Software product development gaining momentum in India
It’s a paradox that most people find difficult to comprehend. India, a superpower in software services, remains a minnow in software products.
Consider this: Indian software products companies have a combined turnover of $1.4 billion (Rs 6,361 crore); Microsoft, the largest software company in the world, alone has annual sales of $60.42 billion (Rs 2.74 lakh crore). Not surprisingly, India’s share of the global software products market is 0.5 per cent. But there’s a thin sliver of sunshine that is now beginning to break through the clouds.
Software product development is gaining momentum in this country—more than 100 companies, out of a universe of 500, were incubated in 2007 alone. And venture capital funding for technology companies operating out of India is growing a little faster, at 43 per cent, than VC funding as a whole, which is growing at 42 per cent.
In absolute terms, Indian software products companies have received an estimated $1.3 billion (Rs 5,907 crore at current rates), in VC funding between 2005 and 2007.
There’s more. The eco-system in India is becoming more favourable for software product development. NASSCOM predicts that the global demand for software products will grow by almost $130-150 billion over the next seven years and Indian companies can grab about 10 per cent of this incremental market by 2015.
So, funding isn’t a constraint, entrepreneurs are jumping onto bandwagon and there is a huge market— domestic as well as global. Does that mean that the time has come for Indian software products? Not quite. Why?
India is still ill-equipped to meet the manpower needs of a thriving software products business and secondly, there is not enough official encouragement. Says Ganesh Natarajan, Chairman, NASSCOM: “The Software Technology Parks of India (STPI) scheme must be available for software products companies that are starting out. Small product companies, typically, start out in garages and they cannot set up shop in a Special Economic Zone right away.”
However, the manpower question worries Natarajan more. “In countries that have successfully built a software products industry, youngsters train to join product companies from the age of 18.
That kind of awareness doesn’t exist here,” he says. Natarajan feels that the answer is to have more vocational courses at Indian universities but adds that it will take a generation for it to take root. So, will an Indian company ever develop and own a branded product like MS Windows?
The short answer to that is: Unlikely, at least in the short-to-medium term. But over a longer period, some of the companies featured here, and the many others that aren’t, may well develop killer products that go on to dominate the world.
In the following pages, we feature seven companies that, according to NASSCOM, can lead India’s charge into the software products space.
Breadwinner for many
|CEO: Ramani Kothandaraman, 43|
Area: Enterprise data back-up
Based in: Pune
Initial investment: Rs 40 lakh in 2007
5-year goal: To become the most trusted brand in data protection in the world with revenues of $250 million (Rs 1,136 crore)
Taking on the world and doing a good job at the same time is not easy, feels Ramani Kothandaraman, CEO of Druvaa Software, whose product, Druvaa In Sync, helps create back-ups for enterprises and allows executives to automatically back up their work from any place.
What’s unique about the product is that it eliminates any duplication. About 70-80 per cent of any company’s database is due to duplicates, which the product eliminates. Says Jaspreet Singh, VP, Business Development, and a cofounder of the company: “Often, a single document is forwarded many times to several people, and every time, a new back-up is created. Our product removes that duplication.”
It also frees up memory space for organisations by a huge amount, reducing their IT hardware costs. Druvaa got its first shot of angel funding from the India Angel Network in Janary 2008. Says Kothandaraman: “The uniqueness of our product is the ease of deploying it. It only has to be downloaded, that’s all. So far, it has been a product that is of India, by Indians, for Indians, but we are thinking of taking IT global.” With ICICI Bank as a client, Druvaa is confident of being able to serve global corporations now.
APP Software Solutions
Platform for solution providers
|CEO:Venki Muthanna, 43 |
Area: Process management systems sans coding
Based in: Bangalore
Initial investment: Rs 5 lakh in 2005
5-year goal: Revenues of $5 million (Rs 22.72 crore at current exchange rates) in five years
In 1998, Venki Muthannareturned from the US with one goal—to start out on his own. However, the 33-yearold Muthanna could not do so then, even after raising some funds, and had to bide his time till 2005. Instead, he helped set up Rational’s software development centre in India that grew to a 60-member team. In 2003, Rational was acquired by IBM and it became a division. Two years later, Muthanna finally quit Rational along with a few colleagues and led the team that started AppPoint Software Solutions.
