Russian Business SaaS market in 2014-2019. Forecast until 2025
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Analytical Report (full version)
Russian Business SaaS market in 2014-2019. Forecast until 2025
J'son & Partners Consulting has completed a study dedicated to the Russian SaaS (Software as a Service) market (results of 2019) and formed a forecast of its development in 2020-2025. The results of the study show that despite the initial stage of Russian SaaS market development and its extremely small size, it shows a steady slowdown in growth, while the penetration of the main types of cloud business applications is at the level of less than 10% of the total number of economic entities that use a broadband Internet connection.
Such a low level of SaaS penetration in Russia means that for the vast majority of micro, small and even medium-sized enterprises in Russia, the transfer of personnel to remote employment is technologically difficult and can lead to a significant reduction in labor productivity. In a situation where the transfer of office workers to work from home is necessary as a forced measure (currently in order to combat the spread of COVID-19), and the deterioration of the macroeconomic situation imposes significantly more stringent requirements for the quality of business planning, control, and operating activities, the task of ensuring the productive work of distributed teams becomes extremely urgent. The solution to this problem should be considered in the broader context of the digital transformation of the country's economy.
Russian business SaaS market in 2019
The term Business applications provided under the SaaS model used in this study means transactional and analytical applications (accounting, CRM, ERP, BI) and Enterprise Content Management (ECM) applications, including Content Management Systems (CMS). Thus, SaaS is multi-user applications that allow you to create information space for a single enterprise and automate information exchange within end-to-end production and business processes. This is a kind of “minimal set” required for organizing a digital (virtualized) workplace for office staff. This transformation and virtualization of work tools change the principles of office work and allows you to organize remote employment (employment without territorial and hardware binding to the office) and increase the efficiency of work distributed teams perform. The study does not include web services that are usually considered as SaaS for external electronic document management, as they do not include this “minimal set”. The market for this type of service is described in a separate report.
According to J'son & Partners Consulting, in 2019, the market for these types of SaaS grew by 27% in monetary terms and reached 8.4 billion rubles. According to updated data, in 2018, the market grew by 36% in monetary terms, and in 2017 — by 54%. The market growth rate in monetary terms significantly exceeds the growth rate of the customer base, which is cleared of duplicates, while both indicators show a slowdown.
Thus, the Russian SaaS market is growing mainly due to the expansion of the range of applications used by existing users, and to a lesser extent by attracting new users who previously did not use SaaS at all, which is also reflected in the significant growth of ARPU per SaaS user company.
Along with the volume of revenue and the number of users, the key indicator of market development is the penetration level. Regarding SaaS services, the target level of penetration should be higher than the level of on-premise business software penetration, which in Russia in 2015, according to J'son & Partners Consulting amounted to just over 21% of the total number of existing business entities that use broadband connectivity.
By the end of 2019, the overall level of SaaS penetration in Russia remains low, only a few percents. Even with the IaaS/PaaS penetration, the overall penetration rate of applications provided and / or deployed using the cloud model is significantly less than 10%. The above-mentioned model of market growth (mainly due to the expansion of the range of consumed functionality by enterprises that are already using some cloud applications) means that the penetration of SaaS in Russia is growing slowly. In this regard, it should be noted that the cloud model is an indicator that allows assessing the percentage of jobs for which the principle of territorial independence can be implemented. For small and micro businesses in Russia, the cloud model is the only way to get access to modern multi-user applications for automating business and production processes, and for large enterprises, it is an indirect indicator of the ability of staff to fully work outside the office.
