India’s new Software Products Policy marks a Watershed Moment in its Economic History – Can the nation make it count?

India is on the glide path of emerging as one of the economic powerhouses of the world – its economy is ranked sixth in size globally (and slated to climb to second by 2030); it has the fastest growing annual GDP growth rate amongst (major) countries; the country ranked in the world’s top 10 destinations for FDI in 2017-18. With a population of 1.3 billion and a large middle class of ~300 million+, it is one of the most attractive markets globally. Specifically in the digital economy – India has a huge $ 167 billion-sized IT industry; it boasts of a 55% market share in global IT services & outsourcing; 1140 global corporations run their tech R&D centres in India. In the tech startup space, India has attracted Private Equity (PE) & Venture Capital (VC) investments of $33 billion in 2018, and it has over a dozen unicorns (startups with over $1 billion valuations).

These data-points are truly impressive and would make any country proud, but they belie one of the glaring historical paradoxes of the Indian economic story – the sheer absence of world-beating products from India. Ask Indians to name three truly world class, globally loved Indian products or brands – chances are they’ll struggle to name even one. Check out the Global Innovation Index 2018 from the World Intellectual Property Organization (WIPO) – India doesn’t figure in the top 50 countries. Or the Interbrand 2018 Top 100 Global Brands Ranking – there’s no Indian name on that list. Leave aside brick & mortar industries, the Indian IT & Digital sector doesn’t fare any better on this count. IT services, which forms its lion’s share comprises largely of low end, commoditized services or cost arbitrage based outsourcing contracts. Most of the new age tech unicorns in India are based on ideas and business models that are copied from foreign innovators (with some local tweaks) – their outsized valuations are a result of them being the gatekeepers to the large Indian market, rather than from having created path-breaking products from first principles. So the overall trend is that India has a large domestic market, and it is a big supplier of technical brain power on the world stage, but when it comes to building innovative products, we come to a total cropper. This is best reflected in the Infosys Co-Founder, Narayan Murthy’s candid quote – “There has not been a single invention from India in the last 60 years that became a household name globally, nor any idea that led to the earth-shaking invention to delight global citizens”.



The launch of the National Software Products Policy (#NSPS):

It is in this light that the recently rolled out National Software Products Policy (#NSPS) by the Ministry of Electronics & IT (MeitY), Government of India marks a watershed moment. For the very first time, India has officially recognised the fact that software products (as a category) are distinct from software services and need separate treatment. So dominated was the Indian tech sector by outsourcing & IT services, that “products” never got the attention they deserve – as a result, that industry never blossomed and was relegated to a tertiary role. Remember that quote – “What can’t be measured, can’t be improved; And what can’t be defined, can’t be measured”. The software policy is in many ways a recognition of this gaping chasm and marks the state’s stated intent to correct the same by defining, measuring and improving the product ecosystem. Its rollout is the culmination of a long period of public discussions and deliberations where the government engaged with industry stakeholders, Indian companies, multinationals, startups, trade bodies etc to forge it out.

#NSPS will bring into focus the needs of the software product industry and become a catalyst in the formulation of projects, initiatives, policy measures etc aimed at Indian product companies. One of its starting points is the creation of a national products registry that’s based on a schematic classification system. Other early initiatives that will help in operationalizing the policy – setting up of a Software Products Mission at MeitY, dedicated incubators & accelerators for product startups, development of product-focused industrial clusters, preferential procurement by the government from product companies, programs for upskilling and talent development etc.

The Indian IT / Software Industry Landscape:

To understand the product ecosystem, one needs to explore the $ 167 billion-sized Indian IT / Software sector into its constituent buckets. The broad operative segments that emerge are –

1) IT Services & ITES: This is by far the largest bucket and dominates everything else. Think large, mid & small sized services companies throughout the country servicing both domestic & foreign markets. e.g. TCS, Infosys, Mindtree, IBM, Accenture, GE etc
2) Multinationals / Global Development Centers: These are foreign software companies serving Indian markets and/or using India as a global R&D development centre. e.g. Microsoft, Google, Netapps, McAfee, etc
3) Domestic Product Companies: This is a relatively small segment of Indian software product companies selling in domestic or overseas markets e.g. Quickheal, Tally etc.
4) Startups – E-commerce / Transactional services: This is the large, fast-growing segment of startups into direct (or aggregated) transactional businesses like e-commerce, local commerce, grocery shopping, food delivery, ride sharing, travel etc. e.g. BigBasket, Flipkart, Amazon, Grofers, Milkbasket, Swiggy, Dunzo, Uber, Ola, Yulu, Ixigo, MMT etc. You could also include the payment & fintech companies in this bucket – e.g. Paytm, Mobikwik, PhonePe, PolicyBazaar, Bankbazaar etc. This segment has absorbed the maximum PE & VC investments and is poised to become bigger with time.
5) Product Startups – Enterprise / CoreTech / Hardware: This is comprised of companies like InMobi, Zoho, Wingify, Freshdesk, Chargebee, Capillary, electric vehicle startups, drone startups etc. They could be serving Indian or foreign B2B markets.
6) Product Startups – Consumer Internet: This segment is composed of media/news companies, content companies, social & professional networking, entertainment, gaming etc. e.g. Dailyhunt, Inshorts, Sharechat, Gaana, Spotify, YouTube, video/photo sharing apps, Dream11 etc.

(N.B. Off course, this segmentation schema is not water-tight and there could be other ways to slice and/or label it)

Why India lags behind in Software Products?

The global software products industry has a size of $ 413 billion, and it is dominated by US & European companies. India’s share in that pie is minuscule – it is a net importer of $ 7 billion worth software products (India exports software products worth $ 2.3 billion, while it imports $ 10 billion)“Software is eating the world” – entire industry segments are being re-imagined and transformed using the latest developments in cloud computing, artificial intelligence, big data, machine learning etc. In this scenario, it is worth understanding why India seems to have missed the software products bus. The reasons are multifarious, cutting across cultural, economic, market, behavioural and societal factors –

a) The cultural aversion to Risk, Ambiguity & Failure: Indian society has traditionally valued conformity and prepares people not to fail. Our family and educational environments are geared for teaching us to eschew risk-taking and avoid ambiguity. But building products is all about managing risk and failure. When you take a product to market from scratch, you take on multiple types of risk – market risk, execution risk, product risk. For many people in India, this is in stark contrast to their social/attitudinal skills and expectancies they have built up over a lifetime.

b) “Arbitrage” offers the Path of Least Resistance: If you pour water down a heap of freshly dug mud, it will find the path of least resistance and flow along it. Human behaviour is similar – it is conditioned to look for the path of least resistance. And “arbitrage” offers that least resistance path in the IT industry – be it cost arbitrage, labour arbitrage, geographical arbitrage, concept arbitrage et al. The IT services industry leverages the cost arbitrage model via cheaper labour costs. Many of the transactional e-commerce startups in India have used geographical arbitrage to their advantage – once a successful product or model is created in another market, they bring it to India to capitalize on a local first mover advantage, build a large valuation and become the gatekeeper to the market before the (original) foreign innovators arrive in India many years later! But arbitrage means, that while you are taking on market & execution risk, you are not assuming the product risk. These dynamics played out at scale over the years has meant it is easier for a wannabe entrepreneur in India to go the arbitrage way and quickly build out a business using a readymade template than go down the software products path, which has a much longer gestation & higher risks associated with it.

IMHO, this “arbitrage” factor represents the single biggest reason why India has seen a virtual explosion in e-commerce startups, at the expense of product startups. Look around the startup ecosystem and you’ll see all kinds of transactional businesses involving activities like buying, selling, trading etc. Why… this almost reminds of that famous 17th-century quote by Napolean when he described Britain as a “nation of shopkeepers”🙂

c) Tech isn’t enough – you need design, marketing skills: To build great software products, you not only need strong technical abilities but also good design, marketing & branding skills to carve out a compelling product offering. Ask any startup in India – one of their most common problems is the inability to hire good designers and UX professionals. This puts Indian companies at a comparative disadvantage – even if they have the engineers to build the technology, their inability to translate that technology into an appealing user experience often means the difference between success and failure.

d) Lack of “patient” venture capital: This is a complaint you hear often from Indian product startups – the lack of venture capital that’s willing to be patient over the longer gestation cycles software products demand. While there is some truth to it, the more likely explanation is that software product companies present a “chicken & egg problem” for Indian startup investors. Investors are driven by financial returns – if they see returns from product companies, they’ll bet their monies on them. It just so happens, that Indian investors haven’t yet seen venture sized returns from software product companies. Hopefully, this dynamics will even out as the ecosystem grows.

e) Inadequate Domestic Market Potential:
 Many software products are monetized via subscription models, where the market’s ability (and propensity) to explicitly pay for the service is critical for success. Sometimes (SAAS/enterprise) companies try their model in India, only to discover there just aren’t enough paying customers. These startups may then be left with no choice but to either target foreign markets, or in extreme cases just move abroad for business continuity. Thus it has become imperative for the Indian domestic market to grow in size and scale to ensure the viability of product startups.

