What Does India Need for Subscription Models to Succeed?

Subscriptions don't work in India. Let me take a pause. Now let that sink in. This isn't the first nor the last time you will hear this statement. Founders and operators in India have tried but failed to disprove this statement.

Dukaan? was one of those rare start-ups that emerged during the pandemic to solve the problem of local stores. Their goal was to get local kiranas and mom-and-pop shops to go online.

Within six months of the launch, they had over six million small and medium businesses online. The founders of the platform had already raised their first round; they felt the time was ripe to start monetizing the platform.

Shopify was charging around ?1,499/month for the base plan, so they felt ?300/month would be an affordable price point for SMBs in India. They hoped that even if they could convert just 5% of their customer base, they would have 300,000 paying customers.

The team went live with this pricing model overnight, with high hopes for its success. Can you guess what percentage of customers opted for the paid plan?

3,000, i.e., 0.05% of their customer base. Subhash Choudhary, Co-founder and CTO of Dukaan? states, "We come from a country where people don't want to pay for subscriptions. He goes on to ask students at Scaler during a session as to how many of them have used the pirated version of Windows."

In a 2018 study conducted by Microsoft, it was found that nearly 91% of PC users in India are using pirated copies of Windows. The interesting nugget of information here is Windows is well aware of these numbers.

Then why isn't it doing anything to fix it? The answer lies in a comment Bill Gates made about piracy in China many years ago.

"Although about 3 million computers get sold every year in China, people don't pay for the software. Someday they will, though. And as long as they're going to steal it, we want them to steal ours. They'll get sort of addicted, and then we'll somehow figure out how to collect sometime in the next decade."

Nearly 2% of Microsoft's revenue today comes from China, which is approximately $2 billion as per the company's own admission. But FactSet research suggests that the number is more likely to be 10% of its total revenue.

With the ongoing issue with TikTok in the United States, we will never really know. Sorry for the segway; now back to the story.

Subhash decided to pivot the model and target companies with an existing presence on e-commerce platforms such as Flipkart and 亚马逊 . These companies possessed enough financial resources to afford the platform that Dukaan was in the process of developing.

Now, before you decide, that's the end of the subscription model in the country. Let me ask another question: "Can you guess what Salesforce 's second-largest account is?" (Hint: They are based in Pune, and they call you at least once every week (maybe more than your parents do.)

Bajaj Finserv.

The subscription model can work in India for midmarket and enterprise segments, while the SMB and consumer segments may take more time to adapt.

SaaS Model for India: Subscriptions for Business Software

When Zoho pioneered the software-as-a-service model in India, the idea was simple: build in India and sell to customers in the United States.

Freshworks perfected this model and created a playbook for other software brands in India to learn from. Today, every other software brand follows this same playbook, but a handful have charted a different path for themselves.

CloudSEK which operates in the area of cybersecurity, gets nearly 65% of its revenue from Indian customers. This defies conventional wisdom but makes sense when you see how the market in India has evolved.

Many businesses today pay for subscriptions to software from major brands like Adobe , 微软 , 谷歌 , and others. So, why hesitate to pay for one from an Indian brand?

Rahul Sasi and his team at CloudSEK have perhaps figured out what most international brands usually take a year or two to understand after they enter India. India is unlike anything they have experienced.

It's frustrating to sell software in India because the sales model that software brands have perfected elsewhere gets thrown out of the window here.

Seeing is believing

If you dealt with enterprise software providers, you already know it takes a couple of discovery calls and meetings before you get to see the product.

However, most brands in India would insist on demonstrating the product right from the get-go. Pricing also arises as a topic in the first few meetings, considering India is a price-sensitive market.

But this doesn't mean we don't have the paying capacity; it stems from the fact that we have always been value-conscious, and we don't want to waste sales reps' time if the pricing is way above the allocated budget.

Don’t pay for Zoom; pay for air tickets

India's SaaS market is mostly in metros, so it makes sense to meet prospects face-to-face; it helps to right-size the deals and build trust in the long run.

“In India, if you're not meeting your customer in the real, you're not selling efficiently. Not to say you cannot sell on video, but you are missing an opportunity to right-size your deals and build customer trust.

I tell people that if you meet a customer in person, your average deal size will be 20%, or 30% higher, guaranteed, and your renewal rates will go up. Don't buy Zoom; buy air tickets. That's been my mantra since ever.” Kuldeep Dhankar, Chief Revenue Officer, Last9

But a word of caution: this might not make sense if your audience is SMBs. If your ARPU (Average Revenue Per User) or ACV (Annual Contract Value) is very low, then the math won't add up.

To achieve 80% gross margins, a SaaS startup's total personnel and general & administrative (GA) expenses for customer success/support should not exceed 10-12%, assuming cloud costs are 8-10% of ARR.

If you are a SaaS brand serving the SMB market, both vectors are stacked against you: low ARPU and high service expectations.

Built vs. Buy

It's very common to see Indian companies building their own software. You will find dozens of companies in Bangalore that have built their own CRM, intranet, and vendor management portals.

There are several reasons why this build vs. buy debate happens.

• The cost of building software is low, unlike in Western markets.
• The idea of owing something in perpetuity still appeals to Indians.
• When you build it, you can customize it for your own unique use cases.

However, Indian businesses are gradually recognizing that their own software, no matter how well-built, cannot compete with off-the-shelf software.

Especially when the software has been developed over years of research and customer feedback.

Customization

Most SaaS brands realize that there is relatively higher post-sales involvement in India?than in other markets. As the Director of Sales at Flock points out, the expectation is Do It Yourself (DIY) vs. Do It For Me (DIFM). Especially non-technical prospects will expect extensive post-sales implementation support.

However, handling non-technical prospects adds to your post-sale costs.

There isn't an easy way to handle them, even if you do a great job of managing expectations during the sales process.

Flock's internal data suggests that customization requests in the Indian market are almost twice as frequent as in other markets.

So, how do you manage customization requests, especially when every second client you know asks for it? As Kuldeep from Last9 points out in his conversion with Blume Ventures , feature requests must have a ‘dhanda’ (business) as the end goal.

Kuldeep's co-creation framework includes the following criteria:

1. Useful to more than the one asking
2. It is part of the current long-range roadmap
3. The customer commits to pay and promote the feature

Instead of saying no to feature requests, they inform the customer that if all three above criteria are met, the answer is yes.

Where do we stand?

India's SaaS market is around $2–3 billion; we are a tiny spec on the map, especially if you consider the US, which has a market worth $140-150 billion for SaaS. But the silver lining is that we are growing at a 30–35% CAGR.

We have a huge market for domestic consumption.

If companies like Adobe, Salesforce, Microsoft, and Google can make hundreds or thousands of crores from India in annual turnover, then why can't a homegrown SaaS brand succeed in India and beyond?

Message for the Reader: The inspiration for this article comes from the piece Blume Ventures wrote so if you need more insights make sure you read the piece they wrote here. Before you go don't forget to hit that like button, or consider subscribing if you haven't already.