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Baby steps to an Indian Microsoft

A country well known for its software services now has an opportunity to build world-beating software products.

At a recent corporate awards ceremony, Tata Consultancy Services (TCS) was crowned as the company of the year. Piyush Goyal, the Minister of State for Power, Coal and New & Renewable Energy hurriedly stepped up to the lectern after the award was given. He told the assembled glitterati that TCS had promised to give the All India Institute of Medical Sciences (AIIMS) a modern, nay, world-class hospital management system by March 31. In the tentative clapping that ensued I heard a big snort from my right. The scepticism of the gentleman sitting next to me was rooted in the belief gaining ground that bespoke software systems were outdated and presented a sub-optimal choice.

The predicament of enterprise technology clients stuck with archaic bespoke software systems is no longer common. Bespoke software systems fell out of favour 20 years ago. Firms switched en masse to on-premise enterprise software products. They were cheaper, easier to upgrade, and yet extensively tailored to their needs. This shift in the late 1990s created two sets of players: product vendors like SAP, and implementation consultants like IBM Global Services and Accenture. Soon, Indian IT services players like TCS, Infosys and Cognizant muscled into the game and grabbed considerable market share.

Lost in this success story is the narrative about Indian enterprise software product vendors. For instance, iFlex built a great enterprise software product for banks, which Oracle snapped up for a billion dollars in 2005. Kochi-based IBS is a leading product vendor for airports and airlines, and is now big enough for an IPO next year. PARAS, a hospital management product from Bangalore, is grabbing the industry limelight by winning global deals involving hundreds of hospitals.

If the Indian IT industry has benefited from the shift away from bespoke systems, why did AIIMS miss the bus? In general, why has our public sector been so slow to buy enterprise products? Government officials are not to blame for this. Unfortunately, our IT services firms became protectors of status quo in the government sector. While it helped them milk their fading bespoke systems for longer, it also created crumbling government systems and robbed the nascent product industry of a big market. Luckily, the new government has started fixing the issue.

The Growing Shism

Another breed of enterprise product vendors is emerging. Companies like Workday and Salesforce personify this new wave. They offer on-demand products. These require less customizations and work on cloud-based data centres. So, as Workday says on its website, they are a “fraction of the cost of upgrading from their incumbent vendors”. Naturally, customers love these new-generation products. They are called Software-as-a-Service (SaaS) products. And they are growing like wildfire.

A schism has opened up in the Indian IT industry over SaaS products. The implementation consultants don’t like them, as they need only minor adjustments. They look at them with a jaundiced eye of a traditional bespoke darzi [tailor] looking at readymade clothes. Going from stitching custom pants to doing length adjustments for readymade ones is a gloomy shift for IT services providers. But it’s a boon for our software product start-ups.

In fact, Indian SaaS product start-ups are on a roll. They are even getting begrudging respect from Silicon Valley. When ZenDesk, the SaaS market leader in customer service desk management products, did its roaring IPO earlier this year, it listed six key competitors in its SEC [US Securities and Exchange Commission] filing. Four of these – Kayako, Freshdesk, Supportbee and Tenmiles – are Indian! Indian SaaS product players are becoming global category leaders. Zoho, for instance, sells a CRM (customer relationship management) product at $12 per salesperson per month and is the market leader in this mid-market segment. It is flanked by Salesforce in the enterprise segment (at $60 per salesperson per month) and a raft of players, mostly Indian, in the SMB segment (at $3 to $4 per salesperson per month).

This availability of, say, CRM software product at every price point is a big new story in the IT industry. Unlike cars or smartphones, we have never had different software products to cater to every price segment. SaaS has changed this. As a result, everybody can now afford a software product. Hopefully, this time, government policy will build on this new generation and not let incumbents hold things back.

My Cup Runneth Over 

Two other pockets of explosive growth are exciting. One is the much-discussed rise of the digital consumer in India. This has led to the birth of Flipkart, Ola Cabs, Stayzilla, Newshunt and others. The other pocket is less sexy but it’s even bigger. It has to do with software infrastructure.