Platform companies from India are a non-starter: One aspect that needs calling out specifically is the sheer absence of any platform companies from India. Platforms are the next evolutionary step for scaled software product companies – if you get to the stage, where other industry stakeholders start building on top of the plumbing you’ve provided (thereby becoming totally dependent on you), that’s an immensely powerful position to be in e.g. AWS, Android, iOS etc. This factor assumes even greater importance given upcoming trends in AI, machine learning, deep learning, automation, robotics – the companies which emerge as platform providers may offer strategic advantages to the country of their origin. As depicted by the graphic below, India is as yet a non-starter on this count. This is deeply worrying – imagine a scenario 10-15 yrs out, when Indian software companies start dominating the domestic markets and also are a force to reckon with globally, but it’s all built on intellectual property (IP) & platforms created & owned by foreign companies!!

Some Suggested Action Areas for the National Software Policy:

MeitY in consultation with industry stakeholders is likely to create an implementation roadmap for #NSPS. Here are some specific action points I’d like to call out for inclusion in that roadmap:

Domestic Market Development: As explained earlier, the Indian domestic market needs curated development to reach a potential that makes product startups viable without having to depend on overseas markets. This calls for a series of steps, such as policy support from sectoral regulators, funding support via special go-to-market focused venture capital funds etc. The government could also help by announcing a preferential procurement policy from domestic software product companies. The Government e Marketplace (GeM) can help in institutionalizing these procurement norms.

Creating Early Awareness (Catch ‘em young): Fed by constant news in media about IT services, ITES, BPOs, outsourcing etc the average person in India is likely to be aware of IT services, but not necessarily software products. Many people may have friends and family members who work at TCS, Infosys, Wipro, IBM etc, but the same can’t be said about product companies. Given this scenario, it is important to create early awareness about products in schools, colleges, universities across metros, Tier 1, Tier 2 & 3 towns. Some of the world’s biggest product innovators like Bill Gates, Steve Jobs started writing software before they had reached high school – so if we can catch people young, we actually get a much longer runway to get them initiated into the product ecosystem. If they learn about products after they’ve started working in the industry, or when planning a mid-career shift from services to products, it might be quite late.

Reducing entry barriers for starting Software Product Companies: As shared earlier, one of the big problems in the Indian software product space is that there just aren’t enough entrepreneurs starting up product businesses. E-commerce & transactional services actually absorb (or suck in) a lot of entrepreneurial talent by virtue of having lower barriers to entry. To make a serious dent in products, you need a much larger number of product companies started off the ground. This can happen only by systematically bringing down the entry barriers – driving awareness, providing funding support, providing market development support etc. Advocacy and evangelism by software product industry role models also can help develop confidence and conviction in people to think products instead of services or e-commerce.

Building domestic Software Product Companies atop public goods: Silicon Valley has shown how you can build successful commercial applications on top of public goods (e.g. Uber built on top of GPS, Google maps & mobiles). In a similar way, public goods in India like IndiaStack, or HealthStack can be the base (or the plumbing) over which commercial applications get built for mass scalability. The good news is this trend has already been kickstarted, though its still early days.

This blog was first published at Webyantra.com

#4 Reimagining Cancer Care

In the last few months, I have had the opportunity to work closely with the National Cancer Grid – a network of 150+ cancer centres in India – and in the process, better understand the workflows involved in different medical processes and the requirements of medical professionals. I have closely observed care delivery, interviewed cancer patients and oncologists, learnt about current challenges and about initiatives being undertaken by NCG and other organisations to tackle them.

This blog post is an evolved version of an earlier post, where I had talked about the use cases of health data and the implementation of a PHR (Personal Health Record). Of these, I believe that the biggest use of health data will be in improving the quality of care in complex medical cases (either acute like surgical procedures, or chronic like cancer). In this post, I will use cancer care to exemplify this.

Core idea
Let us visualise a specific application for cancer care, with oncologists as its primary users. There are only around 1000 trained oncologists in India, so let’s assume that all of them are users of this application. Let us also assume that clinical data of all patients treated by these oncologists is conveniently accessible through this application (with due privacy and security measures). What will these users do now?

Expert consultation
I attended a Virtual Tumour Board run by the National Cancer Grid – a weekly remote consultation program run on Saturday mornings where teams of doctors voluntarily join to discuss well-documented cases and their potential treatment plans. VTBs are run separately for each speciality (like head & neck tumour, gynaecology, neurology, etc.), which means that it takes up to 4-6 weeks for one’s turn. Doctors usually do not have the luxury of such long waiting periods, and therefore turn to individual consultations which are often not documented, depend on informal connects and are sometimes made with incomplete data. Formalising this process and making it asynchronous can be of huge benefit to all medical professionals.

Care team collaboration

Complex medical procedures often involve a team of doctors and other medical professionals, working responsibly for a given patient. A significant percentage of all deaths due to medical negligence is caused by lack of communication between the care team members. The communication process today is paper-based and unstructured, leading to accidents that can, in fact, be prevented – especially with the growing use of IoT devices and voice-based inputs. (I saw one such application at Narayana Health being used by their ICU teams).

Performance evaluation

Lack of organised data, changing patient care-providers and long feedback loops make it difficult for medical professionals to monitor their performance. Can we empower them with tools to do so? Doctors today lack visibility on the outcome of the treatment given and rely on intuition, experience or techniques tested in developed countries for care delivery. Such a tool would not only help doctors improve their performance, but also improve the trust equation with their patients.

User Experience
There are three crucial elements for enabling a good user experience:

Data input – Most EHR systems require text input to be typed in by doctors. This makes it difficult to use. Other input techniques for automated data transcription like touch, voice, or other innovative methods for data capture will need to be explored. Additionally, interoperability across all systems and devices will be key in enabling access to all data.

Data interpretation – Sorting through a patient’s health records takes up a substantial amount of time of a physician, especially when the data is unstructured. Developing intelligence to sort the relevant records as per the case in question will significantly enhance the user experience of the product.

Safety and PrivacyAll solutions should ensure complete privacy of patients. This could mean access controls, electronic consent, digital signatures, digital logs, tools for data anonymisation, etc. it might also be important to perform basic verification of users of the platform.

Value Discovery
The value of the platform will increase as more and more physicians become a part of it. For example, an endocrinologist might need to consult a cardiologist in a case of disease progression, or an ENT specialist might need to consult an oncologist to confirm a diagnosis. More importantly, the platform will also drive innovation, i.e., other use cases can be developed on top of it. For example, the expert opinions mentioned above can also be used for consulting patient remotely, pre-authorising claims, forming medical peer review groups, etc. Similarly, working care groups can also simultaneously enrol staff for upskilling (as practised today in an offline setting), and information about treatment outcomes can help guide better research.

Next steps
We remain on a quest to find use-cases for PHR since we believe technology pilots alone would not be enough to drive its adoption. In that context, we are looking for partners to experiment with this in different healthcare domains. If you are interested, please reach out to me at [email protected]!

#3 What does the Health Stack mean for you?

The National Health Stack is a set of foundational building blocks which will be built as shared digital infrastructure, usable by both public sector and private sector players. In our third post on the Health Stack (the first two can be found here and here), we explain how it can be leveraged to build solutions that benefit different stakeholders in the ecosystem.

Healthcare Providers

  • Faster settlement of claims: Especially in cases of social insurance schemes, delay in settlement of claims causes significant cash-flow issues for healthcare providers, impacting their day-to-day operations. The claims and coverage platform of the health stack is meant to alleviate this problem through better fraud detection and faster adjudication of claims by insurers.
  • Easier empanelment: The role of facility and provider registry is to act as verified sources of truth for different purposes. This means a convenient, one-step process for providers when empanelling for different insurance schemes or providers.
  • Quality of care: The use of personal health records can enable better clinical decision making, remote caregiving and second opinions for both patients and medical professionals.

Insurers

  • Faster and cheaper settlement of claims: claims and coverage platform, as described above
  • Easier empanelment of healthcare providers: registries, as described above
  • Diverse insurance policies: In addition to the above benefits, the policy engine of the healthstack also seeks to empower regulators with tools to experiment with different types of policies and identify the most optimum ones

Researchers and Policymakers

  • Epidemiology: the analytics engine of the healthstack can be helpful in identifying disease incidence, treatment outcomes as well as performance evaluation of medical professionals and facilities
  • Clinical trials: a combined use of analytics and PHR can help in identifying requirements and potential participants, and then carrying out randomised controlled trials

How can it be leveraged?

