Cloud Infrastructure - DevOps (Part II) - Landscape in Asia
Cloud Infrastructure - DevOps (Part II) - Landscape in Asia
Drivers of burgeoning SaaS industry in Asia, Asia DevOps market map and key founder considerations & takeaways
Part I of this III-part series presented an overview of DevOps and my key theses regarding the evolution of DevOps. You may access it here. In Part II of this series, we will discuss the DevOps start-up landscape in Asia.
Asia-Pacific is well-poised to become a key hub for DevOps start-ups that are global in reach. The largest global developer platform company, Atlassian (NASDAQ:TEAM), originated from Australia in 2002 and has gone from strength-to-strength, eventually achieving $3 billion in the quarter ending June 2022. Atlassian pioneered the product-led growth model that has since been successfully adopted by numerous software businesses such as Dropbox, Slack, Zoom, Figma and Canva. More recently, Postman, a category-leader in end-to-end API development and management used by over 20 million developers, originated from India and was valued at $5.6 billion in its Series D funding in August 2021.
“When we started, there was a lot of skepticism, and bias even, among people in India that one cannot build a global [developer-led SaaS] product from India…what we learnt was that if we are focused on the customer, focused on the end user, then we can beat any bias, wherever it is coming from”
Abhinav Asthana, Co-founder & CEO of Postman
Drivers of DevOps Start-ups in Asia
A. Large Developer Population & Community
Asia has a large proportion of global developer population. 31.2% of GitHub’s active user base resides in Asia, only slightly trailing North America, which has 31.5%, and growing at a much faster clip (see chart below).
Perhaps more importantly, Asian developer talent is increasingly high quality and globally competitive. In China, the burgeoning internet industry, which includes behemoths such as Tencent, Alibaba and Bytedance, has trained a generation of engineering talent. In India, Fortune 100 technology companies have set-up their R&D centers, often the one of the largest globally. Such companies include Microsoft, Amazon, Google, Adobe, Salesforce and VMWare.
The presence of a large base of high quality developer talent germinates entrepreneurs who understand the problems of developers and can create products to address them. Furthermore, the strong developer community in Asia helps with the initial iteration of the product as well as traction, before it is ready to be scaled among global audiences.
B. Most Successful Developer-led Start-ups Have Product-led GTM Motion That Does Not Require Geographical Proximity
Jeff Lawson popularized the phrase “Ask Your Developer”, coaxing companies to treat developers not as digital factory workers but rather as a creative workforce that can solve major business problems and deliver delightful products to their customers. Implicit in that phrase was also the notion of giving developers the freedom to use whichever tools (including, of course, Twilio) that best helps them deliver great products.
With the ensuing megatrend of digital transformation, increasing complexity in software architecture, an explosion of developer tools to help manage the complexity as well as the need to retain the increasingly expensive developer talent, most companies are allowing their software engineering teams to buy & manage their own tools within reason. As such, a product-led go-to-market (“GTM”) motion has become the de-facto choice for companies selling to developers — the product needs to have bottoms-up adoption through developer communities and word-of-mouth. This is in stark contrast with other enterprise software products which are often sales-driven and permeate top-down in the organization (examples include SAP, Salesforce and ServiceNow).
One of the unique aspects of product-led GTM is that it is less reliant on the geographical proximity to customers, at least in the initial stages. Companies can spring-up far away from the largest market, the U.S., and yet gain traction there thanks to decentralized developer communities congregating on platforms such as Hacker News, Twitter and Product Hunt. Furthermore, as per SAASBOOMi, in the aftermath of COVID-19 pandemic, enterprises have become more comfortable with making purchase decisions remotely and GTM motions of SaaS companies is increasingly becoming digital-first.
Like most other developer-led start-ups from Asia, BrowserStack, a testing software company that originated from India and last valued at $4 billion, had a product-led go-to-market motion.
“We launched BrowserStack in August 2011. We just reached out to the same people who were having struggles with the IE browser. On Twitter, on different forums, Stack Overflow and we just gave them free access to BrowserStack . It was all free, “Hey, guys just use it. Give us a feedback.” Then we also reached out to John Resig who founded the jQuery….This was the biggest problem jQuery has [had] to date...He tweeted about it and [we] became the number one in Hacker News for a day. It got us to about 10,000 beta users in about three weeks…Many of them started asking for a paid version...End of September 2011, we actually launched our pricing and packaging”
Ritesh Arora, Co-founder & CEO of BrowserStack
C. Cost Arbitrage
Emerging Asia has a cost advantage when it comes to talent. As per Bain & Co., an entry-level software engineer is 85% cheaper in India compared to the U.S. Similarly, a software sales rep is 74% cheaper in India compared to the U.S. Both developers and sales/customer support talent is abundantly available in India given the country has 1.5 million engineering graduates annually and second-largest English speaking population globally. The competitive advantage has been developed over decades by the country’s industry-leading IT & Business Process Outsourcing (“BPO”) players. For example, 60% of U.S. enterprises’ workflows are run from India.
