The Indian IT revolution is a fairy tale that spun those who tapped this segment into the global league. The growth model was simple – the vision, planning and strategy emerged from the developed companies, and the Indian firms used the technical know how to implement and execute that vision.
So far so good, for that is how all industries grew. The demand for the Indian skill set, work culture, knowledge of English and quality were such that more and more offshore projects fell into the laps of the Indian software companies so that they themselves have set up arms across the globe for quicker service, and are multi-nationals in their own right.
With ITeS, the growth shifted to the next gear and the overall revenues from the IT and ITeS segments have made India an economy to reckon with. But while Indian software services industry has forged ahead and established deep roots, the Indian products story is much less glamorous. The challenges to growth here are much more, and the success does not revolve merely around the question of quality but marketing as well. Scalability, long-term growth strategy and most importantly, relevance, all become critical.
Experts believe that the delivery model in the coming years for IT Product companies is going to be SaaS (software-as-a-service). The primary advantage of SaaS is that it removes the complexity of technology for the end customer and also tends to be cost-effective.
Then should a company that focuses only on products have a hybrid approach, remain niche or shift to services? Would customers prefer customized solutions to a one-size-fits all product? Especially in the Indian context, is the customer ready to maintain his IT systems or does he prefer a service provider who can maintain his hardware and software for him?
Focussed and Agile
“Products or services – they’re all built around pain-points. Products tend to satiate them in a more cost effective and generic way, taking lesser time,” says Pallav Nadhani, CTO and Co-founder of InfoSoft Global, a Kolkatta-based company developing data visualization components.
Product companies tend to become niche too, as in the case of InfoSoft Global. However, the company has 200 competitors – free and paid – open-source and closed. “Going by these numbers and the market dynamics, we should have reached a plateau in growth long time back. However, our customers always told us what they wanted and even how much they would be willing to pay for that,” Nadhani explains.
As a result, the company built more products, added more features, targeted more niche markets – and it all added to the growth. “So, yes – if we would have stuck to just one original product and the original idea – growth might have plateaued. But constantly innovating on products has helped us achieve 100% compounded annual growth rate in first few years and then we moved to a more conservative 30%+ growth.”
However, the company is niche only in terms of its product range. Where the target customers are concerned, it is vast. As Nadhani explains, “Every industry has data that they want to represent better. Our customer base of 15,000 customer organisations covers all industries ranging from IT to healthcare to finance to even personal users.”
For Chennai-based Pathfinder Software Solutions too, the experience is that being niche does not restrict the market, necessarily. A multi-product company with retail focus, the company has established itself in the product space by converting all new requirements into a module. “A product can work well only when domain experts and technical experts work together,” points out M Sadique Ahmed, CEO, Pathfinder. So, whenever a customer goes for their product and asks for an additional module; or, if they take up a client as a project because it is a new requirement, they code it in such a way that it can be converted into a product.
“When we entered this segment five years back, there were not many subverticals that IT products catered to. But we realized that a generalized product cannot address all their needs. And also, the lack of a solution was why retailers were not going for billing solutions, because that alone could not resolve their issues,” he elaborates. Therefore, taking it as an opportunity area, they took inputs from prospective customers and came up with a product that all leading retail customers have opted for.
“It is niche, but look at the number of retailers in the country. Most of them are in the small to medium segment. There are only a few large retailers, and all the big boys are competing there. So we have a vast market to address,” he adds. The fact that they are the only ones providing end-to-end solutions stands them in good stead.
S Sridharan, Managing Director, Chennai-based Take Solutions, adds, “The key is the focus on the value proposition for the underserved markets that have capacity to achieve revenue aspirations and continuous adoption of new technologies and delivery models.”
Take Solutions, a Supply Chain Management and Life Sciences products company, has adopted a product and services model. Continuous research and development has ensured that the company comes up with products that have latest technologies and delivery models, and address the needs of their customers. He also adds, “There have been successful companies that have focused on extreme level of packaged softwares and hybrid approach with a blend of products and services.”
Making challenge an opportunity
“Reach is our challenge,” says Ahmed. The cost of educating and selling to retailers who are not willing to pay is tremendous. Therefore, Pathfinders is now also exploring the SaaS (software as a service) Model. “It is a risk because the cost is all ours and for the customer, it is only a monthly fee,” he points out.
But that seems to be the way to go for companies like this. Take Solutions too is entering this arena with OneSCM. As Sridharan says, “More than market saturation, new technologies and newer delivery models are driving obsolesce. Organisations have a choice to leap to, defeat it or move to a new market. It is futile to fight against newer technology. We have adopted the third model of continuous investment into new products and positioning the older product into newer segments.”
Product also needs a direct approach intended at showcasing benefits (as a result of product features) and closing deals. “The idea is that if you’ve a good product and easy deployment (i.e., people can download and try easily), once they buy it, you’ve built a basic amount of trust and stickiness. Thereafter, if you provide good customer service and your product works as advertised, it becomes easier to sell to the same customer again,” says Nadhani.
“Product and service marketing belong to two different worlds. The products create a new footprint in organisations and services follow. For a product, ROI would be a critical measure and for services, cost reduction would be an important criterion. The marketing plans have to be weaved around these themes and have to be different,” stresses Sridharan.
The HR challenge
The product companies have a different HR requirement, says Nadhani. “For a service company, the delivery is restricted to client requirements and anything that satisfies the requirement just does it. Any defect is also restricted to that client. For a product, the requirements are much more generic. Just-do attitude doesn’t work – the idea is to get to nearly the best way to do it. Plus, any defect reaches a large number of customers or downloaders. So people have to be much more passionate and connected to their work. Our interview to absorption ratio is much less than the typical service industry ratio,” he explains.
For Ahmed, attrition is a big concern area. As he says, training for products selling is more intense since it requires a bit of domain and a bit of technology knowledge. “My sales people are talking to customers who know their business well. So unless they are able to offer value, they will not be taken seriously,” he points out. Each new recruit goes through rigorous training, but attrition remains high since this training enables the new recruits to negotiate better salaries in bigger organizations. “We sail through because I have a dedicated and passionate core team,” he says. For a company that expects 60-75% growth based on the projects in the pipeline, having dedicated staff is essential to its business strategy indeed.
Sridharan estimates the current market for IT products to be more than US$ 100 billion. And this is only fast expanding, as a NASSCOM-Mckinsey report estimates this market to touch US$ 225 billion to US$ 310 billion by 2020.
And it’s evident, the delivery model in the coming years is expected to be SaaS. The advantage that this model offers is something that appeals to most corporates, be it SMEs or large players, as it removes the complexity of technology and helps in adoption of the best practices.
IT product companies that recognise these trends and adapt these practices are likely to emerge winners even while keeping their core focus intact.