Old software infrastructure is being replaced at a pace previously unseen and is creating lots of product opportunities. Data explosion is driving endpoint data protection and governance products. Video explosion is driving dynamic ad insertion products. E-commerce growth is driving a new generation of search infrastructure products. Corporate mobile use is driving new agentless Bring-your own-Device security products. Social media is driving real-time social media analytics products. Now here is the punch line: in each of these categories, the emerging global leader is an Indian company! This is an unbelievably powerful development. For instance, Druva, a Pune-based start-up, is the global market leader in endpoint data protection and governance and is set to do an initial public offering in the US in 18 to 24 months.

Daring to Dream

Behind this optimistic turn of events is a new type of a technology entrepreneur. He (and, sadly, its mostly he so far) is unshackled from the restrictive dream of being the world’s back office. He doesn’t think in terms of labour arbitrage. He is a missionary, a creator and disruptor of status quo. And he has a blazing desire to change the world.

Team Indus embodies this spirit. This team is a motley group of passionate technologists that aims to land a robotic craft on the Moon by December 2015. This is literally a moon shot. Not altogether surprising to many of us, this team has emerged as one of the top three teams in the prestigious Google Lunar X-prize!

There are other moon shots in the works. Some are pivotal to developing our defence, aerospace and electronics industries. Others are about building highly affordable software products that will bring competitiveness to small businesses, teaching effectiveness to schools, productivity to health-care centres and new skills to farmers. Let’s not blow this chance. Let’s give these efforts the policy oxygen they deserve.

The country that gave zero, calculus, yoga and chess to the world is dreaming again. It wants to retake its rightful place in the world. It’s not satisfied being a back office for everybody. It dreams of powering the future with its ideas and inventions. It dreams of being a product nation!

This article was first published in Business Today

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Three Waves of Indian Software

When I started JamBuster with Suneeta in 2004, I wanted to build a technology management software products company in India.   Little did I know, that we would be part of a three-wave phenomena in software industry in India.

The first wave of this is the software outsourcing, now a bit old story, but still the legend by itself.  By different accounts, the outsourcing of software development by global multinational companies started in mid-1980s. This trend while definite was still very slow, but steady as seen by the fact that Infosys, the iconic harbinger started in 1981 had grown to only $20 MM by mid-1995 with about 900 people.  The Y2K fears fueled an unprecedented growth, so much that by March 2000, the revenues grew to more than $200 MM – a ten-fold growth in 5 years.  The exponential part of the S curve has just begin. By 2005, revenues grow from $200 MM to more than $2 B.  The Infosys employee population grew from 20,000 in 2005 to more than 100,000 by 2010.  The break necking growth created it challenges and by 2010, it was clear that the Software Industry has entered the final leg of the S curve, with growth tempering off.

By 2010, Indian software outsourcing pioneers of 1980s, Infosys, Wipro and TCS had become multi-billion dollar giants, each with more than $4Billion+ in annual revenues, 100,000+ employees and ADRs on global prestigious stock exchanges.  The Indian Software Outsourcing Wave that started in an apartment in 1981, now has turned into a $100B+ IT outsourcing industry.  The Indian Software Revolution, however, was just starting with the second wave.

The pioneering success of Citibank and GE in leveraging India for business process back office work, paved the path for global in-house (GIC) or captive India Software Centers.  GE was one of the first multinational companies  to outsource back-office work, data center and call center operations to a subsidiary in India, and its outsourcing operation, with a staff of 17,000 by 2004, is one of the largest set up in the country by a multinational company.

Next wave was just beginning to gather the steam- the multinationals opening their captive R&D centers for software and other expertise.  By year 2000, thus  global giants were starting not only to look at India for outsourcing, but also for permanent resources for in-house software development.  Between 1995 to 2000, more than 50 companies had opened their dedicated software development center in India.  More than 500 companies had opened captive software offshore development centers in India by 2005.

According to NASSCOM, by 2012, 750+ Indian Captives of multi-nationals had reached annual revenues of USD 13.9 Billion.  With more than 450,000 employees, it is now 21% of IT export revenues and 1% of India’s total GDP in FY 2012.  Of the 750+ captives, about 28% of them have multiple locations in India. NASSCOM reports that by category, 50% are Engineering R&D, 40% hybrid, 5% BPO and about 5% IT.   What is staggering that in last two years about 200+ Engineering R&D captives.

