Looking Beyond IT Services

Beefing up Product Development Looking Beyond IT Services

India Inc has not exploited the opportunities offered by product development, says a recent Nasscom market intelligence report.

ndia is on track to emerge as one of the world's leading centers for IT services and IT enabled services - both sizeable global opportunities of US $426 billion and US $110 billion respectively. However, a significant opportunity area still eludes India Inc. - products. India has only been able to capture a meager 0.2 per cent of this US $180 billion market.

This is primarily because the core skills in a product play are fundamentally different from the IT and ITES sectors, and Indian companies have not paid focused attention to the unique phpects of the product market. India's core strengths lie in lower costs of development, a large pool of entry and mid level talent and mature quality management processes. However, success in the products business requires sizeable investment in sales, marketing and branding; a sizeable pool of high end architectural, design and testing skills and flexible and dynamic development environments. Last, but not least, product plays require companies to be in the customers' markets. Also, the dual shore model has really not been developed to the same level of robustness as the IT services global delivery model.

This however, does not mean that India should forget the product opportunity. An exploration of the pain points of global software players, an understanding of the emerging technological trends and a review of some of the creative plays adopted by the more successful Indian players throws light on what is actually a spectrum of opportunities for India Inc. to participate in the product opportunity.

Opportunities for Indian companies in software products

Embedded Software: A sizeable opportunity exists in providing embedded software components and services. As software is becoming pervasive in all devices and OEMS and suppliers, especially in "smoke stack" industries, are struggling to build software competencies, there is a very real opportunity for Indian companies to step in and fill the void.

Offshore Product Development Partnerships: Global ISVs (Independent Software Vendors) are constantly under pressure to supplement their development teams, re-balance their development priorities and reduce costs. An Indian back-end is well suited to help them overcome many of these problems. This opportunity is still largely untapped and offers a creative way for India to extend its core skills in the product arena.

Development and Delivery of Specialised Components: New technology trends and changing customer demands are pushing developers to move to more open, modular product architectures. Though this is still a nascent trend, India could ride this wave and develop niche offerings which would tie in with larger product families globally.

Product Acquisition and Enhancement: Pioneered by a few Indian companies, acquisition and enhancement of mature products is emerging as a powerful route for India Inc. to leapfrog into the product game.

Shrink Wrapped Product Development: While the product landscape is dotted with the remains of unsuccessful forays into products by Indian players - a few companies, such as I-Flex, have been able to succeed in this effort. This is however likely to be accessible only to companies who can compete on par with global ISVs on all the major success factors, I.e., client proximity, deep domain knowledge, a product mind-set and skill-set.

Challenges Global Software Vendors face

Decreasing profitability and increasing pressure to constantly upgrade and widen their product offering despite limited resources are limiting the growth of many players. Specifically some of the challenges that CTOs of global ISVs voice are the need to address a wider market through internationalisation and multiple platform support. ?There is also a need to offer demanding customers, across the globe, high quality 24x7 support ?The need to maintain legacy products which have a sizeable customer base. Though critical, maintaining these products is often not economically viable and pull valuable resources away from new product development.

The need to fill specific technology and skill gaps. As platforms and technologies proliferate, it is not always viable for ISVs to keep up by building larger in-house teams. Nor is it possible to constantly retrain stretched development teams. Until technologies are proven, CTOs must find an effective stop-gap. Similarly, testing is often carried out sub-optimally given the absence of specialised skill sets and the mind-set of most high-end developers.

While these challenges do apply in some measure to most large global ISVs, they are often more acute in the case of the mid-sized ISVs. Nascom conducted a detailed analysis of 249 mid-sized ISVs (with revenues less than US $100 million); the average size of the company was US $ 39 million, and the net margin was -26 per cent. In other words, the company was losing $ 26 for every $100 of revenues.

India's advantages of relatively lower cost development talent, a wide talent pool (though admittedly lacking in some of the higher end talent), ability to provide 24x7 support and strong basic control and coordination models offer tremendous promise in addressing some, if not all, of these challenges.

How can Indian Companies help

As the CTO tries to balance his need to focus on new product development with the equally crucial need to keep up the pace of enhancements to the core products and maintenance of legacy products - India Inc. can support him in two ways.

First, companies can assist in supporting and maintaining of core/legacy products. In this model, the Indian team focuses on service lines such as

• legacy product maintenance (level 2 and 3 support in particular),
• development of patches and upgrades for core products defined as defined by the in-house team,
• migration of support of multiple platform versions and localization/internationalization of core products.

The ISV benefits by being able to:

• match lower return activities with lower cost resources,
• refocus the in-house team on more higher value adding activities and
• rapidly enhancing the product's relevance to a wider market.

In order to tap these opportunities, Indian players will have to explore innovative deal structures, put in place strong risk mitigation processes and re-invent their approach to client interaction to meet the higher flexibility demands of ISVs.

Second, they can drive new product development in close conjunction with the in-house team. In the case of the Indian team having developed sufficiently deep customer insight or technological skill-sets, they are in a position to help support the ISV in developing new cutting edge products. Some of the activities of the Indian team in this case would include

• development of specific modules,
• functionalities for integration with the larger product and
• testing services which would span multiple levels of testing and
• closely integrate test strategy development, test design and test plan development and execution with the appropriate stages of the product development life cycle (PDLC).

Through this model, the ISV will be in a better position to achieve faster time to market and meet the skills gaps arising out of new technology waves in a low risk fashion.

Success Stories of Offshore Product Development

Today more than 60 per cent of the top tier of players have an established presence in India with many more hoping to leverage India's inherent strengths in this area. Some of the success stories of offshore product development out of India include the following:

• Microsoft with two development centers - on each in Bangalore and Hyderabad had announced plans to make Bangalore its largest non-US based center.
• SAP which has a significant Indian operation, with around 700 people had announced plans to increase the strength of this operations by around 50%.
• Novell with its center in Hyderabad plans to have over 20% of its R&D done out of India in the next 2-3 years.
• Oracle with two centers - one each in Hyderabad and Bangalore - had announced plans to ramp up the strength of the center to around 2000 in a few years.

While the primary model for large, scale players has been to tap this opportunity through captive back ends, both large players as well mid-sized ISVs have begun to experiment with partnerships with local ITS shops on specific projects or for specific services (e.g. testing services).

Roadblocks

Despite the success of these leading global ISVs, this opportunity area has thus far been largely untapped. A diagnosis of the situation reveals that there are four key road blocks.

• Lack of client understanding: ISVs and mid-sized ISVs have largely been untouched by the flood of marketing of Indian ITS players.
• Lack of clear processes: CTOs don't have a clear vision of how the dual shore model will actually function given the need for tight communication and coordination.
• Poor past experience with project oriented players: Most Indian companies have approached ISVs with a value proposition largely undifferentiated from the one they would take to a regional bank. The end result for those clients who decide to experiment with these players is disappointment and a great deal of intertia to try again. Indian players need to take cognizance of this mistake and re-invent themselves and their communication to ISVs.
• Absence of focused product shops in India: Closely linked to the above point is the fact that focused product shops that specialize in offshore product development, have a product mindset and a wide product skill set do not yet exist in large numbers in India. With the downturn however, several players and new entrants are realizing the futility of a generic play and are (re)inventing themselves as focused product shops.

Key success factors

• product-savvy and domain-savvy development talent
• investments in product development centric tools
• framing creative working contracts which mitigate the risks for the ISV looking to explore the India opportunity.

Such contracts would include terms of intellectual property protection, and flexible pricing mechanisms which are linked to success rates.

© Nasscom


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