As a result, as Asian start-ups scale, they benefit from a better cost structure than their U.S. peers and hence better capital efficiency (see chart below as an example). We are seeing Series B and beyond Asian SaaS start-ups have 10–20% of their full-time employees based in the largest market, the U.S., while the rest being based in their home country. In doing so, they benefit from being close to their customers and gain a deeper understanding of their customers’ problems and activate the upsell & cross-sell motion. Typically, product leadership, senior sales staff and product marketing are based in the U.S., while engineering teams, majority of product teams, majority of sales teams and marketing teams are stationed in Asia.
D. Democratization of Funding Availability
Last but not the least, capital is needed for scaling even great product-led companies. Early product-led companies from Asia struggled to raise funding. For example, Atlassian was bootstrapped and only raised funding in 2010 long after it was profitable in 2005 in order to acquire other players. Similarly, Canva’s founder, Melanie Perkins has spoken about her struggles in raising seed funding to get Canva off the ground.
However, that has changed in recent years. Now, companies can be based far from Silicon Valley and still be discovered and funded. During the bull market in venture capital that reached its crescendo in Q4 2021, no corner of the world was left untouched when it came to funding. Asia saw over $200 billion of annualized venture funding as of Q4 2021 with China and India accounting for three quarters of it. While SaaS funding was a small proportion, it grew strongly from preceding years. For example, India SaaS increased from $0.8 billion in 2018 to $4.5 billion in 2021, a increase of c. 6x, far outpacing the growth of the venture industry in India. With a strong ecosystem of angel investing and early stage investing in Asia, it is unlikely that a promising developer-led start-up will fail due to lack of funding.
Asia DevOps Market Map
The Asia DevOps start-up landscape is fragmented, much like that in the U.S. The start-ups are concentrated in India, with most adopting a global approach from Day 1. The Chinese start-ups, on the other hand, are more locally oriented and serve the large domestic market. The proliferation of Indian developer-led start-ups has been accelerated by the success witnessed by the early pioneers such as Postman and BrowserStack. The region also has a rich ecosystem of data & machine learning start-ups (such as Acceldata, Atlan and Hevo) and web3 infrastructure start-ups (such as Polygon). We will cover these in separate posts.
Considerations for Founders
Below we outline some of the key considerations and takeaways for founders of DevOps start-ups in Asia:
Think Global from Day 1: DevOps SaaS is global with very few barriers, especially in the English-speaking world. Founders need to think Global from Day 1 when it comes to product, go-to-market and competition.
Best-in-breed niche product or Platform in large category: DevOps landscape is highly fragmented and the market is ripe for consolidation. For founders, it is an opportunity to build either best-in-breed products in niche categories positioning their start-ups as an attractive acquisition targets or build a platform in a large category. Latter is harder and we see Postman as a viable candidate within the sizeable API development and management category ($6bn+ category growing at 40%, as per Tyler Jewell).
Community-led growth: The importance of community in developer-led start-ups can’t be understated. We might even go to the extent of stating that product-led growth is giving way to community-led growth. In the world where most developers are involved in purchase decisions, not having a community curtails growth and incurs higher marketing spend. Founders need to think about how to nurture a global community as soon as the product starts to gain traction.
Open Source is Hard but could be very rewarding: There are at least 28 million public repositories on GitHub today, many with remarkable community activity, but a vast majority would never become successful businesses because it has traditionally been hard to monetize Open Source at scale. However, open source companies that do succeed often grow faster than their closed source counterparts. For founders with open source business models, it is preferable that they 1) have high degree of control over the direction of the underlying OSS project, 2) keep core functionality of the product open source and charge for a small set of premium features, which hopefully would be mission critical for the customers deploying the product at scale, and 3) invest heavily in community as an active community is the lifeblood of an OSS project.
Key Metrics: Finally, some broad rule-of-thumb for key metrics that founders can track as they scale their business below:
Case Study
In the Part III of this series, I will cover the case study of an established Asian DevOps company that has scaled globally and what founders in the region can learn from it. Stay tuned!