Based on the rapid growth rate of the SaaS market in Russia since 2014-2015, in 2015, J'son & Partners Consulting analysts compiled and publicly presented (link 1 and link 2) a forecast which shows that not later than in 2020, at least 20% of jobs in Russia can be virtualized, that is, provided with automation tools that allow to organize a full-fledged work of staff outside of offices. Due to the vagueness of the term "remote employment", it is necessary to explain that J'son & Partners Consulting uses the "remote employee" concept in a broader context than it is prescribed in Russian legislation. By "remote work" we mean work performed by an employee from any convenient location using modern IT and telecommunications tools, without the need to be linked to the employer's office. In our opinion, employees who can work from home at least from time to time (for example, 3 days a month or once a week), depending on the agreement with the employer and who have access to all necessary documents and applications thanks to the virtualization of the workplace, can also be considered remote (geographically independent) employees. It is obvious that economic factors, such as the high cost of office space, production necessity, as well as emergency situations that require operating activities by staff outside the office (for example, measures to combat the spread of coronavirus in Russia) will lead to a significant excess of the forecasted figures presented in 2015 (it was estimated that 20% of the total employed population in 2020 would work remotely). However, due to the slowdown in SaaS penetration in Russia in the period 2017-2019, J'son & Partners Consulting estimates that only about 10% of jobs in Russia can be considered virtualized. This means that more than half of the employees transferred to remote employment do not have the necessary automation tools to organize effective work.
Analysis of the SaaS application functionality consumed in the cloud format shows that the structure of the SaaS customer base is changing in favor of accounting and CRM applications, and in monetary terms the structure is changing in the direction of increasing the share of ERP and BI systems in the SaaS format, and, to a lesser extent, in favor of accounting systems. However, since cloud ERP and BI-functionality, that is, analysis and planning functionality that allows improving the efficiency of enterprises, is still used by a very limited number of user companies and only in terms of automation of auxiliary processes (such as personnel management, but not production process management) the growth of ERP/BIaaS consumption does not affect the change in the structure of the customer base. This clearly demonstrates how explosive the growth of this segment of the SaaS market can be if full-featured ERP and BI applications become available and in demand by a wider range of B2B consumers.
According to J'son & Partners Consulting, in 2019, 80% of SaaS consumers were trade and service enterprises, including financial and telecommunications organizations (see Figure 1). The distribution of SaaS users by industry is close to the industry structure of the market in monetary terms due to the absence of significant differences in the ARPU of users in various sectors. This structure has been steadily shifting towards the hypertrophied share of trade and services, and there have been no significant changes over the period between 2014 and 2019.
A consistently high share of trade and intermediary activity in the SaaS consumption structure in Russia is determined by the structure of the economy of large cities. For example, 80% of the GRP of Moscow is formed by trade and intermediary activities and services. That is, having formed as industrial and scientific centers, at present, large cities in Russia are trade and logistics hubs, the existence of which is not necessary, and is mainly needed to compensate for inefficient business planning. Despite years of talking about digitalization and the transition to "flat" management systems with high automation levels, the prevailing hierarchical management systems of enterprises and organizations, involving a large number of personnel at many levels of the hierarchy, implement an exclusively deterministic approach, when sales plans, purchases, recruitment and use of other types of resources are set from above (determined) and fixed for a long period of time – a month, quarter, year, or several years. To compensate for the unavoidable imbalance of supply and demand arising from such planning, a large number of resellers are introduced in the wholesale sales link, and at the "last mile", in the retail link, the problem is solved by an ultra-high concentration of consumers in a limited space, when due to the effect of "large numbers", products and services are in demand, despite the shortcomings of planning their production and sales.
The downside of this approach is an extremely low level of resource efficiency and, consequently, the high cost of final products and services, compounded by a large number of resellers, which, in turn, determines a low quality of life at a high cost for the vast majority of consumers. In addition, these are unsolvable problems of ecology, waste, transport, epidemics, and much more, resulting from an ultra-high concentration of consumers in a limited area.
Prospects of the Russian SaaS market for 2020-2025
J'son & Partners Consulting's simulation of the Russian SaaS market development shows that if the inertia scenario occurs, starting from 2021, its annual growth rate will fall below 15% in monetary terms while ARPU will stop to grow and start to fall. Such sluggish growth, in conditions of extremely low penetration on the one hand and the obvious demand for cloud multi-user applications on the other, indicate the presence of powerful growth constraints, and in order to overcome them both, the business community and government authorities will have to make significant efforts.
