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, InfosysWipro 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 HealTallyFusionChartsZoho 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