A new generation of technology entrepreneurs is trying to build the software product ecosystem. Will they succeed where bigwigs have failed?
When Umakant Soni decided to end his successful career in Wipro in 2008 to pursue his dream, his father, a retired professor, was suffering from Parkinson’s disease and he just had a baby girl to take care of. But those were not enough to stop him from taking this decision to pursue something which was haunting him day and night with a group of like-minded people from the India Institute of Technology Kanpur, their alma mater.
A little over two years later, Soni’s vision has taken shape as Vimagino, a software product company set to revolutionise online shopping experience with its intelligent software tool, Vhelp Angels. The Angel, an interactive software tool, can understand emotions of visitors to any website and enhance their buying experience by getting their emotional feedback. The product is now under trial with 19 companies, including two of the biggest online media companies in the world as well as companies in the travel, retail and high-tech space. There are two patents the company has filed for in the US and India for the uniqueness of its product.
It’s not Soni alone; the core team that incorporated the company in February 2009 is aware of the risks in incubating a software product company which requires long time to break even and substantial funding. But that did not stop Gaurav Vaish from Adobe, Sandeep Dey from Google and Sandeep Singh, a hardcore techie with Yahoo! earlier, to join Soni to realise their dream. “I was enjoying my work at Wipro where I was instrumental in incubating three companies. When I quit Wipro, I knew that creating a product company from scratch requires a hell of a lot of time, energy and even money. Many people told me I was committing professional suicide as failure rate in the software product space is more than any other. But I was never in two minds,” says Soni who at 32 is the oldest member in his team.
As part of his MTech project at IIT Kanpur in 2001, Soni developed a pollution-free helmet. Such was his inclination for entrepreneurship that he even visited Bangalore to meet Infosys co-founder NR Narayana Murthy to pitch to him the business plan.
Soni’s is just one example of the new-generation technology entrepreneurs who are quietly trying to build the software product ecosystem which is expected to be the future of the Indian IT industry. Most of them are brimming with innovative ideas and they are not averse to taking any risk in the process. The high failure rate in the software product space (industry also calls it infant mortality) is no more a deterrent to the growing risk-taking appetite of these entrepreneurs.
Young and fearless
Sharad Sharma, the chairman of Nasscom Product Conclave, likens the software product ecosystem in India to Bollywood. It’s not because it has been as successful as Bollywood, but because it is at least showing all symptoms of becoming a successful industry like Bollywood. “The infant mortality rate in software product space is high and it should be high. This is a competitive market and I don’t think there is anything wrong in a high mortality rate. I think it is alright to have high death rates as long as your birth rates are high. Because that is the only way the pruning process happens and leaders get created. We have seen this in the software service industry as well,” says Sharma.
A report by Nasscom says over 125 start-ups have been incorporated in the software product space in the last three years. The software product revenues from exports have grown 13.1 per cent since 2007 to touch $1.14 billion in FY2010, says Nasscom. According to Zinnov Management Consulting, a leading globalisation advisory firm, India today houses over 650 product companies — most of them incorporated in the 2004 to 2008 timeframe. While the process slowed down during the global economic slowdown, this number again started rising after 2009. Leading IT services companies are also trying to move up the value chain by offering software solutions and platform-based services.
Why is there a sudden euphoria about software product business? Says Vivek Wadhwa, director of research, Centre for Entrepreneurship and Research Commercialisation, Pratt School of Engineering, Duke University: “Our services industry brought India this far and it can’t sustain the same 30-35 per cent growth without value creation in terms of technologies, intellectual property and so on. A large part of the future growth of the industry is going to come out of areas that we had not done before, and products will play a very significant role in getting there.”
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Industry insiders, members from investor community as well as aspiring entrepreneurs say the turf for software product companies in India is not the same as it used to be five or even 10 years ago. In the first phase, the industry saw the emergence of software product companies like Subex, Tejas Networks, Sasken or even home-grown accounting software-maker Tally who were mostly confined to the Silicon Valley of India. But the change that has happened in the last few years is the emergence of companies focusing on the product space in various other parts of India, targeting new opportunities — say, in the cloud computing space, in payment system development or mobile value-added services.
Take, for instance, the case of Pallav Nadhani (25), one of the youngest CEOs India has produced. Nadhani’s tryst with entrepreneurship started when he was in class XI in a Kolkata school. He had arranged then the seed fund for his future company by writing an article for a website ASPToday.com (closed now) which used to encourage technologists to write innovative articles and pay them. Nadhani’s article, which was on how to create a better charting system by using Adobe Flash technology, fetched him $1,500 then. With this money, Nadhani started working on the product. In 2005, his company, FusionCharts, was formally incorporated with a focus on developing products around data visualisation. In 2007, when he went to the UK for his Masters in Computer Science at Edinburgh University, he already had 20 people reporting to him. Today, FusionCharts has 15 software products to its credit with 17,000 customers across 110 countries. The company, with revenues of Rs 20 crore (last fiscal), boasts of companies like Google, Facebook and even various US states among its list of customers.
