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Software Products can Spur Economic Growth

Over more than two decades, India earned a reputation as the global leader in software outsourcing, but product companies – perceived as the mark of a true technology powerhouse – have been few and far between. While India is still a long way from showcasing a Microsoft or a Google, unobtrusively, technology companies have sprung up across the country to create products and solutions that meet the demands of local businesses. Quite unlike an Infosys or a Wipro, which are the creatures of global demand, product companies are coming up with innovations made in India, by Indians and for Indians. From helping capture fingerprint and iris data for the Aadhaar card to crunching numbers so that chicken live healthier and longer, these companies are using cutting-edge technology to provide tailor-made solutions for Indian needs.

Software product firms are critical as economic growth is directly related adoption of IT by both trading and non-trading firms. Most macroeconomic and industry studies are based on the growth accounting framework, where the contribution of each input to production is assumed to be proportional to the corresponding share in total input costs. Increases in production above the inputs‟ contribution are ascribed to growth in multifactor productivity (MFP), i.e.: technological progress not embodied in production inputs. Since the mid 1990s, the patterns of productivity growth between Europe and the United States have been diverging.

  • 1950-1973: productivity growth in Europe follows a traditional catching up pattern sustained by strong investment and supporting institutions. This process came to an end by the mid 1970s.
  • 1973-1995: productivity growth in both Europe and the United States began to slow down. However, average annual labour productivity growth in the EU-15 was still twice as fast as in the United States and the productivity gap was very narrow by 1995.
  • 1995 onwards: the U.S. productivity growth accelerated while the rate of productivity growth in Europe fell.

The causes of the strong U.S. productivity resurgence have been extensively discussed. A growing body of research points out that the U.S. acceleration in productivity growth reflects underlying technology acceleration. The findings of this research stream, along with considerable anecdotal and microeconomic evidence, suggest that Information and Communication Technologies (ICTs) have played a substantial role. In the United States the MFP (Multi Factor Productivity) uptake in the late 1990s was supported by the industries using ICTs rather than by those producing them.

Europe and Japan showed that investment in IT capital would not automatically lead to productivity gains. To leverage ICT investment successfully, firms must typically make large complementary investments in intangible assets to change their business organisation and workplace practices. Training, consultancy and customization make up for most of intangible investment and local software product firms are better placed in integrating embodied capital with intangible capital.

Zinnov estimates that more than 5,000 large enterprises and over 10 million small and medium businesses in the country are ready to adopt technology. The product companies have a big role to play in pushing the expansion of the $30-billion ( 1.6-lakh-crore) technology market by some 18% this year.

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ProductNation and SandHill team up to bring industry best practices to the Software Product Industry

ProductNation, a portal dedicated to the cause of the Indian software product industry and Sandhill, a portal that offers business strategy for the software, cloud and mobile ecosystem have tied-up to share industry best practices with companies that are emerging and growing in India. This is an important development in the Indian software product landscape as it brings to the table pragmatic views from Silicon Valley and from India, which has grown to be recognized globally for its software prowess.

ProductNation was launched earlier this year in India to be the one stop resource for companies who need solutions and advice even as they conceptualize, incubate and grow their businesses. The portal is run by industry veterans who act as catalysts to bring in content from around the world and real life examples of companies who are in the software product space. The portal is run in a democratic fashion and anyone who has material to contribute from various domains is encouraged to participate.

Sandhill is run by industry leader M.R. Rangaswami from Silicon Valley, the hotbed of the software industry. Over the years, Sandhill has grown with the software industry and today is an important destination for the newer technologies and developments that must be understood by entrepreneurs who run or are contemplating to run their own enterprises.

Given that more than 400 companies start their businesses each year in India in the software product industry, it is important that an ecosystem support this endeavour to ensure that companies make a success of themselves and provide value to their customers. Today, it is estimated by Zinnov that there are more than 3,400 software product companies in the country alone with 51% located in Bangalore and the National Capital Region (NCR) around Delhi.

ProductNation encourages entrepreneurs, venture capitals, angel investors, advisors and the ecosystem in general to contribute their thoughts for the benefit of this nascent industry which has the potential to accelerate even further in the coming years.

 

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The Product Ecosystem in India is at the Inflection point…

We have been long hearing that the product ecosystem in India is at the inflection point and will grow significantly over the next few years (different consultants look at 2015, 2020 or 2025 to be that period :)). More than we hear this, we do hear lot of people talking about how the ecosystem is constrained, a number of challenges that exist and that India is not yet a “start-up” nation. Sure they have lot of data to support these as well. I also had more or less the same picture in my mind for a long time, but this is fast changing as I see some quality action in this space. Below are my quick observations on the “product ecosystem in India”:

1. It’s not just evolving, it’s happening: The product ecosystem has finally arrived and that too with full force. There are over 3,000 start-ups in the country today and 500 new start-ups are taking birth every year. The interesting fact is these start-ups are not a replica (or “copy”) of a globally successful company, but are truly innovative companies who are trying to address a genuine pain point (in their own way of course) in the global or domestic market. Most of the top VC firms globally have made commitments to India market, industry associations are aggressively looking at the start-up space, global incubators and accelerators are eyeing the Indian entrepreneurial landscape.

