India vs. Silicon Valley: A SaaSy War

9/4/12Follow @sramana

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at least four specific help desk solutions. In June 2010, they founded Freshdesk with Girish’s life savings.

After a year of development effort, Freshdesk was launched to the public in June 2011. Within the first 100 days, Freshdesk crossed an impressive milestone of 100 customers.  Since then, the company has won numerous awards and recognitions including the Microsoft BizSpark Startup Challenge. In December, 2011, Freshdesk raised its first round of funding from Accel Partners, firmly establishing its position as a strong competitor for Zendesk.

Let’s look at how Freshdesk and Zendesk—with its four-year head start—compare. It took Freshdesk only 12 months to acquire 1,000 customers;  Zendesk took 19. It took Zendesk eight months to raise $500,000 in seed funding, but it only took Freshdesk four months to raise twice that amount. All told, Freshdesk has raised $6 million compared to Zendesk’s $25.5 million.

Freshdesk enjoys a mix of both worlds with a base in India blended with years of experience working in, and building software for US customers. Over 90 percent of Freshdesk’s employees have directly built, marketed, and sold software to global customers.

As a trend, it is interesting to see how Indian SaaS companies are giving heavily funded Silicon Valley startups a run for their money. Today’s booming environment in Silicon Valley has created a talent war, driving salaries of engineers, product managers, and other talented team members high. In contrast, India (and some other geographies like Latin America, Eastern Europe, East Asia) maintains cost advantages when it comes to talent.

Innovation, consequently, is happening everywhere. The software that the challengers produce is rich in functionality and innovation, not just substantially cheaper. Thus, while they still have to spend similar amounts in terms of customer acquisition investment, the cost structure advantage often results in better products at lower prices.

This is a relatively new phenomenon. I expect, the trend will develop over the next few years, and companies from India, Malaysia, Brazil, Romania and elsewhere will pose a significant challenge for Silicon Valley companies. Of course, a reasonable response is for Valley companies to avail themselves of the cost advantages by also using offshore workforces.

But software prices will be driven down through this competitive dynamic, and in the end, the customers will emerge as the winners.

This story has unfolded through the ages. It will unfold again.

Sramana Mitra is the founder of One Million by One Million (1M/1M), a global virtual incubator that aims to help one million entrepreneurs globally to reach $1 million in revenue and beyond. She is a Silicon Valley entrepreneur and strategy consultant, she writes the blog Sramana Mitra On Strategy, and is author of the Entrepreneur Journeys book series and Vision India 2020. From 2008 to 2010, Mitra was a columnist for Forbes. As an entrepreneur CEO, she ran three companies: DAIS, Intarka, and Uuma. Sramana has a master’s degree in electrical engineering and computer science from the Massachusetts Institute of Technology. Follow @sramana

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  • Sarah Galloway

    is it really that much cheaper now to develop software in India? Many overseas businesses that moved to India to take advantage of the lowers costs are now moving their operations back home. As an aside when Salesforce, Zendesk etc started, SaaS was just getting off the ground, now the value of business model is clear it is relatively easy to raise relatively large sums of money.