While the healthstack provides the underlying infrastructure, its vision can be achieved only if products benefitting the end consumer are built using the stack. This means building solutions like remote second opinions using health data from healthcare systems, as well as developing standard interfaces that allow existing systems to share this data. In the diagram below, we elaborate on potential components of both of these layers to explain where innovators can pitch in.

If you are building solutions using the health stack, please reach out to me at [email protected]!

India powers up its ‘Software Product’ potential, Introduces National Policy on Software Products (NPSP)

This is an exciting occasion for our indigenous software industry as India’s National Policy on Software Products gets rolled out. This policy offers the perfect framework to bring together the industry, academia and the government to help realise the vision of India as a dominant player in the global software product market.

For ease of reference, let us summarise some of the major things that the policy focuses on

  • Single Window Platform to facilitate issues of the software companies
  • specific tax regime for software products by distinguishing  them from software services via HS code
  • enabling Indian software product companies to set off tax against R&D  credits on the accrual basis
  • creation of a Software Product Development fund of INR 5000 crores to invest in Indian software product companies
  • grant in aid of  INR 500 Crores to support research and innovation on software products
  • encouragement to innovation via 20 Grant Challenges focusing on Education, Healthcare & Agriculture thus further enabling software products to solve societal challenges
  • enabling participation of Indian software companies in the govt. e-marketplace to improve access to opportunities in the domestic market
  • developing a framework for Indian software product companies in government procurement.
  • special focus  on Indian software product companies in international trade development programmes
  • encouraging software product development across a wide set of industries by developing software product clusters around existing industry concentrations such as in automobile, manufacturing, textiles etc.
  • nurturing the software product start-up ecosystem
  • building a sustainable talent pipeline through skilling and training programmes
  • encouraging entrepreneurship and employment generation in tier II cities
  • creating governing bodies and raising funds to enable scaling of native software product companies.

There is good cause for cheer here. The policy offers to address many of the needs of the Software Product Ecosystem. For the first time, HS codes or Harmonised Codes will be assigned to Indian software product companies that will facilitate a clear distinction from ‘Software Services’ facilitating availing of any benefits accruing under the ‘Make in India’ programme. In addition, this will enable Indian software product companies to participate in govt contracts through registration on GeM (Govt. eMarketplace).

Considering that we remain a net importer of software products at present, steps such as the inclusion of Indian software products in foreign aid programmes, setting up of specialised software product incubators in other geographies and promoting our software product capabilities through international exhibitions definitely show intent in the right direction. With a commitment to develop 10000 software product start-ups, with 1000 of them in tier II cities, technology entrepreneurs building IP driven product companies can now look forward to infrastructural and funding support. The policy also aims to go beyond metro-centric development with a commitment to develop tech clusters around existing industry concentrations, enable skilling and drive employment in non-metros and tier II cities while actively encouraging Indian software companies to solve native problems.  

This policy could not have been possible without the vision of the Honourable Minister Shri Ravi Shankar Prasad, and continuous engagement and discussions with Shri Ajay Prakash Sawhney, Rajeev Kumar and Ajai Kumar Garg from MEITY and their team.

We have seen software companies solving native problems do exceptionally well, just look at what Paytm has been able to achieve while driving digital payments in India. There is now an understanding ‘Make in India’ can help us bridge the digital divide given that Indian entrepreneurs have a greater understanding of local issues and the challenges that are unique to us.

Setting up bodies such as the National Software Products Mission in a tripartite arrangement with the industry, academia and govt. to enable creation and monitoring of schemes beneficial to native software product companies is another much-needed step that will create a forum distinct to our software product companies and help give them a strong voice.

We would like to thank Lalitesh Katragadda, Vishnu Dusad, Sharad Sharma, Rishikesha T Krishnan, Bharat Goenka, T.V. Mohandas Pai, Arvind Gupta for their diligent efforts on the continuous dialogue and inputs for the policy.

While launching the policy is a great start, its implementation is what we all will have our eyes on. Now is the moment of action. We all look forward to fast-tracking of the various proposed measures under this policy for the benefits to start showing!

Website link to the official policy –  (https://meity.gov.in/writereaddata/files/national_policy_on_software_products-2019.pdf)

References

J​ANUARY​ 15, 2019​ – ​https://tech.economictimes.indiatimes.com/news/internet/india-needs-to-win-the-software-products-race/67533374

DECEMBER 8, 2016​ – ​https://pn.ispirt.in/what-to-expect-from-draft-national-policy-on-software-products/

NOVEMBER 13, 2016​ – ​https://pn.ispirt.in/national-software-policy-2-0-needed/

MAY 10, 2016​ – ​https://pn.ispirt.in/taxation-and-digital-economy/

APRIL 29, 2016​ – ​https://pn.ispirt.in/saas-the-product-advantage-and-need/

JULY 16, 2014​ – ​https://pn.ispirt.in/government-recognizes-the-software-product-industry/

DECEMBER 11, 2013​ – ​https://pn.ispirt.in/three-waves-of-indian-software/

JULY 16, 2013​ – ​https://pn.ispirt.in/smbs-and-indian-software-product-industry-intertwined-fortunes/

JULY 4, 2013​ – ​https://pn.ispirt.in/8-truths-why-it-services-organizations-cannot-do-software-products/

An Afternoon With Don Norman In Bengaluru

Are you building products for the everyday user? Is it becoming harder and harder to manage complexity while maintaining usability? How do you design a sustainable system for a complex multi-stakeholder environment? How do you teach a user to use your product with good design? How do you reinvent an established business model in light of rapidly evolving markets and technological possibilities? How do you design a product to be truly human-centric?

If any of these questions sound relevant to you, here’s an opportunity to seek answers on 22nd February in Bengaluru! 

About Don Norman

Dr Don Norman is a living legend of the design world having operated in the field for over 40 years. He has been Vice President of Apple in charge of the Advanced Technology Group and an executive at both Hewlett Packard and UNext (a distance education company). Business Week has listed him as one of the world’s 27 most influential designers. Dr Norman brings a unique mix of the social sciences and engineering to bear on everyday products. At the heart of his approach is human and activity-centred design, combining knowledge of cognitive science, engineering, and business with design.

Presently, he is Director of the recently established Design Lab at the University of California, San Diego where he is also professor emeritus of both psychology and cognitive science and a member of the Department of Electrical and Computer Engineering. He is also the co-founder of the Nielsen Norman Group, an executive consulting firm that helps companies produce human-centred products and services.

ProgrammeTalk

Don will share valuable insights about his interactions with Indian people, products and experiences.

Fireside Chat

An informal discussion with Don about his learnings and experiences spanning his long and illustrious career.

How to participate?

We’re inviting engineers, product managers, designers and everyone else who is building for large scale impact.

If you would like to further your understanding of human-centric design and hear straight from the horse’s mouth, please register here by 18th February. (An invite will be sent out to selected participants by 21st February)

iSPIRT Presents Poster Session & Product Discussion With Don Norman

Don Norman, the pioneer of design in the 21st century, is visiting India. Presenting you with an opportunity to engage with the living legend in a closed-door interaction where you can discuss your solution/product and get unbiased feedback on 20th February 2019 in Bengaluru. 

We’re looking for solutions in the social space that are building for the next 500 million in India.

About Don Norman

Don Norman is Director of the recently established Design Lab at the University of California, San Diego where he is also professor emeritus of both psychology and cognitive science and a member of the Department of Electrical and Computer Engineering. He is the co-founder of the Nielsen Norman Group, an executive consulting firm that helps companies produce human-centered products and services. He is an honorary professor of Tongji University’s College of Design and Innovation (Shanghai). He serves as an advisor and board member of numerous companies and organizations. Norman has been Vice President of Apple in charge of the Advanced Technology Group and an executive at both Hewlett Packard and UNext (a distance education company).

Agenda

Poster session  – Show us what you’re working on and how your solution is better in a poster format.

Product Teardown – Engage with Don over your product and discuss what you’re doing well and what can be done better.

If you are interested or know someone who would be interested in growing through this experience, please do register or help them register here by 15th February 2019. Since this is a curated event and there are limited seats we would request you to kindly apply at the earliest. (An invite confirmation will be sent shortly after registration)

For further query, you can write to us at [email protected]

A Platform is in the Eye of the Beholder

The distinction between whether you are building a platform or a product should be made primarily to align your internal stakeholders to a particular strategic direction, as we learned in the recent iSPIRT round table.

[This is a guest post By Ben Merton]

“So are we a platform, or are we a product?” I said last month to my co-founder, Lakshman, as we put the finishing touches to our new website.

