When will we have a Google or a Microsoft from Indian shores? Is a question that bugs me quite often. We are the undisputed leader in software services, but there has been little attention paid to creating IP or to be specific, software products out of India. It is a shame that only a handfull of companies in India are developing products; considering the kind of experience we have in the IT domain. But things might change, as these few players are getting ambitious by each passing day and their successes might herald a whole new shift to product development.. In the article, published recently in the Dataquest Magazine, I spoke about a small revolution that is taking shape, and how this just might be it..(http://dqindia.ciol.com/content/top_stories/2007/107051001.asp)
Thursday, May 10, 2007
Faqir Chand Kohli in not someone who can be easily ruffled. The octogenarian, fondly referred to as the father of the Indian IT Industry, has a very benevolent and benign stance towards things in life-right from the way the government is trying to enforce reservation on meritorious institutions to the way his created entity (TCS) is performing, or even how Indian politicians are not progressively inclined and just a bunch of nincompoops. But one thing surely gets his goat, literally. Call India an IT super power and suddenly one can catch sight of a stirring in his pupils. Kohli perks up and speaks in a voice that hardly seems to come from the grand old man of Indian IT.
"India is not an IT super power, how can you even call it so, we account for a few percent points in the total global IT pie. Look around you in India, the benefits of computerization have yet to really percolate to the commonest of the common. It is a fallacy to call ourselves an IT power house," he virtually thumps the table.
Peering into his graying pupils one can discern a tinge of sadness. After the outburst, Kohli seems to calm down, accepting the inevitability of things and returning back to his calm and serene self. "Services alone will not make us a super power. We need to make our own hardware, our own software, our own applications," he says unequivocally. And that is the truth, the bitter pill.
Everyone hopes that the good times will continue to be and the million dollar contracts will continue to flow. It will, before the law of probability catches up or some other low-cost populous destination comes up, or a shattering innovation replaces the countless number of individuals employed in India. It is not an IT Armageddon, but a course of life. Many analysts and industry watchers have warned of the same, time and again. So what needs to be done? The answer has always been there, as Kohli said earlier, Indian companies need to look at creating IP, creating hardware products and, more significantly, making use of our intellectual capital, creating world class software products.
Consider this. India's largest IT company, TCS, which is into consulting, services and business-process outsourcing, started its operations in the year 1968. Meanwhile, Microsoft was setup by a bunch of college dropouts in 1975, purportedly to sell software for the highly popular Altair 8800. This year, TCS crossed $4 billion in revenues and employs some 89,000 people globally. While, the Giant at Redmond (Microsoft) reported revenues of around $44 bn in 2006 and some 70,000 employees worldwide. This is how India's largest IT company and the largest American (global, to be more precise) company compare.
And therein lies the answer. Indian IT companies have been primarily focused on application software development and implementation unlike global biggies like Microsoft, Oracle, SAP and their likes. Creating world-class products is the key to success. The good news is, India, and more importantly Indian companies, are discovering the benefits of pumping money into R&D of new products.
There are more such stories emerging out of Indian shores, like 3i Infotech, Subex Azure, Cranes Software, Polaris, Ramco and others. "While last year was a great year from product companies' perspective (product revenues touched $481 mn), and the winners were really the big firms such as 3i infotech, IBS, Ramco, etc. But the heartening part is that unlike the biggies, higher market growth came from players such as Tejas Networks, Ittiam, Tekriti Systems, Newgen, Nucleus, Skelta, and Axcend Automation, Aftek, and other companies that are often labeled as small players," says TR Madan Mohan, director (Consulting, ICT Practice), Frost & Sullivan.
Little wonder then that more and more entrepreneurs are ready to take a plunge into this evolving industry. Take for instance the numbers given by Deepak Ghaisas, CEO (India Operations) and CFO, i-Flex. He is also the chairman of the Nasscom Product Forum: "According to figures available with us, there are around 346 companies in India that are into product development. Of this around 228 companies have a product offering." Last year, the numbers of product companies were pegged at 250; this translates into quite a substantial increase in numbers.