In contrast to the North American market (the most developed IT market), where the penetration level of multi-user business process automation systems has always been high and currently exceeds 75%, in Russia, where the penetration of such systems is at the level of 20-25%, of which only about half is fully accessible outside the office, the rate of increase in penetration of cloud business applications can be very high. It is not due to replacing existing on-premise applications with cloud-based ones, it is rather due to the fact that the only opportunity for small and especially micro-enterprises to get access to effective automation tools that increase labor productivity, is reducing unit costs and making it possible to organize full-fledged work of staff from almost any place with Internet access.
The need to develop effective measures to cope with emergencies such as the coronavirus pandemic is likely to attract more attention not only to the specific task of ensuring the territorial independence of office staff but also to the more general problem — the need to finally begin a full-fledged digital transformation of the country's economy. The goal of this transformation should be the formation of a more rational and stable system of socio-economic relations based on the principles of win-win, that is, a game with a positive prize amount (in terms of game theory).
This information note was prepared by the J'son & Partners Consulting. We work hard to provide factual and prognostic data that fully reflect the situation and available at the time of release. J'son & Partners Consulting reserves the right to revise the data after publication of new official information by individual players.
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Detailed research results presented in the full version of the report
“Russian Business SaaS market in 2014-2019. Forecast until 2025”
1. DEFINITIONS AND METHODOLOGY
2.1. MAIN TYPES OF PLAYERS
2.2. VOLUME, DYNAMICS AND STRUCTURE OF THE MARKET
2.2.1. Volume and dynamics of the market in 2014-2019
2.2.2. Volume and dynamics of the market by segments in 2014-2019
22.214.171.124. Office application packages in SaaS format
126.96.36.199. E-commerce as a Service
188.8.131.52. Entry-level accounting cloud services and ERPaaS
184.108.40.206. Full-featured ERP and BIaaS and their elements
2.2.3. Market structure in the vertical (sectoral) context
2.2.4. Market structure in the horizontal context
2.2.5. Market structure in territorial context
2.5. TRENDS AND FORECASTS
2.5.1. Forecast of the number of user enterprises
2.5.2. Forecast of the market volume in monetary terms
2.5.3. Forecast of the ARPU dynamics
2.5.4. Forecast of the market structure changes
2.5.5. Forecast of the market players' positions
3. MARKET MODEL
3.1. MARKET MODELLING METHODOLOGY
List of Figures
Fig. 1. Shares of major groups of the market players by revenue, %, 2014 and 2019
Fig. 2. Shares of major groups of the market players by customer base size, %, 2014 and 2019
Fig. 3. Positions of the market players in the horizontal segments (by revenue): Russian SaaS providers/vendors, %, 2014 and 2019
Fig. 4. Positions of the market players in the horizontal market segments (by revenue): global SaaS providers/vendors, %, 2014 and 2019
Fig. 5. SaaS market volume in physical terms, legal entities, 2014-2019
Fig. 6. SaaS market volume in monetary terms, million rubles without VAT, 2014-2019
Fig. 7. SaaS market ARPU, rubles without VAT, 2014-2019
Fig. 8. ARPU in the horizontal market segments, rubles without VAT, 2014-2019
Fig. 9. Penetration of SaaS services in Russia: total and in the horizontal market segments, % of the total number of legal entities with broadband connection, %, 2014-2019
Fig. 10. Structure of the Russian SaaS market by application type in monetary terms, in % and million rubles without VAT, 2014-2019