We’d been discussing the same question for about a year. The subject now bore all the characteristics of something unpleasant that refuses to flush.

However, the pressure had mounted. We now had to commit something to the menu bar.

“I think we’re a product.”

“But we want to be a platform.”

“Okay, let’s put platform then…But isn’t it a little pretentious to claim you’re a platform when you’re not?”

Eventually, we agreed to a feeble compromise: we were building a platform, made up of products.

Job done.

At least, that is, until #SaaSBoomi in Chennai last month.

Manav Garg, who has considerably more experience than both me and Lakshman at building platforms, put up the following slide:

Product = Solving a specific problem or use case

Platform = Solving multiple problems on a common infrastructure

“Here we go again”, I could hear Lakshman say to himself after I Whatsapped him the image.

“That’s his definition. It doesn’t have to be ours,” he replied tersely, “What does he mean by ‘use case’, anyway?”

“I don’t know.”

I’m in awe of the entrepreneurs who seem to bypass these semantic quandaries.

You know, the ones who say stuff like “Stop thinking so much. Just sell stuff. Make customers happy.”

For me, these are the type of questions I need to chew over for hours in bed at night.

I was therefore excited to be invited to the iSPIRT round table at EGL last week, where the topic of discussion was “Transform B2B SaaS with #PlatformThinking”. The roundtable was facilitated by iSPIRT mavens Avlesh SinghShivku Ganesan & Sampad Swain.

It takes a lot to get 20 tech founders & their leaders to travel after work from all over the city to sit in a room for three hours with no alcohol.  Fortunately, the organisers had promised a lot.  The topic description was:  

“Enable a suite of products, high interoperability, and seamless data flow for customers. This peer-learning playbookRT will help product to platform thinkers develop an effective journey through this transformation” was the topic description.”

The meeting was governed by Chatham House rules, meaning we can’t discuss the name or affiliation of those involved.

However, along with our founder mavens of large, well-known Indian technology businesses, there were 15 or so less illustrious but equally enthusiastic founders (& their +1s), including myself.

The discussions started with an overview of the experiences and lessons that had been learned by some of those who had successfully built a platform.

“We define a use case as a configuration of APIs…” the founder of a cloud communication platform started. This was going to be interesting.

“Why did you define it that way?” I asked.

“Based on observations of our business.”

I began to understand that the term ‘use case’ was being used differently by platform and product companies.  

“A use case of a platform is usually tangential but complementary to the core business. A use case for a product is something that just solves a problem,” someone clarified, guaranteeing me a slightly more restful night.

As the discussions continued, it also became clear that there were a large number of possible markers that distinguish a platform from a product, but there was no agreement on the exact composition.

To resolve the impasse, we listed out the names of well-known technology companies to build a consensus on whether they were a platform or a product.

Suffice to say, we failed to reach any consensus.  The conversation went something like this:

“Stripe?”

“Platform.”

“Product.”

“A suite of products.”

“AirBNB?”

“A marketplace.”

“A marketplace built on a platform.”

Etc etc

Even companies that initially appeared to be dyed-in-the-wool platforms like Segment and Zapier eventually had someone or the other questioning the underlying assumptions.

“Why can’t they be products?” murmured voices of dissent at the back of the room.

This was going nowhere. A few people sought solace from the cashew nuts that had been placed on conference table in front of us.

“Does the customer care whether you’re a product or a platform?” someone said.

Finally, something everyone could agree on. The customer doesn’t care.  Your product or platform just needs to solve a problem for them.

“Then why does any of this matter at all?” became the obvious next question.

“I found it mattered hugely in setting the direction of the company, especially for the engineering and design teams,” the Co-Founder of a large payment gateway said.

“And investors?”

“Yes, of course. And investors. However, I think the biggest impact that our decision to build a platform had on my business was in the design more than anything else,” he explained, “For the engineering team, it was just a question of ‘we need this to integrate with this’. But the UX/UI and the…language… needed to be thought about very carefully because of this decision.”

“So, in effect, the platform/product debate is primarily a proxy for the cultural direction of the company?”

“Exactly.”

Logically, therefore, the only way you can really understand whether a company is a platform or a product is to have an insight into the direction its management wishes to take it.

A company might appear to be a product from the outside but, since it intends to evolve into a platform, it needs to start aligning its internal stakeholders to this evolution much earlier.

“So, a startup like mine should call itself a platform even if we are years away from actually being one?” I asked cautiously after I had enough time to process these insights.

“Yes,” was the resounding, satisfying response that virtually guaranteed me a full night’s sleep.

“And when should the actual transition from product to platform happen?”

“Well, Jason Lemkin says it should happen only when your ARR reaches USD 15m-20m, but that’s just another of those rules that doesn’t apply in India,” the co-founder of a marketing automation software said.

“The important thing is that this transition – when it does happen – is very hard for businesses,” he continued, “There is a lot of risk, but it opens up new revenue streams, helps you scale and build a moat.  We hugely benefited from our decision to become a platform, but it was tough.”

It’s unlikely that we completely resolved the product vs platform debate for all founders. However, I feel that all of us came away from that meeting with a deeper insight into the subject.

Ultimately, whether you’re building a product or a platform will depend on your perspective. Most companies lie somewhere in between.

Where does your company lie on this sliding scale? And if that makes you a platform vs. a product, does it make any difference to the way you think?

We want to thank Techstars India for hosting the first of the roundtables on this critical topic.

Ben Merton

Ben is a Co-Founder of Unifize, a B2B SaaS company that builds a communication platform for manufacturing and engineering teams. He is also a contributor for various publications on business, technology and entrepreneurship, including the Wall Street Journal, the Financial Times and Business Standard. You can follow him on LinkedIn here, and Twitter here.

© Ben Merton 2018

Featured Image: Source: https://filosofiadavidadiaria.blogspot.com/2018/01/o-principio-mistico-da-verdadeira-causa.html

iSPIRT’s Response to Union Interim Budget 2019

Our policy team tracks the interest of Software product industry

INDIA, Bangalore, Feb 1st, 2019 – Proposals for Union budget of 2019 have been announced today by Finance Minister.

Being an interim budget not many announcements were expected. Some of the important announcements that may affect the expansion of the economy, in general, owing to increased income and ease of living in the middle class are as follows:

  1. Within two years tax assessment will be all electronic.
  2. IT return processing just in 24 hours
  3. Rebate on taxes paid for those with an income below 5 lakhs
  4. TDS threshold on interest income by woman on bank/post office deposits raised from Rs. 10,000 to 40,000
  5. Increase in standard deduction from Rs. 40,000 to 50,000
  6. Rollover of Capital gains tax benefit u/s 54 from investment in one house to two houses, for a taxpayer having capital gains up to Rs. 2 crore
  7. Recommendation to GST Council for reducing GST for home buyers
  8. Exemption from levy of tax on notional rent, on unsold inventories, from one year to two years
  9. Many benefits announced for Agriculture and Rural sector

The coining of the phrase “Digital Village” and placing it second on the list of ten-dimension vision statement in budget speech is a welcome step. The statement nudges the next Government to improve access to technology in rural India, a welcome step. We expect “Digital India” and easy and quality access to the internet for every citizen will remain a focus area, irrespective of which government comes to power.

The government has announced a direct cash transfer scheme for farmers. We are happy to see that technologies like the India Stack are being used by policymakers for effective policy-making irrespective of political ideology. Cash transfers promise to be more efficient initiatives that directly benefit our poor without needing them to run from pillar to post trying to prove their identity and eligibility. “Similarly, startups and SMEs remains a focus area in the vision statement. These are very important for a healthy ecosystem built up.

Similarly, focused phrases such as “Healthy India”, “Electric Vehicle” and “Rural Industrialisation using modern digital technologies” are welcome ideas in ten-dimension vision for Indian Software product industry and startup ecosystem.

However, among key issues for Startups and Investments which need to be addressed but have been missed out are Angel tax and Tax parity between listed and unlisted securities. Angel Tax is a very important issue which needs to be addressed conclusively at the earliest. We need to ensure gaps between policy declaration and implementation do not cause entrepreneurs and investors to relocate themselves aboard.

About iSPIRT Foundation

We are a non-profit think tank that builds public goods for Indian product startup to thrive and grow. iSPIRT aims to do for Indian startups what DARPA or Stanford did in Silicon Valley. iSPIRT builds four types of public goods – technology building blocks (aka India stack), startup-friendly policies, market access programs like M&A Connect and Playbooks that codify scarce tacit knowledge for product entrepreneurs of India. visit www.ispirt.in

For further queries, reach out to Nakul Saxena ([email protected]) or Sudhir Singh ([email protected])

SaaS 3.0 – Data, Platforms, and the AI/ML gold rush

An impending recession, the AI/ML gold rush, Data as the new oil, SaaS Explosion…
The SaaS landscape is changing rapidly and so are the customer expectations!