Ghaisas provides another interesting insight into the numbers. "Close to 60% of these product companies have been started by entrepreneurs, mainly Indians returning from abroad who want to start something of their own," he says.
Subash Menon, founder chairman, managing director & CEO of Subex Azure sums up the situation succinctly. "The product industry is yet to evolve properly in India. With the focus on export of software services most companies have ignored this segment, and consequently, there are only a few players in this space. Yet none can deny that the opportunity is quite huge and Indian companies need to work at making the best of this emerging industry," he says.
Meanwhile, Amar Chintopanth, executive director & CFO, 3i Infotech seems to be a bit generous towards the services companies. "Over the years, the services giants have created a favorable atmosphere towards India. They must be credited for building brand India. Thus, product companies from India are no more taken as mere rookies anymore and are regarded with a certain amount of respect," he says.
The Pot of Gold
India is also attracting a host of companies who are setting up their development facilities. Take the case of PTC, the company has its largest R&D centre based in Pune. Meanwhile, last year, Nvidia had acquired a small Pune firm, Pace Soft Solutions. At that time, Jen-Hsun Huang, the CEO had said, "We have invested close to $50 mn in India and plan to invest close to $250 mn in the coming years."
Not just BFSI
Yet, there have been a few ventures that truly stand out. One of them is Cranes Software that makes statistical analysis tools. It has a unique business model of 'Acquire-Enhance-Expand'. Re-engineering them to add new features and functionalities, and expansion to the global market in itself involves a significant amount of R&D. Newgen is another noteworthy example in the document management space and many other ventures like these.
Big Services Daddies
Infosys has been accelerating on the products domain. Its banking solution, Finacle, enjoys quite a good installed base in the industry and yet its contribution to the overall revenue is not something to sing about. "Finacle contributes approximately 4% of Infosys' total revenues. However, this data point does not reflect the fact that Infosys has packaged software only in the banking solutions space while services focus continues to be across verticals," says Sanat Rao, global head, Finacle Sales, Infosys Technologies.
The issue is of mindset, it is quite hard for a TCS or Wipro or Infosys to break the shackles and succeed in the new domain. As long as the services industry is going great guns, the big daddies will continue to remain marginal players.
"It is the IT industry which created the culture of quality, globalization, technical education, building world class infrastructure and a brand to recon with in the international markets. I can bet that if the government had consumed all the tax benefits instead, India could be a laggard country as it is in all other sectors. Minus, the rise and shine of the Made in India brand of the software and the BPO industry globally, India has no international standing whatsoever," says Hanuman Tripathi, MD, Infrasoft Technologies.
Menon from Subex wants organizations like Nasscom to play a more proactive role. "They really need to promote the industry like they have done for BPO. Once the word is spread, more and more entrepreneurs will come forward and the industry will flourish," he says.
As part of the initial strategy the company had deliberately avoided going all out in the advanced economies, instead it went to developing economies in Asia and Africa. Now, i-Flex is taking another step to ensure its continuous success. The service profile of the company is improving with each passing day, as it ramps up for the next level of growth. With Oracle's (as it holds around 83% share in the company) marketing and servicing might behind it, i-Flex can truly change the way Indian product companies have fared till date.
Vision is the key. If an octogenarian can still think about creating products and solutions that can be used by millions, what really encumbers millions of computer geniuses and management whiz kids from doing so? It is perfect time to move into the product space, to do something truly path breaking. The product industry is indeed at a point of inflection.
Ambition is a good trait, but like any overdose, can be quite hazardous at times. There have been quite a few cases in the recent past wherein a company that was cash rich expanded rapidly and burnt itself out rapidly as well. As Alexander Pope had once said, the same ambition can destroy or save.
