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While many SaaSers in the west managed to hack their growth, our local SaaSers’ growth has always been sluggish for a number of reasons. Scroll down to read what the team @ArzanVC got to say about post-Covid19 SaaS in the Middle East.
Are our local SaaSers becoming fast-growers?
SaaS — in other words, subscription-based software as a service over the internet — is not just about our personal use. Some say 86% of companies will be entirely SaaS-run by 2023.
During the rapid move towards everything remote in 2020, SaaS solutions have proved to be one of the easiest to adopt and roll out. Our colleague Asia agrees that the Middle East, too, has witnessed a higher-than-usual growth of SaaS as a result of the pandemic.
The topic we are tackling this month is whether our local SaaSers may be finally becoming fast-growers like their counterparts in the US and Europe.
A stereotype SaaS business would pursue rapid growth. This can’t be said of the SaaS startups in the Middle East. Not that they don’t have the potential; they do. But they can’t achieve scale very easily because the local SME market (for which most of them are built) is not yet big enough to embrace them all.
According to our colleague Mohanad, the number of SaaS startups in the region is increasing dramatically. Actually, SaaS startups appear as number 1 across all the industries in our pipeline. He says that SaaS startups tend to grow 6-7% MoM on average, but he adds that this is expected to change upwards given the pandemic. More SMEs have started to realize that the use of SaaS products is very important to running their business.
Kenneth Research asserts that the banking, financial services and insurance (BFSI) segment continues to hold the largest market share in the vertical segment, and the manufacturing segment will be growing at a significant rate in 2020-2023. However, Mohanad believes it is the retail SaaS that is really picking up, fueled by the new demand coming from stores and restaurants who are trying to go from offline to online. That’s why startups like Zid, Taker and Expand Cart are gaining a lot of traction recently. These startups allow retailers and/or restaurateurs to create their own e-commerce websites and apps with their own branding and customization, which reduces their reliance on Delivery Hero, Talabat and other online delivery platforms and saves them the commission they usually pay on every order.
On the other hand, banking and financial services continue to be restricted by the region’s tough regulations and so their potential remains quite suppressed.
Similarly to the retail SaaS, the education segment (e.g. Noon Academy, Ynmo, Praxilabs, Quizzito, etc.) is also experiencing a surge in demand and the same applies to the healthcare SaaS startups (e.g. Vezeeta, Altibbi, etc.). For example, Noon Academy recently launched in India and Pakistan. Earlier this year Vezeeta expanded to Kenya with Nigeria being the next move. The startup also partnered with Saudi STC to provide telehealth services to its employees.
Mohanad notes that one thing that can help SaaS products further expand in the coming period is that their cash burn rate is relatively lower than in the most of the other industries. In other words, SaaS startups can run on much lower costs. Another advantage is that if you have a good SaaS product, you can really sell it anywhere—most of the times you are not constrained by the area you are in. This brings us to the point that making sure your product-market-fit really fits is very crucial. You can have rapid growth but if your product doesn’t fit, you’ll lose your customers just as fast as you gained them.
Mastering content marketing (any educational content for that matter) plays a major role, too. Zid provides education (online courses) for its users in various e-commerce-related topics through its Zid Academy. Also, Altibbi’s “Ask about Coronavirus” hotline has been praised by H.M. Queen Rania for raising medical awareness among the public.
TL;DR (too long; didn’t read)
Compared to the west, Middle East’s SaaS startups have always had a slower growth due to the small-sized local SME market. Covid19 prompted many SMEs to realize that SaaS products are essential to them. As a result, many SaaS segments, notably retail, education and healthcare, have witnessed an accelerated growth. Also, SaaS startups can run on lower costs, so their relatively low cash burn rate can also come handy in their expansion efforts.
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