recent successes have proved that SaaS businesses built in Southeast Asia can be truly globally competitive.
Apart from the unicorn valuations, there have also been notable exits in recent times. What has been particularly exciting is big enterprises snapping up companies in the region, clearly seeing the value that they can provide.
The acquisitions of Stamped by WeCommerce, TradeGecko by Intuit, and Zopim by Zendesk are testament to the fact that Southeast Asia SaaS is ready to continue its strong trajectory.
With the foundation for stellar businesses in place, along with rising consumer adoption, it certainly seems like Southeast Asian SaaS is ready to take off.