"As we have around 300-400 customers and most of them based overseas, it naturally makes sense for us to expand overseas. Thus we have adopted a partner strategy. For instance, before venturing into any country, we conduct a thorough research on the market and its potential. Once convinced, we appoint a partner in that geography and operate through him or her. As the business expands we add on a few partners more, and after a critical stage, we ourselves enter the country," says Amar Chintopanth, executive director & CFO, 3i Infotech.
Currently, 3i Infotech has a partner network in more than 10 countries of the total 50 that it operates in. By using a partner, the company saves a lot on the cost of capital that would otherwise need to be invested. "And this capital we plough back into R&D," adds Chintopanth. For product companies in India that are short of cash, going glocal is the best possible option.
Subash Menon is a man who should be truly admired for his gumption. An electrical engineering graduate from a university in Durgapur, Menon decided to float a company in 1992, without much help or experience. He had an idea and the urge to make it happen. Subex Systems evolved from being a telecom SI to a product company focused on the telecom space.
"M&As are an important part of our roadmap and we pursue both organic and inorganic routes to enhance our product portfolio. As a policy, we work on a 4-year roadmap, it clearly states where we want to be in 4 years time and how. The recent acquisitions are based on the plan that we have chalked out for 2010. In the last seven years we have made seven acquisitions amounting around $320 mn in cash and stock. We are also in the process of raising around $200 mn by issuing Global Depositary Receipts (GDRs)," says Menon.
According to Menon, Subex Azure will continue to look at expanding the inorganic way, and is looking for possible buy-outs in three areas, namely revenue maximization, service fulfillment and service assurance. "We have evolved being a fraud management solutions company to being a telecom OSS vendor. Our aims have become bigger and so has our addressable market. We intend to go full steam ahead," says Menon.
Sometime in 2001, Polaris did a reality check. It was established in 1995 and doing reasonably fair for a services company, but Arun Jain, CEO, Polaris, knew that it would not be able to compete with the likes of TCS and Infosys. For all its efforts, it would be tough to break into the big club. It was around this time that Polaris changed tracks. It adopted the Blue Ocean strategy; instead of slogging it out in the highly competitive services domain, why not coast along in the relatively newer space of product development. The company's expertise in the banking domain would also come very handy. But even the banking domain had a few strong players like i-Flex and others. There were quite a few players competing on the plank of technology and cost. Polaris decided to bring its technical expertise on the table, and introduced componentized products based on SOA principles.
"The idea was fairly simple, but complex at the same time. Rather than selling a product, we decided to present a platform to our customers, whereby he or she could pick and choose modules or applications that were required by the business rather than going for a big-bang implementation. We termed it as Non-Disruptive Measured Steps Method or NDMS," says Jaideep Billa, CTO, Polaris Software Lab.
With NDMS, companies were able to migrate from another core-banking platform to the Polaris platform with little or no hassle. And the results were there for all to see. "Today, top 7 banks from the top 25 use our solutions in some way or the other," says Billa. Though Polaris could not be a shining star in the services domain, it certainly emerged as a force to reckon with in the product domain.
Does it Tally?
Till a few years back, Tally was the poster boy of Indian IT industry. A homegrown solution aimed at the small domestic players, Tally really grew in real stature. Since Tally package was customized for Indian needs and requirements, it had completely dominated the SMB space.
Over the years, the big ones like the SAPs and the Oracles of the world were focused on the big companies in India. That was till a few years and now the very same international have woken up to the immense opportunity in the SMB space. Suddenly, Tally was under attack with international players products at lower price. Its price plank was removed, the growth was stagnant and suddenly the company seemed vulnerable.
To counter the situation, Tally is trying to reinvent itself. After being funded by Reliance Mukesh Ambani Group, that also picked up a stake in the company, Tally has been trying to reach out to different markets like the Middle East. It has also decided to take the game to the enemies' court, by venturing into the ERP space. Tally also came out with a solution for the retail sector. Time will tell if Tally will be able to tally all the different things that it seems to be doing or will it, just not tally.