“Fortunately for me, the risk was not much as I was profitable from day one; and by the time I formally launched the company, I had developed a few versions of my first product, FusionCharts,” says Nadhani. “Compared to five years ago, I definitely see a lot of enthusiasm among aspiring entrepreneurs to get into the software product space.”
Passion for products
The recently-concluded Nasscom Product Conclave saw the participation of over 1,200 entrepreneurs who are into software product and solution development in some form or the other.
“This is a defining moment for products as India is opening up its markets and connectivity is getting faster. So while we have always been known for services and we have always questioned ourselves, I think this is the time we will see product companies start emerging,” says Nasscom President Som Mittal.
The buying habits of large Indian corporations are no different from their global counterparts. They want to use the best-of-the-breed technologies for which they don’t hesitate to pay any amount, which is why many prefer to shop from established global players. However, of late small and medium Indian companies have shown aggression in using technology to remain competitive compared to their global peers. Traditionally, the small business did not invest in IT because it was quite expensive. With the offering of software as a service, IT consumption of SMEs is expected to go up significantly. Being the latecomer into the software products sector, most Indian product companies are realising it is easier for them to convince relatively small customers to sell the product than a larger one.
“When you are small, then it’s always a challenge to sell your software product because why should a customer trust you versus a Google or a Microsoft? So one of the tricks is, when you are small, it is wise to target the smaller companies. Because smaller companies themselves are small, they don’t have as many hang ups. They feel the Microsofts and Googles won’t be as responsive in support, whereas a smaller company like us will return their calls and will take them more seriously,” says Sridhar Vembu, founder and CEO of Zoho. Chennai-headquartered Zoho offers a wide range of cloud-computing applications ranging from customer relationship management to invoicing and project management. The company which employs about 1,200 people in India and overseas is an early mover in the cloud-computing space and competes with the likes of HP, IBM, Salesforce, Google and now Microsoft for its various offerings.
Many of the emerging players in India like Impel CRM, FusionCharts and Zoho are already in the forefront in realising the importance of software as service. Many of them are not just local leaders, they are also signing globally. “We do believe we have the capability to become the hub globally for building business applications for small businesses. As we are going to remain a country for small car, we are going to remain a country for small businesses. Anybody who can sell to an Indian small business for sure can sell to small businesses anywhere,” says Sharma of Nasscom.
Emerging opportunities
Industry insiders believe that India is at the cusp of the domestic consumer market opening up which has the capacity to pay either on the mobile or on the web which did not exit earlier. Some of the recent developments including the unique identification (UID) programme have thrown up opportunities for technology firms in the payment solutions area. Since the UID number is understood to be connected to one’s bank account at the back-end, this is expected to help people who do not have credit cards to do online money transfer and shopping. The example of Kenya where about 7 million out of the 34 million-odd population are hooked on to a mobile-based money transfer service — N-Peas — is an eye opener in this regard. Experts say that UID is expected to enable over 200 million people to use the mobile and internet money transfer service in India, while this option is now available to only 11 million people who have credit cards. Most emerging software companies see this as an opportunity and are trying to cater to this space.
Manav Garg, the founder of Eka Software Solution, spent about three years with G Premjee Group, a Singapore-based commodity trading company, to identify the pain points of the customers and later converted this into an opportunity. Garg, who joined the GP Group in 1998 after his MBA from Indian Institute of Foreign Trade, realised that despite the fact that commodities trading is a high risk sector, most of the trading companies were using spreadsheets in the absence of IT systems. Garg quit his job in 2001 and, after a break of a couple of years, started his own company, Eka Software Solution, in 2004 first with his own saving and subsequently with seed funding from his previous employer, GP Group. The company which develops commodity trading and risk management software product today has absolutely no competition in India, while globally it competes with companies like OpenLink Software (a Carlyle group company), Tripple Point Technology and SunGard Energy and Commodities. The company, even though quite small in size compared to its competitors, today has over 17 clients including three Fortune 500 clients. “I think people have to focus a lot on trying to understand the market that they are trying to address. What is the basic value they are trying to bring to the customer? Once they identify that, they have to go and talk to the market early on,” says Garg.
The biggest concern for any aspiring entrepreneur used to be how to access funds. Owing to the risk in starting a software product business and the long period it requires to hit the market with the product, Indian technology entrepreneurs are now realising the importance of keeping their cost structures low. Many of them feel that funding is certainly one of the concerns, but certainly not the biggest one. “We never went in for any funding and tried to live as cheap as possible. In the initial days, it was a home office where our parents were living upstairs in the same building. Even today, we are self-funded, profitable and self-sustainable,” says Vembu of Zoho.
Agrees Garg of Eka Software: “We have seen people who spend 80 per cent of their time for funding before they start the company. The initial focus should be on understanding the customers’ problem to develop the business ideas. Once they understand the problems and customers validate that then funding will automatically follow.”