What started as maintenance or testing jobs, Y2K fear, had permanently opened India as a key resource destination for multi nations.  The focus to use these resources to get better value means that with over 700 software captives that employ 400,000 employees, India houses critical technology hubs for some of the largest corporations in the world.

These centers have evolved into doing more IP-driven work, including product architecture and complete design, apart from fully owning the product or product line. Their contributions to global parent is getting recognized from a recent trend.  Global in-house centers (GICs) or captive units in India of major multinational companies such as Target, Bank of America and HSBC are starting to shift lower-end services such as application maintenance and testing to vendors, and are focusing on more complex product development projects, according to industry experts.

It is therefore not a surprise that by 2010, next wave was starting to gather steam. Having tried outsourcing and built software captives, true software techno-entrepreneurs were starting to look at a new challenge.  This time, it was nothing less than the holy-grail of any company calling itself a technology company – the product R&D.

Today, more than 1000 software product start-ups are trying their luck in India that are looking to leverage software in their core offering. Indian software product companies like Quick Heal, Tally, FusionCharts, Zoho have made their mark with their products and productized services, each in their own way!

Quick Heal was essentially a customer focused PC maintenance services company, when its owner Kailash Katkar realized that the customer PCs needed more maintenance due to growing spread of viruses from internet.  Quick Heal’s story could have been legendary just on how Kailash saw an opportunity for an Indian made anti-virus software, given the high cost of imported Symantec and Norton offerings at that time, and that his brother Sanjay developed not only the initial versions of their anti-virus but also the innovation that followed, and it became a huge success.  But it is their decision to go head-to-head with global giants, get them to reduce price in India and then Quick Heal to start moving on to their global competitors’ backyard, is what seals its leadership place in this third wave of Indian Software Revolution.

Tally has grown from an accounting package for SME’s to a complete business software for all types and sizes of businesses. Today, the company providing innovative and easy to use business solutions to more than 20,00,000 businesses across 94 countries. Pallav Nadhani’s FusionCharts is a story still in making in that the wonder kid’s charts for grown-ups continues to grow their share of the market segment worldwide.  These early examples demonstrate that Indian Software Product makers are capable to build some of the most technically complex software for local customers and then take them global.

With the experience of outsourcing, knowledge from the captives, Indian Software Industry is getting its the third wind, propelling it into this third wave – Indian Software Product Companies with product R&D done in their backyard.  If Bill’s Microsoft was disruptive to brick and mortar global giants, Kailash’s Quick Heal and Bharat’s Tally are providing a preview of how Indian Software Product wave is about to disrupt the world again.  Get ready for the software products and productized services from India.

Guest Post by Satish Kamat, Jambuster Technologies

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The Gap Unfilled

No one is sure of their exact number, but a census of micro, small and medium enterprises (MSMEs) done a few years ago estimated that there are 26 million small and medium enterprises in India. It is well known that this market is fragmented and price-sensitive and, hence, large companies have tried to tailor products and services to target this market. But, is that enough? Take a look at the case studies below and see for yourself. 

MSMEs often complain that they don’t have adequate access to financing. One reason for this is that banks and financial institutions find it expensive and difficult to do a thorough analysis of a small firm’s credit-worthiness. Seven years ago, Crisil, India’s premier rating agency, stepped in to address this problem. The challenge was that any credit-worthiness assessment had to be completed within a reasonable period of time, maintain Crisil’s standards of analysis, and yet be affordable.

Crisil launched SME ratings in 2005. It created a network of qualified individuals in more than 180 cities, who were given intense training based on a specially-developed methodology, and had to meet rigorous certification requirements. This network of trained professionals became the bedrock of the SME rating system. To attract these individuals who are not formal employees of Crisil, the company even brought their parents to the Crisil office to show them that the company was solid and that this could be a career option. Reputed chartered accountancy firms with an all-India reach were hired for verification and oversight. The rating was based on a simple, two-dimensional scale of performance capability (five categories) and financial  strength (two categories). Once all the data is collected, technology is used to complete a rating in a few days. Overall, the rating is completed within about a month. With this process in place, Crisil is able to do about 10,000 SME ratings a year, making it the largest SME rating agency in the world.