2. Modern IT is the new buzz word: Modern IT (Cloud, big data, social and mobility) is the new buzz word in the start-up space. While Indian ecosystem may have lagged behind in the traditional IT areas (don’t have enough data to prove this though) however these modern technologies are whitespaces worldwide and surely Indian start-ups do realize this. Over 70% of the new start-ups formed in India are focused on modern IT. In fact most of the 40 start-ups I met recently were based on modern IT. It is interesting to note the way these start-ups are defining use cases based on convergence of these modern technologies (cloud + Big Data OR Social + Mobile OR Social + Big Data etc.) and competing with some of the top companies worldwide

3. Indian entrepreneur is equal to a confident entrepreneur: I must say I was thoroughly impressed by the confidence that most of these start-ups had while talking about their vision, mission and the company. In my recent meetings with start-ups, it was fascinating to note how well prepared each of these entrepreneurs were, no one fumbled on the “tough questions” and everyone seems to believe thoroughly in what they were doing. While some of them went to the extent of being arrogant about this, most of them were flexible enough to take feedback and keep going

4. Indian start-ups as leader in their own niches: “No, we do not have any competition”, “We are the market leaders in this space”, “We haven’t come across a company like us worldwide” were very commonly heard statements during my recent meetings with start-ups. Of course they had a lot of data to prove this as well. Everyone was eyeing a large opportunity and a bigger market share in the times to come. I think we certainly have a few billion dollar companies in making from India

5. Who says enterprises only prefer working with big IT companies: This was a perception (at least I had one) that large Indian enterprises only prefer working with bigger IT companies. However, it was thrilling to note that many start-ups today work with some of the biggest Indian enterprises including Airtel, SBI, ICICI, Reliance, and many others. Some of the start-ups have also extended the customer list to include large global enterprises. Many of these engagements are enterprise scale and the pipeline for many of these start-ups looks very strong

I am personally thrilled by the progress seen in this landscape (and can go on writing about the same :)). While the ecosystem may have been weak for the last decade, that does not hold true for the current decade (beware consultants :)). It is time that we start recognizing this and help accelerate the ecosystem faster. Obviously, start-ups will need more support from the industry, associations, government as well as VCs/ angels/ incubators to evolve faster from the current state.

 

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Software Products Industry: Transforming India at Large

In my mind transformation is something that takes place when there is a significant change that happens and a whole genre of populace move from one condition or state to another. It is palpable, widely felt and very tangible right down to the grassroot level. One such occurrence that comes to mind is the Indian Railways reservation portal which was launched a few years back where millions across the country suddenly had the facility of bypassing greasy touts and getting a seat on a train of their choice in an honest way.

I believe another such transformation is already being felt. The phenomenon is criss-crossing the country like never before. Suddenly from the bylanes of Indiranagar and Koramangala in Bangalore and the swank office blocks of the NCR region, not to mention localities like Aundh in Pune and other such places, a breed of software product entrepreneurs are willing to stand up and be counted. But again, mistake me not, these entrepreneurs do not necessarily come from the Tier 1 and 2 cities (as demographers like to classify) but indeed from cities like Belgaum, Udupi and Bhopal, Agra, Jalandhar and Coimbatore and so on.

These new breeds of entrepreneurs are not those who have a blueprint in mind but have actually launched a software product of their own because they have identified a need in the market. These needs are not necessarily easy opportunistic needs that some early generation product companies took but those which require a sound architecture and robust package (including pricing) to positively influence the market. So why am I excited?

The first undeniable fact (and Zinnov says so, not me) is that there are about 100 million lives being transformed across 10 million SMBs in the country. To put this in another perspective, this is virtually like CK Prahlad’s “Bottom of the Pyramid”. While the software industry has been renowned for its transformational activities among the Fortune Global 2000 list, this is a bottom up revolution.

Secondly, these recently started software product enterprises offer job opportunities not far from “home”. What I mean here is that no longer will engineering graduates have to uproot themselves from hearth and home to travel across the length and breadth of the country to the large cities in search of employment. There is already evidence of companies in towns which have a population of less than a million who have demand for such skills.

Thirdly and most importantly, these software product companies have mushroomed because of a demand that has arisen from manufacturers. Small entrepreneurs, retail enterprises, cooperative banks and a variety of other organizations have made it a point to adopt best practices that once seemed to be the preserve of only the larger conglomerates. Efficiency is the buzzword down the enterprise chain and the attraction to software products has only become greater given that it is often available on a “pay for use” model. Very often the software could come bundled with the hardware at an even more attractive price. What more could a customer ask for?

Just consider this. If a pickle manufacturer in Jaipur can streamline his inventory and manage his complex distribution and invoicing using a software product that is made locally and sold on a SaaS model and for every kilo of pickle he retails he saves 20% of the cost because of efficiency and is able to achieve lesser wastage in the process because of better inventory management, then why would he not consider using local software that is easily accessible and where service is only a call away.

The transformation has already begun and there’s no turning back.

This is part of a series and watch out for the next one.

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Technology product startups, angel and venture market comparisons – US and India

There is a lot of activity and interest in technology product companies in India, as there is in the US. I spent some time reviewing numbers from NVCA, VCCircle and pulled some numbers specifically in the areas of Internet, software, technology products and eliminated services companies. Here is a simple table to keep things in perspective. All sources are at the bottom.

USA

India
Total number of technology (Product & services) companies formed annually (average)

24,169

412
# of companies that secured angel funding

15,233 (1)

65
# of companies that secured seed / early stage from VC

1,682

58
# of companies that secured late stage funding from VC

658

31

I am yet to do any “analysis”. Right now the data validation process is what I am going to embark upon.

What is your analysis.

Relevant Links:

1. Crash Dev – eye of the needle

2. UNH center for angel investment research.

3. NAV Fund John Backus

4. Product Startup Landscape in India from Zinnov . (Thanks Pari!)

5. NVCA National aggregate data for US investments (Excel spreadsheet)