18 months ago, I came across a message that India is a premier hub for global B2B SaaS, just like Israel is a hub for cybersecurity. At first, I did not think much of it, but after having interacted with many SaaS founders and observing their painful growth journey, I realized the potential in these words. Yet, a series of market shifts are changing the world order of SaaS putting at test India’s position as a premier hub for SaaS.

TL;DR

The SaaS 3.0 market shifts are changing how global customers perceive value from SaaS products:

  • Tools which provide higher levels of automation & augmentation are valued more.
  • Comprehensive solutions in place of single point products is a preference.
  • Interoperability across the gamut of systems is an expected norm.

Startups, you have to build your new orbit to solve for these evolving needs. First, focus on delivering a 5x increase in customer value through an AI-enabled proposition. Next, build your proprietary data pot of gold, which can also serve as a sustainable moat. Lastly, leverage platforms & partnerships to offer a suite of products and solve comprehensive customer scenarios.

Read more on how the convergence of market shifts are impacting SaaS 3.0.

Quick background

While the SaaS industry began over 2 decades ago, many say it is only now entering the teenage years. Similar to the surge of hormones which recently brought my teenage daughter face-to-face with her first pimple. And she is facing a completely new almost losing battle with creams and home remedies. In the same vein, convergence of several market shifts – technology, data, economics, geopolitics – combined with deep SaaS penetration is evolving the industry to a new era. This rare convergence – like the convergence of the nine realms in Thor Dark World – is also rapidly changing how customers perceive the capability of SaaS products.

Convergence #1 – SaaS penetration is exploding!

I learned from Bala at Techstars India that they received a record number of applications for their first accelerator program. 60% of these were building or ideating some form of B2B SaaS offering. It would seem to justify the message above, that SaaS in India has grown legs, building a true viral movement, replicating momentum. Yet in these large numbers, there is also a substantial ratio of repetitive products to innovations. Repetitive in say building yet another CRM, or mindlessly riding a trend wave such as chatbots. Without an increased pace of innovation beyond our existing successes, we cannot continue to be a premier hub.

In 2018 SaaS continued to be the largest contributor to cloud revenue growth at 17.8% (it was down from 20.2% in 2017). Competition is heating up in all categories of SaaS. 10 years ago, an average SME customer was using 2 apps, now it averages at 16 apps. 5 years ago, a SaaS startup had on average 3 competitors, now a SaaS startups averages at 10 customers right out the door. Many popular SaaS categories are  “Red Oceans”. Competing in these areas is typically on the basis of features or price, dimensions which are easy for any competition to catch up on. There is a need for startups to venture deeper into the sea and discover unserved & unmet customer needs in a “Blue Ocean” where they have ample opportunity to fish and build a sustainable moat.

AppZen started with an opportunity to build conversational chatbots for employees, helping them in an enterprise workflows on various aspects like sales & expenses, and several other companies are doing the same. But as they went deeper to understand the customer pains, they were able to identify an unserved need and pivoted, leveraging the same AI technology they had built, to solve for T&E expense auditing. Being a first mover to solve this problem, they are carving out leadership in this underserved space and is one of the fastest growing SaaS startups of 2018.

Convergence #2 – Impending recession in 2019/2020!

On average recessions come every four years and we are currently 9 years from the last recession. The war between the Fed vs the US govt on interest rates, the recent US govt shutdown on a frivolous $B wall, the tariff and trade war between the US and China, are all indicative reasons for an upcoming recession. In such an uncertain economy, customers experience reduced business activity and alter their behavior and preferences:

  • Customers will become crystal clear about satisfying their core needs versus nice-to-haves.
  • They will seek high automation tools to help not only cut costs but also to make strategic decisions for an upside.
  • Many will prefer a suite of tools instead of buying multiple single point products.
  • They will also slow down POC, investment, partnership activities.

In a way, this is mixed news. Companies often pursue low-cost digital products with SaaS being a natural choice. However, combined with the competitive SaaS landscape, businesses become very selective. To be recession-proof startups must:

  1. Collaborate and partner with other vendors to build a shared view of the larger customer scenarios. Innovate to share (anonymized) data/intelligence.
  2. Partner to deliver a comprehensive solution instead of solving for a gap. 
  3. Invest & experiment in building solid AI-enabled automation for improving efficiency and decision making.

E.g. Clearbit’s approach to provide API and allow customers to leverage the value it provides, by integrating with common platforms such as Slack or Gmail which customers frequently use. In this approach they are reducing app switching and embedding the niche usecase into the larger customer workflow environment.

Another e.g. Tact.ai is helping increase sales team efficiency and bring visibility of field data to the leadership team. They are not only solving the core salesforce data entry problem for field sales, but with better data in the system, businesses now get better visibility about sales activities and can take effective strategic decisions.

Convergence #3 – the AI/ML gold rush!

During the dot com & mobile rush in early 2000, I watched many a friend jump ship to build a startup. At that time the web was flush with rich content, but the mobile web was in its early growth and innovative ways to bring web content onto mobile phones were being explored. Automated conversion of HTML to WML was a hot topic. But the ecosystem conditions were not aligned for completely automated WML transformations. Several startups in this space including my friend’s startup shut for such reasons.

More recently in 2016-17 Chatbots were projected to be the next big thing and it too suffered from similar misalignment. Chatbots were the first attempt to bring AI/NLP for customer interaction. However, they lacked the depth of ecosystem conditions to make them successful. 

  1. Bots were treated as a panacea for all kinds of customer interactions and were blindly applied to problems. 70% of the 100,000+ bots on Facebook Messenger fail to fulfill simple user requests. This is partly a result of not focusing on one strong area of focus for user interaction.
  2. Bots were implemented with rule-based dialogues, there was no conversational design built into it. NLP is still in its infancy and most bots lacked data to provide meaningful interactions. They were purely a reflection of the level of detail and thought that went into the creation of the bots.

AI/ML, however, is suffering from the “hype” of an “AI/ML hype”. There is a considerable depth within the AI/ML ecosystem iceberg. Amazon, Google, Microsoft…OpenSource are continuously evolving their AI stack with higher and higher fidelity of tools & algorithms. You no longer need fancy degrees to work the AI tools and automate important customer workflows or scenarios. 

Yet it is easier said than done. Most startups on the AI journey struggle to get sufficient data to build effective ML models. Further, data privacy has increased the complexity of sharing data, which now resides in distant silos. While internal proprietary data is a rich source of patterns, often times it is incomplete. In such cases, entrepreneurs must innovate, partner, source to build complete data as part of their data collection strategy. A strong data collection strategy allows for a sustainable moat. 

AIndra multiplied 7000 stains into 7M data points by splitting into microdata records. DataGen a startup in Israel, is generating fake data to help startups train models. The fake data is close enough to real data that the use is ethical and effective. Startups like Datum are building data marketplaces using blockchain to democratize data access. 

As mentioned many of the AI tools are limited in their constraints. Meanwhile, getting familiar with the capabilities and limitations of the necessary tools will help form a strategy path to solving the larger customer scenarios. 

Tact.ai faced the constraint by the limitations of the Alexa API. However, instead of building their own NLP they focused on working around the constraints, leveraging Alexa’s phrase based recognition to iteratively build value into their product. During this time, they continue to build a corpus of valuable data which will set them up for high growth when the NLP stack reaches higher fidelity.

Solving for the Hierarchy of Customer Needs

The convergence of SaaS penetration, AI/ML, data & privacy, uncertain economy & global policies… the customer expectations are rising up the Maslow’s hierarchy of needs. SaaS 1.0 was all about digital transformation on the cloud. SaaS 2.0 focused on solving problems for the mobile first scenarios. In the SaaS 3.0 era, the customer expectations are moving to the next higher levels. They will:

  • Prefer comprehensive solutions in place of single point products.
  • Expect interoperability across the gamut of systems.
  • Need tools which provide higher levels of automation & augmentation.

For startups who want to fortify their presence in the SaaS 3.0 era :

  1. Begin with a strong AI value proposition in mind, regardless if it is AI-first or AI-second. Articulate the 5x increase in value you can deliver using AI, which wasn’t feasible without AI. 
  2. Build your proprietary data pot of gold. And, where necessary augment with external data through strategic partnerships. A strong data lever will enable a sustainable moat. 
  3. Leverage platforms & partnerships to offer a suite of products for solving a comprehensive customer scenario.

Remember it is a multi-year journey, Start Now!

