LUNCH WITH BS: Subash Menon

At the right place, at the right time

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It's just a $40 million company, but it has made the largest acquisition by any Indian software company.

Subash Menon is on a high. A little over a month ago, Subex Systems, the company he founded and heads, made the largest acquisition by any Indian software company, paying $140 million for the UK-based competitor Azure, which had earlier been hived off from British Telecom. Subex is puny (Rs 181 crore, or around $40 million in 2005-06 topline) compared to the billion dollar-plus Indian software leaders. But there is a key difference "" it is a product company as opposed to Indian software being a predominantly services game. And products, in which you own the intellectual property rights to something novel or unique, is where the lion's share of innovation lies. Ask who are the glamour boys of software "" Microsoft and SAP, or Accenture and EDS "" and you will know why the product people go about as if they were born with a halo over their heads.

Menon was not, however, born with a silver spoon in his mouth. Not to speak of the higher risks that a product company, as opposed to a service company, has to face, his family background prepared him not one bit for entrepreneurship. Yet, somehow from his student days at the Regional Engineering College in Durgapur, West Bengal, he knew he would get to have his own business. Hence, he spent the first six years of his working life in two small firms where he knew he would get the kind of all-round experience needed to independently run a business.

He started on his own in 1992, in systems integration in telecommunications, offering coverage solutions in test and measurements. Menon had trained as an electrical engineer and there was as yet no sign of software on his horizon. The journey into software came in 1999, with the decision to develop the Ranger fraud management software for telecom service providers. "The risks were manifold, we had no domestic experience, but were pitting ourselves against the likes of HP, Ericsson and Alcatel. No VC would fund us and even the person heading the development team for the product had no faith in our ability to deliver and eventually left us. So it has been a journey from disbelief to global leadership in our chosen field of revenue maximisation."

Subex is in the business of delivering business software applications for telecom operators. It develops and owns software that helps these companies plug revenue leakages. And with wireless enabling connectivity to grow in leaps and bounds in the poorest of countries, the need for telcos business support software is growing enormously. The game has changed from just voice, which is generated internally to delivering things like ring tones and clips which a telco has to buy from others. So the telco has to pay the supplier even if the subscriber doesn't pay up. Subex is really a big name in a very small space. Post-merger, it has just under 30 per cent share of the $250 million revenue maximisation market. This is part of the OSS (operations support systems) space which is valued at $5 billion, and if you add to that the billing software business, it's $16 billion. In OSS, Telcordia leads with $1.2 billion, and Convergys and Amdocs, which straddle the entire space have toplines of $2.5 billion each.

Subex has a long way to go. But in keeping with the current unbounded confidence of Indian business, Menon says, "Subex is in the right space at the right time. In 10 years, we will have significant revenue in line with any global company in our space." The going has indeed been good until now. In the past three years, Subex's product revenue has grown over four times and if it reaches its $100 million guidance for 2008, then it will have got there from zero in eight years flat.

From where does Menon get this optimism? In his kind of business, domain expertise and identifying and defining customer needs (that leads to the product) are driven by domain knowledge. The latest acquisition dove-tails into this. "They (Azure) have huge domain expertise we can tap into. They also have a brand name." And where is the Indian capability? He sees Indian companies going in for increasingly large global acquisitions and then introducing in them greater efficiencies, plus "" where needed "" turning them around. Azure, for instance, has not been making money. Menon has no doubt Subex Azure "" as it will be called soon "" will, hand over fist. The product business of Subex last year earned a gross margin of 43 per cent.

What drives him is the "satisfaction and pride in being in the product business." He recalls what a fund manager who controls $2 billion told him after spending a day in Subex's Bangalore office: "Inside this building, it is just like being in the Silicon Valley" which is the home of innovation. And Menon has no hesitation claiming that in making the Azure acquisition and running the business the way it is being done, "we are creating history in our own way."

Menon and I, with our respectively Malayali and Bengali pallets, have no problem in settling for jumbo prawns at the Chinese eatery of Bangalore's Oberoi. He never passes up the chance to have prawns on occasions like these as he has to avoid them on family outings ("my wife is allergic to prawns"). We also have no problem in agreeing that dessert is literally life's great sweetener, and in the mango season it is plain old mangoes with plain vanilla ice cream that does very nicely. He loves to drive and does so when he is in the west or when he can drive down to Kerala. That should be quite pleasurable considering that after speaking to Business Standard he waves and goes off in a black Mercedes.