With a credit rating, an SME can get better access to bank finance and, sometimes, even lower interest rates. However, even with these benefits, the Rs 50,000-1 lakh price tag was found to be too expensive by many SMEs. So, in spite of the well-designed product, and the business and process innovation that Crisil introduced to make the rating product accessible, the government had to step in to provide a subsidy for those MSMEs who couldn’t afford it. But, pricing is not the only barrier to adoption of new products by MSMEs. In 2007, India’s largest IT services company, Tata Consultancy Services, identified SMEs as an important segment. But since it lacked adequate experience in working with SMEs, the company met with more than 250 organisations to understand how they use technology.

TCS found that SMEs had made significant investments in devices and hardware, including networking, and used their computers mainly for accounts and inventory. But MSME owners complained that the reports they generated didn’t reflect actual performance because there were islands of data that were not integrated with each other. Others reported that they struggled to keep up with technology changes, keep their systems virus-free, and to hire and retain staff for IT. Even evaluating offers made by vendors was a tricky task.

Based on these customer inputs, TCS saw an opportunity to take responsibility for running SMEs’ IT, based on some basic principles such as covering all key business processes and providing for all statutory compliances. To avoid fresh capital expenditure, the company provided an operating expenditure-based service.

The resultant TCS cloud-based solution, TCS iON, was launched in the market in March 2011. iON is periodically upgraded by TCS, but the user doesn’t have to do anything extra at his end. Though iON is available across six verticals, in the first year and a half TCS had only about 300 installations, with the largest concentration in the education space, apparently much less than what the company hoped to achieve.

Overcoming the trust deficit between technology acceptor and new product is the biggest barrier to innovating for the MSME market

At the other end of the spectrum is Tally, arguably the most successful product ever built for MSMEs in India. It is estimated to be in use by about two million users although less than one million users have purchased licences. Right from the beginning Tally was built with Indian users in mind — it used minimum hardware resources, and was tailored to Indian accounting practices. Even novice users were able to quickly learn how to use the product and it rapidly gained a large installed base of users, thereby creating a platform for the positive returns of network economics. Tally worked closely with hundreds of institutes across the country to impart training and thus create a base of accountants with Tally skills. Early on, Tally created good relationships with the chartered accountants community. With its huge installed base, Tally has become a basic requirement for any accountant in India — if you don’t know how to use Tally, you can’t be a practising chartered accountant! 

To address the piracy issue, Tally reduced its prices substantially a few years ago. The product has also kept up with changes in technology and applications — it was very quick in providing VAT functionality after the law changed; it is available on the cloud; and the product today addresses much more than just accounting, it has become more like an ERP software. Of course, Tally’s success was also the result of some historical factors such as the decision of the Income Tax department and the Department of Company Affairs to make e-filing compulsory. Not all companies will have this path-dependent advantage.

The formula for success

So, what does it take to innovate for the SME market? Recently, a senior industry executive told me that the key to meeting the needs of the MSME market is realising that it is more like the enterprise market of the West than the consumer-like Small Office Home Office (So-Ho) market. Early adopters in the MSME market are very small in number and crossing the chasm to a larger “technology acceptor” market is very difficult. Many “technology acceptors” are reluctant to buy a new product even when they see a business case for it because they have had bad experiences in the past with products that were pushed to them with exaggerated promises, at high prices, and with limited post-sales support. Overcoming this trust deficit that has been created is the biggest barrier to innovating for the MSME market.

Innovation may be the solution to this problem as well. iSPIRT, a think tank recently launched by software product companies, is creating iSMB to be a market maker for software products in the MSME community. iSMB will bring out product guides for important segments of the MSME sector so that they can make informed choices regarding the software products that suit them. They will also certify products and encourage product companies to create visible dispute settlement mechanisms.

So, the key to innovating for the MSME market is not only tailoring products to their needs at easily affordable price points, and updating them to adapt to evolving use needs as Tally has successfully demonstrated, but providing effective ways of bridging information gaps, establishing and communicating a clear business value proposition and lowering the risk of purchase by the customer.

This article was first published in Outlook Business