A potential market for SaaS after the wave of COVID-19 pandemic
From little awareness of Saas (Software as a service) in 2019, from 2020 until now, the COVID-19 has triggered a significant increase in the attention of investors for the SaaS sector in Vietnam as the demand for digital transformation rises. With the presence of large technology corporations, merger and acquisition has become a common divestment strategy for startups seeking for larger market share and financial support The article aims to give an overview of the SaaS Market in Vietnam, current startups that are the focus of attention from investors as well as the opportunities and challenges within the SaaS sector.
I. OVERVIEW OF SAAS IN THE WORLD AND IN VIETNAM
Definition of Saas
Over the world, SaaS is not a new concept. In fact, the concept of “cloud computing” that we know today originated from web-based programs offered by application service providers (ASPs). Some applications of Saas into business practice can be Sales force automation (SFA), Customer relationship management (CRM), Web content management, Enterprise resource planning (ERP), Project portfolio management (PPM), Planning and budgeting, Financial reporting, Human capital management (HCM), Talent management, Sales and marketing, Customer service and support, Social networking, Social marketing, and Social engagement and monitoring, etc (ORACLE 2021).
Market size of Saas
Over the last 2 years, the SaaS segment has increased impressively. At a compound annual growth rate (CAGR) of 20.8 percent, the worldwide Saas industry reached $272.49 billion in 2021 and is expected to be valued at $328 billion by 2022. For the next five years, all researchers predict a CAGR of at least 10 percent for the SaaS segment. According to a research by BMC Software, by the end of the year, 99 percent of businesses will be using at least one SaaS service. All of these are encouraging signs for the SaaS market.
Southeast Asia is still early in its SaaS adoption compared to other parts of the world, with cloud computing market revenue expected to reach a modest amount of $40.32 billion by 2025 (Gartner 2017). In terms of growth rate, Singapore is taking the lead, followed by Thailand, Indonesia, and Vietnam.
Growth of Saas
Driven by accelerating digital transformation, Vietnam’s cloud service market stood at $196.11 million in 2020 (Vietnam Cloud Service Market Report 2021), expected to reach $233 million in 2021 with a growth rate of 18.8 percent per year. According to domestic and foreign data, Vietnam currently has 39 cloud service providers, 27 data centers of 11 enterprises, Vietnamese enterprises account for one-fifth market share, foreign enterprises take the major share (80%).
Users of Saas
Corporates/Private Organizations dominated the Vietnamese Cloud Service Market in 2020, with a market share of 41.14 percent. The increasing demand for security and protection of official data of numerous entities across the country is driving this expansion. Northern Vietnam has shown impressive attention for the Cloud Service Market, with a market share of 44.92 percent in 2020 owing to its accelerated urbanization and digital transformation.
II. CURRENT SEGMENTS IN SAAS
Infrastructure as a Service, Platform as a Service, and Software as a Service are the three most popular segments of SaaS-based services. Among the three, Infrastructure as a Service (41.74 percent of the market in 2020) led the industry due to its high scalability, cost-effectiveness, pay-on-demand for utilities, location independence, redundancy, and data security of users’ data. Because of the high resilience of Infrastructure as a Service, the organization’s infrastructure is unaffected whether the Internet or any hardware component fails.
Below is top 40 Vietnam SaaS companies and startups in 2021 for your reference:
Source: Nextrans 2021
Notable startup deals in SAAS
According to the report by Nextrans (2021), SaaS is in the top 5 highest funded sectors in Vietnam in 2021. That indicates that although young, SaaS is a potential area of investment, especially after the increase in SaaS-based services demand after COVID-19 pandemic.
Besides startup deals, merger and acquisition (M&A) is also considered an ideal divestment strategy for startups in the SaaS segment. The dynamism of SME businesses as well as the potential of the digital transformation market has made SaaS platforms explode and big technology enterprises have not missed their chance.
Source: Aggregate sources
III. OPPORTUNITIES AND CHALLENGES OF SAAS IN VIETNAM
1, The National Digital Transformation Program
The Vietnamese government has also fostered favorable conditions to encourage the country’s digital transformation, notably the National Digital Transformation Program by 2025 with an orientation towards 2030 (Government of Vietnam 2020).
Within that program, Vietnam has set the target of having the digital economy account for 20 percent of GDP by 2025 and 30 percent by 2030. In order to achieve that goal, the ICT industry’s economy is projected to account for roughly 6 – 6.5 percent of GDP, of which Cloud computing firms are expected to contribute 1 percent of GDP.
Acknowledging that SMEs make up around 98 percent of the total number of businesses in Vietnam, the Ministry of Information and Communications of Vietnam started the SMEdx initiative with the goal of providing 30,000 firms with a roadmap to lead businesses through digital transformation after one year .
2, The future of SaaS
Market experts agree that the future of SaaS is strong. According to a 2017 Gartner research, SaaS sales would rise at a rate of over 23 percent per year, from US$270 billion in 2020 to over US$332 billion in 2021.
Innovation in the SaaS solutions themselves is expected to help drive that growth, including:
- AI. With the increase in AI solutions adoption, it is expected that AI will become an increasingly baked-in part of SaaS applications in businesses, including adaptive intelligence (which learns and adapts to user data and behavior) and using AI to support advanced productivity and security.
- Autonomous IT management. AI and machine learning will also play a key role in enabling more autonomous, less human-dependent IT administration across the board.
- AI, Machine Learning, Chatbots, Digital Assistants IoT, Blockchain, Machine Learning, Virtual Reality, Augmented Reality. Each of these technologies is becoming increasingly important in digital innovation, and forward-thinking. Hence, SaaS companies are already incorporating them into their services.
