René Seifert - Entrepreneur & Global Citizen

Recently I have reduced a little bit on my conference tourism, but didn’t want to miss the opportunity while being at home in Bangalore. On Monday and yesterday, there was the IT Product Conclave & Expo of the India’s formidable IT-association NASSCOM . Formidable for the reason as I have attended the NASSCOM Leadership Conference twice already which attracted speakers like Thomas Friedman, Amartya Sen or then India's President A.P.J. Abdul Kalam.

This was in the heydays of the industry which so far has relied entirely on services, this means running a business model which scales predominantly by adding more and more people based on  - however sophisticated – labour arbitrage. As one of the forte's if the industry has evolved the capability for designing, building and maintaining e.g. a complex and specific system for a particular banking client. Obviously, as markets tend to gravitate towards efficiency, the realizable margin gets squeezed by the supply-side soaking up the available scarce talent. Moreover, macro-factors like the rising Rupee against the US-$ have added additional pressure on the profitability, not to mention the ugly “R-Word” (for recession) which is spooking around.

Things are not outright shitty nowadays, but the concern has been for quite some while where the growth will come from. Therefore, with some foresight, 4 years ago NASSCOM initiated an innovation agenda which got conceptually supported by Boston Consulting Group, addressing the question how to build industries which will sustain the next 20-25 years on a much wider canvas. One of the key conclusions was that “software products” would prove a path to higher value businesses than just army of “programming coolies” (old quote from Sharad Sharma, CEO Yahoo! R&D India). Products are ultimately the best way to “package, store and disseminate organizational knowledge”, as my fellow EO-member Atul Jalan from Manthan Software set forth. Moreover, as products implicate a more immediate level of competition, they foster stronger innovation which in turn is able to churn up better products which in turn will command a higher price. Here the Indian cost-advantage clearly plays into the hands of product-companies and can get a virtuous cycle started.

It is worthwhile taking a look at the current state of the Indian software product industry:  In the FY 2008 it turned over US-$ 1.42 bn with a CAGR of 44 % within the last 3 years – (which is a 50 % higher growth rate that the much more mature older brother of “IT services”). Another good sign is that from the currently 370 software product companies in the Indian market, two-thirds have been incepted within the last three years. However, looking at how the revenues are distributed, there is a typical “long tail” or a power law (or as a proper German would say “a problem of justice” ;-) The Top 10 together aggregate 84 % of the market - and the rest of 360 companies, well, the rest.

Equally interesting is to take a step back to slice and dice what “software products” actually means. Not too surprisingly, as the Indian IT-industry has had extensive time to gain experience in the last 10 odd years, the clear focus lies in B2B-enterprise-applications within the following areas.

Interestingly my other major field of entrepreneurial activity, the B2C high-scale internet platforms do not show up here – or to put it the other way around NASSCOM does not categorize them here under products and/or does not feel that those fall under NASSCOM’s primary mentoring requirements. And I frankly don’t have a clue why this is as many of the abstract criteria used for “IT products” clearly apply also to portals, platform, social networks and the likes. Or NASSCOM has an incomprehensive view on that sector because e.g. “search engines” or “online search” are being named, likewise in another study “mobile games” morphing more generally speaking to “mobile applications”.

NASSCOM sees its role as a catalyst for achieving the BGAG (big hairy audacious goal) of catapulting the software product industry to a volume of something between US-$ 9 to 12 bn by 2015. The support of the organization would happen on multiple levels like exactly this and further conferences, providing best practises, incepting its own fund, but above all providing a shift in the hearts and minds of entrepreneurs to go the more difficult but more rewarding product route.

Finally, looking at markets, one true “paradigm shift” (I am really careful with this overused term) is taking place. In the first place, India as a domestic market in various sectors like Telecom or Retail is all of a sudden sufficiently big to get a software product to market. Moreover, the normal and necessary route for internationalization would have always led to the U.S. – This is no longer so. The Chinese market has proved to be a potential “next territory”, given a similar maturity of the industries into which to sell. And, last but not least, the Middle East. There, as IDG Ventures India CEO Sudhir Sethi explained “buyers feel much more comfortable buying security software from Indian vendors than from those based in the U.S. or Israel.”