It’s a dirty little secret: A large number of established software vendors are under wraps building the solutions that they can offer to the Indian market through the on-demand model. Their target: the 8 million small and medium enterprises.

How big is this opportunity? “If appropriate applications are available then it’s not too speculative to imagine that the addressable market is at least one percent of revenues,” says Sharad Sharma, CEO of Yahoo! India.

Consider the ‘unorganized’ $50 billion retail industry, the $12 billion diamond polishing industry; or the $8.7 billion automobile components industry. Add to this the small cooperative banks, health clinics, and several other industry segments. The list goes on. “None of these micro-firm based networks has been a viable market for the old-style software applications business model. But with the hosted application model the opportunity can now be monetized,” notes Sharma.

It’s about breaking away from the traditional thought process and exploring the blue ocean—the unknown market space, untainted by competition. Like the ‘blue’ ocean, the opportunity in India for SaaS providers is vast, deep, and powerful in terms of profitable growth and infinite opportunities.

The concept of SaaS has been brewing for quite some time now. Starting its life as the Application Service Provider (ASP) model it has moved on and evolved into a hosted model with greater flexibility than it had in its early days. The idea of hosting software applications for the enterprise has generated a considerable amount of interest amongst vendors, as also among enterprises for the flexibility the model offers. According to Springboard Reasearch, India is the fastest growing market for SaaS in the Asia-Pacific region, market expected to grow to $260 million in 2011 from the $27 million in 2007. However, beyond this number, the emerging markets are always said to be more valuable than what their market size indicates. Likewise, in India there is a huge market, which is yet to be created and explored.
What will this new market look like? How does one partake in its growth? Before we go into the new market let us look at the challenges. In India, the four main challenges that act as a stumbling block in the IT adoption are affordability, relevance, distribution, and piracy. These challenges offer a tremendous opportunity for MNC hardware and product companies to tap the potential of Indian SMB market with optimum localization strategy, strong distribution network, understanding the unmet needs of SMB landscape, and designing the right product strategy.