 

I would like to acknowledge Ashish Sinha (NextBigWhat), Bala Girisabala (Techstars India), Manish Singhal (Pi Ventures), Suresh Sambandam (KiSSFlow), and Sharad Sharma (iSPIRT) who helped with data, insights and critical feedback in crafting this writeup. Sheeba Sheikh (Freelance Designer) worked her wonderful illustrations which brought the content to life. 

Interesting Reads

#1 India’s Health Leapfrog – Towards A Holistic Healthcare Ecosystem

In July 2018, NITI Aayog published a Strategy and Approach document on the National Health Stack. The document underscored the need for Universal Health Coverage (UHC) and laid down the technology framework for implementing the Ayushman Bharat programme which is meant to provide UHC to the bottom 500 million of the country. While the Health Stack provides a technological backbone for delivering affordable healthcare to all Indians, we, at iSPIRT, believe that it has the potential to go beyond that and to completely transform the healthcare ecosystem in the country. We are indeed headed for a health leapfrog in India! Over the last few months, we have worked extensively to understand the current challenges in the industry as well as the role and design of individual components of the Health Stack. In this post, we elaborate on the leapfrog that will be enabled by blending this technology with care delivery.

What is the health leapfrog?

Healthcare delivery in India faces multiple challenges today. The doctor-patient ratio in the country is extremely poor, a problem that is further exacerbated by their skewed distribution. Insurance penetration remains low leading to out-of-pocket expenses of over 80% (something that is being addressed by the Ayushman Bharat program). Additionally, the current view on healthcare amongst citizens as well as policymakers is largely around curative care. Preventive care, which is equally important for the health of individuals, is generally overlooked.  

The leapfrog we envision is that of public, precision healthcare. This means that not only would every citizen have access to affordable healthcare, but the care delivered would be holistic (as opposed to symptomatic) and preventive (and not just curative) in nature. This will require a complete redesign of operations, regulations and incentives – a transformation that, we believe, can be enabled by the Health Stack.

How will this leapfrog be enabled by the Health Stack?

At the first level, the Health Stack will enable a seamless flow of information across all stakeholders in the ecosystem, which will help in enhancing trust and decision-making. For example, access to an individual’s claims history helps in better claims management, a patient’s longitudinal health record aids clinical decision-making while information about disease incidence enables better policymaking. This is the role of some of the fundamental Health Stack components, namely, the health registries, personal health records (PHR) and the analytics framework. Of course, it is essential to maintain strict data security and privacy boundaries, which is already considered in the design of the stack, through features like non-repudiable audit logs and electronic consent.

At the second level, the Health Stack will improve cost efficiency of healthcare. For out-of-pocket expenditures to come down, we have to enable healthcare financing (via insurance or assurance schemes) to become more efficient and in particular, the costs of health claims management to reduce. The main costs around claims management relate to eligibility determination, claims processing and fraud detection. An open source coverage and claims platform, a key component of the Health Stack, is meant to deal with these inefficiencies. This component will not only bring down the cost of processing a claim but along with increased access to information about an individual’s health and claims history (level 1), will also enable the creation of personalised, sachet-sized insurance policies.

At the final level, the Health Stack will leverage information and cost efficiencies to make care delivery more holistic in nature. For this, we need a policy engine that creates care policies that are not only personalized in nature but that also incentivize good healthcare practices amongst consumers and providers. We have coined a new term for such policies – “gamifier” policies – since they will be used to gamify health decision-making amongst different stakeholders.

Gamifier policies, if implemented well, can have a transformative impact on the healthcare landscape of the country. We present our first proposal on the design of gamifier policies, We suggest the use of techniques from microeconomics to manage incentives for care providers, and those from behavioural economics to incentivise consumers. We also give examples of policies created by combining different techniques.

 

What’s next?

The success of the policy engine rests on real-world experiments around policies and in the document we lay down the contours of an experimentation framework for driving these experiments. The role of the regulator will be key in implementing this experimentation framework: in standardizing the policy language, in auditing policies and in ensuring the privacy-preserving exchange of data derived from different policy experiments. Creating the framework is an extensive exercise and requires engagement with economists as well as computer scientists. We invite people with expertise in either of these areas to join us on this journey and help us sharpen our thinking around it.

Do you wish to volunteer?

Please read our volunteer handbook and fill out this Google form if you’re interested in joining us in our effort to develop the design of Health Stack further and to take us closer to the goal of achieving universal and holistic healthcare in India!

Update: Our volunteer, Saurabh Panjawani, author of gamifier policies, recently gave a talk at ACM (Association for Computing Machinery)/MSR (Microsoft Research) India’s AI Summit in IIT Madras! Please view the talk here: https://www.microsoft.com/en-us/research/video/gamifier-policies-a-tool-for-creating-a-holistic-healthcare-ecosystem/

 

Angel Tax Notification: A Step In The Right Direction, But More Needs To Be Done

There have been some notifications which have come out last week, it is heartening to see that the government is trying to solve the matter. However, this is a partial solution to a much larger problem, the CBDT needs to solve for the basic reason behind the cause of Angel Tax (Section 56(2)(viib)) to be able to give a complete long-term solution to Indian Startups.

While the share capital and share premium limit after the proposed issue of share is till 10 crores and helps startups for their initial fundraising, which is usually in the range of Rs 5-10 Cr. Around 80-85% of the money raised on LetsVenture, AngelList and other platforms by startups is within this range, but the government needs to solve for the remaining 15-20% as startups who are raising further rounds of capital, which is the sign of a growing business, are still exposed to this “angel tax”. Instead, the circular should be amended to state that Section 56(2)(viib) will not apply to capital raises up to Rs 10 Cr every financial year provided that the startups submit the PAN of the investors.

The income criteria of INR 50 lakhs and net worth requirement of INR 2 crores is again a move by the government that requires further consideration for the investing community. Therefore, to further encourage investments by Angels or to introduce new Angels to the ecosystem, there is a need to look towards a reduced income criterion of INR 20 Lakhs or a net worth of INR 1 crore, enabling more investors for a healthier funding environment. We also, need to build a mechanism to facilitate investments by corporates and trusts into the startups.

Most importantly, any startup who has received an assessment order under this section should also be able to for the prescribed remedies and submit this during their appeal. They should not be excluded from this circular since its stated scope is both past and future investments. The CBDT should also state that the tax officers should accept these submissions during the appeals process and take it into consideration during their deliberation.

So, to summarise:

  • Section 56(2)(viib) should not apply to any investment below Rs 10 crore received by a startup per year or increase the share premium limit to Rs 25 Crores, from Indian investors provided that the startup has the PAN of the investors
  • Section 56(2)(viib) should not apply to investors who have registered themselves with DIPP as accredited investors, regardless of the quantum of investment
  • The threshold stated should be either a minimum income of Rs 25 lakhs or a net worth of at least Rs 1 crore
  • Any startup who has received an assessment order should be able to seek recourse under this circular during their appeal

Through this circular, the government has reaffirmed its commitment to promoting entrepreneurship and startups in India. With these suggestions, the spectre of the “angel tax” will end up as a footnote in the history of the Indian startup ecosystem.

We look forward to the early resolution of these pending matters. For any suggestions, Do write to us [email protected]

The article is co-authored with Siddarth Pai, Policy Expert – iSPIRT Foundation and Founding Partner – 3one4 Capital.

Disciplining The Not So Angelic, Angel Tax

If you are an entrepreneur, investor, or simply interested in the start-up sector, then you already know that Angel Tax is the buzzword right now.

Based on a law that was introduced in the 2012 budget by Mr Pranab Mukherjee, the rule aimed to target money laundering through high share premium. But unfortunately, the same provision is today attacking startups for their “high” share premiums and treating the difference between book value and DCF (Discounted Cash Flow) projections as income taxable at 30%. (For those interested in a more in-depth study of the provision and associated rulings can check out this article.

Thus, a law to penalize shell corporations and sham transactions are now being used against startups employing tens of people and generating value for the community.  Valuations are usually based on a startup’s future potential for growth and revenue and using book value, a method that’s better suited to asset-heavy manufacturing industries, is like measuring time in light years – it sounds right but is blatantly inappropriate

Hence the problem. This section hasn’t kept pace with the other anti-laundering and anti-abuse measures instituted by law and has become a blanket provision with little opportunity for a Startup to distinguish itself from a fake business. It also specifically discriminates against domestic investments thereby discouraging both investors and startups from accepting investments from Indian residents.

Latest changes, notified just yesterday, provide some way out for certain startups. However, this is a partial solution to a much larger problem, the CBDT needs to solve for the basic reason behind the cause of Angel Tax to be able to give a complete long-term solution to Indian Startups.