Fig. 11. Structure of the Russian SaaS market in physical terms, in % and number of consumer companies, 2014-2019
Fig. 12. Office SaaS market volume in physical terms, legal entities, 2014-2019
Fig. 13. Office SaaS market volume in monetary terms, million rubles without VAT, 2014-2019
Fig. 14. ARPU in the Office SaaS market, rubles without VAT, 2014-2019
Fig. 15. E-commerce aaS market volume in physical terms, legal entities, 2014-2019
Fig. 16. E-commerce aaS market volume in monetary terms, million rubles without VAT, 2014-2019
Fig. 17. ARPU in the E-commerce aaS market, rubles without VAT, 2014-2019
Fig. 18. Cloud accounting systems market volume in physical terms, legal entities, 2014-2019
Fig. 19. Cloud accounting systems market volume in monetary terms, million rubles without VAT, 2014-2019
Fig. 20. ARPU in the cloud accounting systems market, rubles without VAT, 2014-2019
Fig. 21. Cloud CRM market volume in physical terms, legal entities, 2014-2019
Fig. 22. Cloud CRM market volume in monetary terms, million rubles without VAT, 2014-2019
Fig. 23. ARPU in the cloud CRM systems market, rubles without VAT, 2014-2019
Fig. 24. Cloud ERP and BI market volume in physical terms, legal entities, 2014-2019
Fig. 25. Cloud ERP and BI market volume in monetary terms, million rubles without VAT, 2014-2019
Fig. 26. ARPU in the cloud ERP and BI systems market, rubles without VAT, 2014-2019
Fig. 27. Emerging global ecosystem of IoT platforms and applications for implementing digital economy business models in industry
Fig. 28. Structure of SaaS users by vertical (sector), %, 2019
Fig. 29. Horizontal (by user company size) SaaS market structure in monetary terms, 2014-2019
Fig. 30. Horizontal (by user company size) SaaS market structure in physical terms, 2014-2019
Fig. 31. Territorial distribution of SaaS consumption in Russia in monetary terms, 2014-2019
Fig. 32. Territorial distribution of IaaS consumption in Russia in physical terms, %, 2014-2019
Fig. 33. Labor productivity in Russia relative to the United States and the reasons for low labor productivity in Russia, 2009
Fig. 34. Penetration of accounting, ERP and BI systems functionality in Russia, large and small businesses, 2015
Fig. 35. Cyber-physical service product as a basic element of the digital economy
Fig. 36. Forecast of SaaS penetration in Russia, %, 2025 compared to 2019
Fig. 37. Forecast of the SaaS market volume in physical terms, legal entities that are unique SaaS users, 2018, 2020-2025 (forecast)
Fig. 38. Forecast of the SaaS market volume in monetary terms, million rubles without VAT, 2019, 2020-2025 (forecast)
Fig. 39. ARPU dynamics forecast, rubles without VAT, 2019, 2020-2025 (forecast)
Fig. 40. ARPU dynamics forecast in the horizontal segments, rubles without VAT, 2025 compared to 2019
Fig. 41. Forecast of distribution of SaaS user companies by verticals (industries), %, 2025
Fig. 42. Horizontal (by user company size) structure of the SaaS market in monetary terms, %, 2019 (fact) and 2025 (forecast)
Fig. 43. Horizontal (by user company size) structure of the SaaS market in physical terms, %, 2019 (fact) and 2025 (forecast)
Fig. 44. Territorial structure of the SaaS market in monetary terms, %, 2019 (fact) and 2025 (forecast)
Fig. 45. Territorial structure of the SaaS market in physical terms, %, 2019 (fact) and 2025 (forecast)
Fig. 46. Shares of major groups of the market players by revenue, %, 2019 (fact) and 2025 (forecast)
Fig. 47. Shares of major groups of the market players by customer base size, %, 2019 (fact) and 2025 (forecast)
Fig. 48. Positions of players in the horizontal market segments (by revenue): Russian SaaS providers, %, 2019 (fact) and 2025 (forecast)
Fig. 49. Positions of players in the horizontal market segments (by revenue): global SaaS providers, %, 2019 (fact) and 2025 (forecast)
Fig. 50. Distribution of the market player's share on the ARPU scale
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