- Industry SaaS: Vertical depth and horizontal connectedness. While SaaS was originally designed to give rapid vertical solutions to a particular department, organizations are increasingly demanding and expecting cross-business visibility. Providers of cross-business suites should offer more vertical depth, as well as additional APIs and turnkey integrations for hybrid cloud solutions.
Besides innovation in SaaS solutions, enterprises in the sector can consider 2 following types of market expansion:
- Vertical SaaS. Vertical SaaS companies focus on a particular industry, tailoring their solution to the needs of a specific type of client. Examples: Vexere (Logistics), Mimosatek (Agriculture).
- Horizontal SaaS. Horizontal SaaS providers are the companies that serve a wide market, providing solutions for all types of clients. Examples: Base.vn, 1Office, Misa Amis.
3, A sustainable upward trend in the demand for SaaS products
Only about 30 percent of digital transformation businesses are successful, according to Mr. Nguyen Binh Nam, CEO of digital transformation consulting company Opla Consulting, who has worked for many years at Oracle and Salesforce. It is because businesses have not clearly identified their needs and prepared their staff awareness.
Nevertheless, 2021 has marked a turning point when the management teams of companies have set the digital transformation as the top priority and thoroughly prepared for the transformation in their businesses. According to the research by McKinsey (2021), business executives agreed that they have adopted digitalization sooner than they think they could. Digitalization regarding customer and supply-chain interactions and the companies’ internal operations have been accelerated by 3 to 4 years. Moreover, companies are becoming ahead of 7 years in providing digital or digitally enhanced offerings in their portfolios. An interesting finding from the business executives is that the majority of respondents perceived technology as a strategic component of their firm, no longer a way of cost savings (McKinsey & Company 2020).
SaaS users are becoming increasingly varied. Mr. Le Anh Bang, Haravan’s director of product development, acknowledged that if the SaaS business model was only employed in large enterprises before 2000, it has been now used in small businesses and individual users in the 21st century.
“Industry factors can affect the decision to use software, but sooner or later, all businesses in all fields should integrate SaaS products.” said Ms. Le Han Tue Lam – Director of Nextrans
1, The domination of foreign enterprises
Cloud services are dominated by big tech companies, which account for around 80 percent of the market. Big businesses like Microsoft, Salesforce, Oracle, and AWS have all made a strong impression on the Vietnamese marketplace, gaining clients’ trust thanks to their reputation and ecosystems of software applications that are highly specialized and interconnected.
Domestic SaaS solution suppliers, on the other hand, appear to be unable to compete with multinational counterparts. Despite the fact that domestic businesses are more compatible with domestic customers than international businesses, the vast majority of them are fragmented, offering only one or a few software applications, and lacking a comprehensive connection and a seamless user experience.
As a result, SaaS enterprises must focus on building products and ecosystems in a strategic manner in order to become more appealing to customers and win the long-term battle with giants. Local suppliers must strike a balance in their product development roadmap between domestic needs and a “Go global” ambition.
2, Concerns regarding digital infrastructure
Vietnam’s telecommunications and information technology infrastructure currently has numerous limitations. The low quality and disruptions of Internet connections are one of the reasons why many firms are hesitant to deploy SaaS. According to, mobile networks in Vietnam had a download speed of 42.46 Mbps in July, which was lower than the global average of 55.07 Mbps. Furthermore, when it comes to fixed broadband internet, Vietnam only has a download speed of 78.43 Mbps, which is well behind the global average of 107.50 Mbps (Speedtest 2021).
Fortunately, in the National Digital Transformation Program, the Vietnamese Government has already developed policies and initiatives to focus on upgrading telecommunications infrastructure, fully exploiting the potential of cloud computing, IoT, AI, and 5G, maintaining fast and stable connection speeds at a more affordable cost to maximize the benefits from digital transformation, ensuring infrastructure difficulties will be solved in the near future (Government of Vietnam 2020).
1, Gartner 2017, Gartner Forecasts Worldwide Public Cloud Services Revenue to Reach $260 Billion in 2017, Gartner, viewed 16 March 2022, <https://www.gartner.com/en/newsroom/press-releases/2017-10-12-gartner-forecasts-worldwide-public-cloud-services-revenue-to-reach-260-billionin-2017>.
2, Government of Vietnam 2020, Phê duyệt ‘Chương trình Chuyển đổi số quốc gia đến năm 2025, định hướng đến năm 2030’, vol. 749/QĐ-TTg, viewed 16 March 2022, <https://vanban.chinhphu.vn/default.aspx?pageid=27160&docid=200163>.
3, McKinsey & Company 2020, How COVID-19 has pushed companies over the technology tipping point–and transformed business forever | McKinsey, McKinsey & Company, viewed 16 March 2022, <https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/how-covid-19-has-pushed-companies-over-the-technology-tipping-point-and-transformed-business-forever>.
4, ORACLE 2021, What is SaaS (Software as a Service)?, oracle.com, ORACLE, viewed 16 March 2022, <https://www.oracle.com/vn/applications/what-is-saas/>.
5, Research and Markets 2021a, Vietnam’s cloud service market reaches nearly $200 million in 2020, vir.com.vn, Vietnam Investment Review, viewed 16 March 2022, <https://vir.com.vn/vietnams-cloud-service-market-reaches-nearly-200-million-in-2020-86549.html>.
6, Speedtest 2021, Vietnam’s Mobile and Broadband Internet Speeds, Speedtest Global Index, viewed 16 March 2022, <https://www.speedtest.net/global-index/vietnam#mobile>.
7, TechSci Research 2021, Vietnam Cloud Service Market, By Service Type (Infrastructure as a Service, Platform as a Service and Software as a Service), By Type (Public Cloud, Private Cloud, and Hybrid Cloud), By End Use Application, By Region, Competition, Forecast & Opportunities, 2016-2026, Research and Markets.