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The software industry is undergoing a significant transformation, with software-as-a-service (SaaS) leading this shift over the past two decades. What began as basic cloud-based applications has now evolved into complex, innovation-driven platforms that power businesses across the globe.

As India rises as a key player in the global SaaS market, the integration of artificial intelligence (AI) is accelerating this momentum, pushing India’s SaaS sector to the forefront of global innovation.

Rise of AI-enabled SaaS in India

Driven by the demand for smarter, more adaptive solutions, traditional SaaS models are rapidly evolving into AI-enabled SaaS. Indian startups are integrating AI technologies like machine learning (ML), natural language processing (NLP), and advanced analytics into their offerings, allowing companies to streamline operations, deliver personalised user experiences, and make data-driven decisions at scale.

According to the ‘Rise of SaaS in India 2024’ report by Bessemer Venture Partners, over 50% of Indian SaaS companies now identify as AI-enabled, with 92% of early-stage startups having integrated at least one AI feature within the past. This surge in AI adoption highlights a profound shift, where AI is becoming deeply embedded in the core of modern software solutions, creating platforms that are more intuitive, efficient, and capable of solving complex challenges.

AI’s role in SaaS market

India’s pivotal role in the global services market is on the cusp of transformation. As a major player, India contributes 19% of the $400 billion global services industry and accounts for nearly 60% of global worker hours​, according to the Bessemer Venture Partners report.

Historically dominated by customer service and back-office tasks, India’s services sector now sees knowledge-intensive fields—such as financial services, healthcare, and legal—contributing nearly half of its revenue. This shift offers a unique opportunity for AI to enhance efficiency in labour-intensive areas while augmenting human expertise in specialised domains​.

The convergence of AI and SaaS is creating new categories of high-value, technology-driven offerings that solidify India’s dominance in the global services market. New-age service firms are emerging, characterised by software-equivalent gross margins, where AI-first companies are achieving 65%+ gross margins, far surpassing the 30-40% margins typical in traditional services.

Key developments in this AI transformation include:

• Outcome-based pricing: A shift from labour-based to outcome-based pricing models ensures that clients pay for results rather than hours worked, aligning costs with actual value delivered.

• AI accuracy with human oversight: Combining AI’s data-processing capabilities with human expertise enhances efficiency, reduces errors, and improves overall service quality.

• Accelerated innovation: With AI handling routine tasks, professionals can focus more on creative problem-solving and strategic decision-making, driving faster innovation cycles.

As AI continues to reshape the software industry, India’s SaaS ecosystem is positioned for unprecedented growth. Projections that once estimated India’s SaaS market would reach $50 billion in annual recurring revenue (ARR) by 2030 now seem conservative. With the rapid advancements in AI, this figure could potentially triple by 2030, driven by the rise of Indian centaurs and unicorns—companies achieving $100 million in ARR and $1 billion in valuation, respectively,​ according to the Bessemer Venture Partners report.

Future poised for growth

The synergy between AI and SaaS will fuel the next wave of global innovation. AI-powered evolution is not just an incremental improvement but a fundamental shift in how businesses operate and deliver value. As India’s AI ecosystem matures, domestic companies are expected to capture a larger share of the global market, reinforcing India’s position as a global leader in AI-enabled SaaS solutions.

(Anant Vidur Puri is a Partner at Bessemer Venture Partners where he focuses on opportunities in India SaaS, AI, and internet marketplaces. Aparna Chaganty is an early-stage investor at the firm where she focuses on cloud software, internet marketplaces, and ML platforms.)