While the share capital and share premium limit after the proposed issue of share is till 10 crores and helps startups for their initial fundraising, which is usually in the range of Rs 5-10 Cr. Around 80-85% of the money raised on LetsVenture, AngelList and other platforms by startups is within this range, but the government needs to solve for the remaining 15-20% as startups who are raising further rounds of capital, which is the sign of a growing business, are still exposed to this “angel tax”. Instead, the circular should be amended to state that section 56(2)(viib) will not apply to capital raises up to Rs 10 Cr every financial year provided that the startups submit the PAN of the investors.

The notification also introduces the concept of an “accredited investor” into the startup ecosystem, which is an acknowledgement of the role that domestic investors play. Globally, an accredited investor tag is given to sophisticated investors investing in risky asset classes to denote that they acknowledge the risks associated with such investments and that they have the financial ability to do so. But instead of fulfilling both criteria of income and net worth, they should follow the global model of fulfilling either criteria and lowering the threshold to 25 lakhs of income or a net worth of Rs 1 crore. Their investment into startups should be excluded from the scope of section 56(2)(viiib). As a process mechanism if the CBDT could put in place a simple once a year mechanism for the Investor to submit his returns and giving him a reference number valid for the financial year, this will enable him to invest in more startups in the year without the need to get permissions every time the investor invests his funds.

Most importantly, any startup who has received an assessment order under this section should also be able to for the prescribed remedies and submit this during their appeal. They should not be excluded from this circular since its stated scope is both past and future investments. The CBDT should also state that the tax officers should accept these submissions during the appeals process and take it into consideration during their deliberation.

So, to summarise:

  • The angel tax should not apply to any investment below Rs 10 crore received by a startup per year, from Indian investors provided that the startup has the PAN of the investors
  • The angel tax should not apply to investors who have registered themselves with DIPP as accredited investors, regardless of the quantum of investment
  • The threshold stated should be either a minimum income of Rs 25 lakhs or a net worth of at least Rs 1 crore
  • Any startup who has received an assessment order should be able to seek recourse under this circular during their appeal

Through this circular, DIPP has reaffirmed its commitment to promoting entrepreneurship and startups in India. With these suggestions, the spectre of the “angel tax” will end up as a footnote in the history of the Indian startup ecosystem. We look forward to these pending matters

Start up India, Stand up India.

The post is authored by our policy experts, Nakul Saxena and Siddarth Pai.

Discussion on “The Information Technology [Intermediaries Guidelines (Amendment) Rules] 2018”

Ministry of Electronics and Information Technology (Meity) has put up a new set of draft rules for the IT Act, and is inviting feedback.

The draft rules mostly relates to governing violations on social media.

The Draft is given at:

http://meity.gov.in/content/comments-suggestions-invited-draft-%E2%80%9C-information-technology-intermediary-guidelines

It contains a link to the new rules:

http://meity.gov.in/writereaddata/files/Draft_Intermediary_Amendment_24122018.pdf

This PolicyHacks recording was done on 2nd January 2018 at 5.30 pm covering a discussion on the proposed rules ( amendment ).

iSPIRT Volunteers, Sanjay Jain, Saranya Gopinath, Venkatesh Hariharan (Venky), Tanuj Bhojwani iSPIRT volunteers and Bhusan, a lawyer from IDFC participated in the discussions with Sudhir Singh.

The main aspects of the draft amendment and its impact on the Software product and Start-ups in tech world in India are covered in the discussions. A transcript of the discussion is given below for read. Or you could choose to listen to the recorded audio/video on you tube embedded below.

 

The draft rules mainly cover information published by users on intermediaries also referred to as platforms in this discussion. The three broad aspects that draft rules cover are :

 

  1. Putting higher onus on Intermediaries on objectionable content
  2. High level of compliance and penalties
  3. Enforcing traceability of objectionable content

With above introduction to topic floor was opened for discussions by host Sudhir Singh. Below is the transcript of contribution made by participants ( the transcript may not be complete word by word but follows the semantics of contribution made).

On Question on how the draft rules will impact industry

Sanjay Jain – “Two three element that you have highlighted in there.

First is the definition of the platform player. Intermediaries are broadly defined. They include everybody from  telecom players, ISPs, a Social network and even a site like apartment Adda, Baba-jobs, because all of these will have some kind of user generated content, which is being published and shared with others. While the law drafting may have had one type of intermediary in mind, but it actually applies to all of them and as such that is where some of the issue starts.

Second part is that by moving some of the Onus to the platform, and I actually think they have not fully moved the onus to the platform, which is very dicey situation because, they have moved and not moved at the same time. And because, the onus is primarily still on the Govt. to notify to the intermediary, that there is something objectionable and they have to remove it. But, at the same time they have said that intermediary shall develop technological means for identifying  all of this, as well. Sometimes there is an assumption that technology can do a lot, and in reality while you can have 99.9% accuracy, you still have those 0.1% and that becomes an issue.

Third part, I wanted to say is cost of compliance goes up considerably. They have put a limit 50 Lakh users in India, though we believe 50 lakh may either be little low. They should go little higher and depending upon type of user generated content they should allow for little graded form of compliance.”

Bhusan, from IDFC Institute –  “As a context, these rules have come about are drafted based on earlier rules of 2011 and have some new features like graded approach such as significant intermediary to non-significant intermediary. They have put time lines in terms of response from intermediary and so these rules are being built upon existing set of rules.

There is some short of tightening of the compliance on intermediary e.g. 72 hours of time line for response. If you are a significant intermediary, than you have to be incorporated in India and has to appoint a person who is available 24X7, and you also have to have proactive measure to screen content on your side. Some of this is coming from frustration of getting information from intermediaries.”

On issue of how much these numbers are practical for small players? How to save start-ups?

Sanjay Jain – “Differed assumption is that if you publish any content which is against the law, you are liable. Being an intermediary protects you. If you remember the case of Baje.com, the only protection they got was proving to be an intermediary. Hence, you want to call them (Start-ups) intermediaries but get a better procedural control to stop harassment at hand of low level law enforcement.”

Tanuj came in and quoted the the line after 72 hours, in section 5 it says”as asked for by any government agency or assistance concerning security of the State or cyber security; or investigation or detection or prosecution or prevention of offence(s); protective or cyber security and matters connected with or incidental thereto.”

According to Tarun, this statement is so broad that any junior level officer can say I got information that someone from Hissar in Haryana is harassing a person and give information of all users in Haryana.

Venky – “I agree with Tarun, we have the laws or the rule meant to be more sharply defined and have sharp implementation guidelines. In this case seems to be pretty loosely framed.”

Sudhir Singh – “There is another issue in draft rules on once in a month information to user, and taking their consent. Any hard compliance of rules is normally easier for large players, they may easily invest and handle with technology but small players and start-ups it is difficult situation to comply.”

Sanjay – “From technology experience we learn that if you make something automated, user ignore it. So, what will happen is this will be implemented by sending one email to every user, once in a month, stating if you don’t comply, we will delete your account from platform.

That’s an email that is going to get ignored. So, it is a very ineffective suggestion. Also, there is an implicit assumption that all users are identifiable, which is not the case always. So, just to implement it you will have to identify users. That may not be a valid requirement.”

Bhusan –  “On the point that you need to have more than 5 million users. My question is procedurally how do you even establish that?

Will platform will have to do GPS type of tracking to ensure that and does this not create a privacy risk in itself e.g. I do not know does platforms like Quora know that they have more than 5 million users in India or not. It seems, there is this focus on regulating Big Techs and this 5 Million number really come from that.”

Sanjay – “Basically, anybody can be hosting user generated content. So, lets us say we are on a common platform, and there is a message flowing from me to you. If I violate the law, and let’s say the message is liable of incitement or any other law, then I should be held liable and not the platform.

For that platform needs to be qualified as intermediary, put under safe harbour and intermediary takes on the responsibility of helping the law enforcement. So, we should not take up start-ups out of its ambit. What we have to do is make sure that, the conditions required is that conformance to the standard should not be so terrible that start-up should be excluded.

So, we need to sharpen the requirement they they should be conforming with and make it easy enough for somebody to confirm.”

It is being discussed that Govt. is aiming for higher level of Penalty. What should be our recommendation?

Tanuj – “If you take very young company any short of hit is bad, but if you can put proportion of revenue basis, it will be at least more forward thinking, even if it is not absolutely fair, in some sense more fair of not having that rule or having flat rule. The amendments of changes we should think about of moving the penalty would be not being in favour of arbitrary penalty.”

Tarun added – “Our recommendations should be around sharpening rules, like who can use it who cannot use, what are the accountability measures on them, more than magnitude of these numbers.”

Saranya – “Just to address the Data protection law vis-à-vis intermediary act. The subject matter of Data Protection law is ‘personally identifiable information’, whereas Intermediary act tries to cover ‘all communication in some sense’ and hence, Intermediary act has a longer leash with regard to the person who can take the intermediaries to task.

