'We will look to add more centres in India'

Arthur Becker

One company intelligence firm describes Andover (Ma)-based NaviSite as offering "a broadband entrée and a smorgasbord of data services".

What it doesn't include in its gastronomic allegory is the application management firm's seemingly insatiable appetite for devouring managed services businesses.

At last count, NaviSite had acquired no less than eight companies between 2001 and 2004, including Surebridge, Interliant and Avasta.

The flurry of buy-outs and successful integration into NaviSite by CEO Arthur Becker since he joined the company in 2002 has ensured rapid growth, with sales last year touching $110 million.

An entrepreneur in every sense of the word, Becker's previous tenures include stints as founding investor and managing member of Atlantic, LLC (an investment fund that is the majority shareholder of NaviSite), as well as founder and managing member of several technology and investment companies such as Impower, Advance Partners, Global Switch and Madison Technology.

Priyanka Joshi caught up with Becker, who was in the capital last fortnight, and discussed the future of managed applications, as well as his company's plans for India. Excerpts:

Why would a company opt for outsourcing its applications to a third party?

Outsourcing of managed applications translates into selective outsourcing of an organisation's IT infrastructure without a complete transfer of its people or assets to a third party and, additionally, without the removal of any control from the organisation.

Unlike outsourcing, the managed services approach is driven by a wider desire not only to reduce costs, but also to improve the availability, performance, resilience and security of an organisation's IT systems without the need for additional in-house skills and resources.

While the total outsourcing approach would be rather prohibitive in terms of cost and scale to all but the very large corporate organisation, the nature of the managed service model makes it ideally suited to meet the needs of the mid-market organisation, where pressure to deliver IT systems on demand, 24x7, is high, but in-house resources and specialist skills are spread thin.

How big is the managed services market when seen on a on a global scale?

Managed services is a part of IT services, which is a $650 billion market globally, and is poised to grow to $800 billion by 2008, according to a Gartner report. Of this, the application management segment would amount to roughly $100 billion, infrastructure management and the enterprise application management would be another $100 billion each.

Indian IT services would be a $48-$55 million-strong market. The market for customised applications, functions unique to a company, is definitely heating up fast. We presently do 20 per cent of our work in packaged applications while we are looking to diversify into customised applications, too.

Providing managed applications is a huge market globally. Where does NaviSite come into this picture?

Today, IT infrastructure has become extremely complex and the corresponding updated expertise needed to manage them is not available with mid-sized organisations. This is where NaviSite comes into the picture.

As a managed services provider (MSP) we are in a position to pass on our expertise to organisations that hire our services, in a cost-effective way. While we have built ourselves in the packaged applications side since we do almost 80 per cent of such work, but we are looking to develop ourselves in the customised applications sphere, too.

Technologies are changing the way services are managed. How do you see the impact of these changes on vendors and customers?

With companies today focusing on their core competencies, it has become imperative to outsource managed services to a service provider who has the requisite domain expertise. This policy enables the organisation to improve efficiency and cut costs tremendously.

The transition is happening for mid-sized organisations who lack the synergies to address mundane, yet critical business systems' management. At the customer end, they would benefit from reduced costs while vendors can leverage the expertise provided by MSPs.

What would be NaviSite's focus for India?

The India centre at Gurgaon is 55 people strong and we will increase the headcount to 150 in a couple of years. The centre is a part of our offshore model and would give us an economic edge. If we manage to do our work at half the cost of what we get from a company, then we take home 20-25 per cent as profit and the client also ends up saving 20 per cent on his outsourcing expenditure.

It's a win-win for both sides. To accomplish such tight price deadlines, we have to run multiple IT applications for various clients from a single point. With such an arrangement we get value for money from our infrastructure.

What's your blueprint for the future of your organisation as well as in India?

We ended the last financial year at $110 million and this year we are planning to grow in double digits. Our growth will primarily come from top-line management services. IDC estimates that managed services, which is growing at a CAGR (compound annual growth rate) of 16 per cent, constitutes only 30 per cent of the total IT spend of companies. Hence, there is a huge latent demand still untapped.

While in India, the spend on IT services is as low as 1 per cent compared to western nations, where it is almost 10-15 per cent. So, it makes sense to work from India rather than work in India.

We will look to add more data centres in India, in addition to the existing 14 data centres globally. We will sell our services in the US and the UK and look at the Asian markets when the domestic IT spend improves.