The criteria of what would be offensive under Intermediary act is very different e.g. encouraging consumption of narcotics. Hence, the criteria that a person can take intermediary to task is extremely wide and needs to be curtailed.”

Bhusan – “There is an inherent subjectivity in these rules and there is need to some short of standard procedures on how these rules are applied by law enforcement agencies across. All that these rules say is  – any request has to come in writing and intermediaries have to comply with.”

Venky –  “From an implementation perspective we need implementation guideline. Section 5 is so wide that anybody can drive a truck through it.”

How the numbers (e.g. 72 hours period to respond and 50 lakh users) should be defined in a manner that is suits Start-ups who are in the early phase.

Sanjay – “Broadly, we need to identify the places and various numbers to apply proportionally depending upon the size of entity and size of violation, in our feed back to the Government.”

Sanjay also brought in attention to the “Appropriate Govt”, needs to be defined well. He said,  “What we want is the Govt. agencies to be defined.”

Bhusan –  “This is very standard way of defining. I have not seen any precise definition on specifying agencies in general regulation and I do not see they will start with IT act on this.

Bhusan mentioned another important issue of end-to-end encryption is a more political point rather than national security issue. (refer section 5 last lines).

Sanjay –  “This is about tracking and tracing may not be about encryption. The fact, that I sent information to some body is about meta data, it’s not about information itself. This may be clarified better, but is not about end-to-end encryption but about meta data.”

Sanjay further added, “perhaps one clause you could add is to say that the ‘intermediary should be able to do this based on the information it has, if it does not have information, there should be not requirement to maintain information’ e.g. if you take business of mailinator, they don’t keep record of mails sent in and out.”

Bhusan, added “it should not lead to intermediaries having a requirement to do KYC on users.”

Is 50 lakh only to target large platform players?

Sanjay, “my read is they may have thought that way. But in reality a regional ISP or even a small newspaper will fall in to that category.”

“Bhusan, I don’t think it is a number generate by some study, but it seems like they just picked it.”

The discussion was rapped with thanks to all players.

Author note and Disclaimer:

  1. PolicyHacks, and publications thereunder, are intended to provide a very basic understanding of legal/policy issues that impact Software Product Industry and the startups in the eco-system. PolicyHacks, therefore, do not necessarily set out views of subject matter experts, and should under no circumstances be substituted for legal advice, which, of course, requires a detailed analysis of the relevant fact situation and applicable laws by experts in the subject matter on case to case basis.
  2. PolicyHacks discussions and recordings are intended at issues concerning the industry practitioners. Hence, views expressed here are not the final formal official statement of either iSPIRT Foundation or any other organisations where the participants in these discussions are involved. Media professionals are advised to please seek organization views through a formal communication to authorised persons.   

Story in Asia Times, on iSPIRT, and Aadhaar

Last week, on Thursday evening, we received an email from Saikat Datta, where he claimed that he had a recording of a conversation, from an iSPIRT meeting, where we discussed various ways to get around the Supreme Court verdict on Aadhaar, along with other allegations.

While this recording was unauthorised, and we were in the midst of internal deliberations (and we have pointed this out to Mr Datta), we have engaged with the reporter to ensure that our view was presented fairly.  We are publishing this email exchange and that audio file in the interest of full disclosure, and transparency.

Thursday 3rd Jan 12:52 PM, separate emails from Saikat Datta to Sanjay Jain & Sharad Sharma 

Thursday 3rd Jan 10:32 PM, response from Sanjay Jain to Saikat Datta

Sunday 6th Jan, 3:47 PM, a second email from Saikat Datta along with Audio recording

Sunday 7th Jan, 12:13 AM, the response from Sanjay to Saikat Datta

In our last email to Saikat, we have mentioned that we have earlier seen activism in the form of reporting, and requested that he report on this issue fairly and that he present our answers in full.  We do hope that he will do so.

In the meantime, we wanted to let the iSPIRT community know that we will continue to deal with issues such as these with transparency.  If we are doing something incorrect/inappropriate, we will welcome any feedback.

The post is authored by Sanjay Jain and Sharad Sharma.

A Fond Sendoff

Today we are giving a fond sendoff to Praveen Hari and Venky Hariharan as they transition out of full-time volunteering and onto new challenges! This is a bittersweet moment: as excited as we are about their future plans, we can’t help but feel a sense of loss. We will most certainly miss their selfless energy in our mission to democratize credit in India.

Democratizing credit is vital for India’s future. This particular breed of the societal problem needs a jugalbandi between public platforms like India Stack and market players like banks, NBFCs, and Fintechs – a kind of jugalbandi that is new to our ecosystem. To bring it about, it needed catalysts like Praveen and Venky.

Praveen has been iSPIRT’s ‘dynamo’ behind flow-based lending. He has done innumerable learning sessions, pulled together countless borrower pools, knocked partnerships together, and was instrumental in the design of “Type-4” loans. He has been the go-to person on all things around flow-based lending for lenders, loan service providers (LSPs), technology providers, sophisticated model builders, and VCs. His can-do spirit is legendary: he has been an inspiring blend of thought-leadership and hustle for all of us volunteers in iSPIRT. Because of this, his name will be forever etched into the history of flow-based lending in India.

Venky anchored our Fintech Leapfrog Council (FTLC) efforts from the very beginning and took on the challenging task of helping incumbent banks embrace non-linear change. Since its launch, FTLC has been instrumental in kicking off a number of market experiments and has helped banks think through their strategies around UPI, BBPS, cash flow based lending, and the technology and data governance changes they need to transition to a new era.

Venky’s soft-spoken approach masks a determination to get difficult things done. His charm is legendary, and he used it to help leaders of FTLC banks practice intentional unlearning. This collective effort has moved the industry forward, helped the banks prepare for a more dynamic future, and set the stage for partnership between banks and new age technology and Fintech players.

As quintessential iSPIRT volunteers, both Praveen and Venky have created enormous ecosystem value, and they did it for the mission. Many market players benefited from their work, and (as is iSPIRT custom) not one paisa flowed to either of them. This selfless volunteering is the iSPIRT way. After subsisting on a small Living Wage as full-time volunteers, it is time for Praveen and Venky to move on.

New Beginnings
Praveen is planning to become an entrepreneur again. After his two month cooling off period, he will launch his new startup. We, for one, are hoping that this startup will be in the flow-based lending space! We are rooting for him to be the Jonathan Rosenberg of flow-based lending: Jonathan was instrumental in bringing SIP Protocol to life as an IETF standard, and in helping to create Skype as a winning implementation of SIP Protocol as its Chief Technology Strategist. We hope Praveen’s path will have a similar trajectory, both in direction and impact! In parallel, he will continue to volunteer part-time for our PSP Connect (formerly M&A Connect) program where he has been active since the beginning. He will no longer be involved in our policy work.

Venky is moving to IDFC Institute to create a new Data Governance Network. We are at the cusp of a new data regime and data economy in India driven by Data Empowerment and Protection Architecture (DEPA), something that is very different from the paths taken by the US, Europe, and China. This Network will bring evidence-based inputs into the policy and practice of data governance; in this new world of data, it is key to secure empowerment and protection of each individual. Alongside this important new responsibility, Venky plans to keep volunteering part-time with iSPIRT on our software patents initiative where he has been active for many years.

When our full-time volunteers roll off to new challenges, they are a gift to the ecosystem. They carry with them an emboldened sense of what India can be, and an energized plan to make new things happen – in turn creating new capacity in the market.

Shifting Gears: Playground Orchestration
iSPIRT has been at work on the societal problem of democratizing credit for the last 4-5 years. We have made considerable progress, yet more needs to be done: Rajni is not yet being served as we would like it.

After some soul-searching, we realized that the next phase of ecosystem building for credit democratization needs a more deliberate orchestration of market and state actors.  Meghana Reddyreddy, a power volunteer, will drive this phase; she will don the mantle of Playground Orchestrator for Democratizing Credit.

Volunteering with iSPIRT
Our central tenet is that societal problems are solved by market players. To come up with truly innovative solutions, these market players need various kinds of public goods – scaleable public platforms, supportive policy and procedural guidelines, transformational market catalysts, and world-class playbooks – to succeed. Our volunteers build these public goods in a selfless fashion. They are often the most talented and driven folks in the ecosystem. Some do this public goods building on weekends. Others, like Praveen and Venky, take a year or two off from their career to do this.  

If you want to be one of these volunteers, read our Volunteer Handbook (https://pn.ispirt.in/presenting-the-ispirt-volunteer-handbook/) and feel free to reach out to us.

By Sharad Sharma, Pramod Varma, Siddharth Shetty for Volunteer Fellow Council and Pankaj Jaju for Donor Council.