AppPoint’s flagship product is Bizapp, which, Muthanna explains, helps companies create process management systems for their clients. Using the platform, a company can create an HR management system or a hospital management solution for its client without having to do much coding.
“We launched the product six months ago, and have already won clients in India as well as in the US and Sweden. These include a few Fortune 100 companies, as well as SMEs across diverse business domains such as manufacturing, insurance, etc. We are developing a partner ecosystem. By leveraging it we are exploring other markets in Europe,” says Muthanna.
The company is funded by the promoters, but is expecting its first round of venture capital funding soon. Newly-appointed Chairman R. Ambarish is working on finding the first round of funding for the company, which now employs around 40 people. “Over the last six months, we have partnered companies like Cognizant Technology Solutions and MindTree to offer implementation services using our platform. We also have OEM partnership with some like Synchosoft,” Muthanna adds.
ACL Wireless Products that come as a service
Sanjay K. Goyal
|CEO: Sanjay K. Goyal, 38|
Area:: Mobile services
Initial investment: Rs 75 lakh
5-year goal: To become a clear leader in verticals like mobile social networking and enterprise mobility. Also targeting a listing and market capitalisation of $500 million (Rs 2,272 crore)
If you’ve ever sent an sms to 6767, you have used ACL Wireless’s product ACL SMS Short Code—and, you’ve paid for it. The revenue has been split between your telecom service provider, the company to whom you sent your message and ACL. Says Sanjay Goyal, Founder & CEO of ACL: “India is the second-largest mobile market in the world and offers a unique opportunity.” The company also offers SMS alerts, mobile chats and mobile instant messaging—and Frenzo, a mobile platform for social networking with 500,000 users.
ACL’s model: it hosts the product itself and offers it as a service to the client company. “When we started out in 2000, there were only two ways of doing business—software services and product licensing. Now, we can offer a product as a service.” The company, which, Goyal says, “has a turnover of $15-20 million (Rs 70-90 crore)” and 250 employees, is at a stage where it can go in for an IPO.
In October 2001, ACL received its first shot of funding from Inter Asia Capital of Hong Kong.” A year ago, it received $12.5 million (Rs 50 crore at the exchange rates then) from MIH Naspers. “In 2005, we were adjudged India’s fastest-growing technology company by Deloitte India,” he says, adding: “We are likely to go for an IPO within a year. The largest company in our space, OnMobile, has listed and is trading at a price-earnings multiple of 40 and that has encouraged us a lot."
Gopi Kumar Bulusu
From services to products
|CEO: Gopi Kumar Bulusu, 39|
Area: Modelling embedded systems
Based in: Visakhapatnam
Initial investment: Rs 3 lakh in 1996
5-year goal: Revenues of $200 million (Rs 900 crore)
Sankhya technologies began life in 1996 as a software services company and entered the products space only recently. Explains CEO Gopi Kumar Bulusu: “We always had a core team working on developing our own technology. However, we needed funds for research and that came from software services.
My focus was always on creating my own intellectual property and on entering the products business.” The family-owned Sankhya Technologies formally entered the products space in 2005 and is now completely out of services. It has two products—Sankhya, a business management solution for small and medium businesses, and Teraptor, a tool for modelling embedded systems. Mention embedded systems and Bulusu is eager to talk. “It’s a combination of software and hardware. When you combine the two, you are looking at making it smaller and fitting more into a limited space. And that’s where you begin making trade-offs between hardware and software. We provide a seamless designing language that does not force you to think separately… and so, you don’t have to make any compromises.”
Sankhya now has 35 employees and has come a long way from the time Bulusu launched it out of a garage. “I was the only employee for the first three months. I moved out of the garage when it went under two feet of water during the monsoons.” The future looks bright. “In four-to-five years, Teraptor will be addressing a onebillion-dollar market. The opportunity is huge,” says Bulusu.
Mchek India Payment Systems
Inspired by an autorickshaw driver
|CEO: Sanjay Swamy, 43|
Area: Mobile payments
Based in: Bangalore
Initial investment: Not disclosed
5-year goal: To serve several million users
Sanjay swamy was on a vacation in India in 2003 when he spotted the opportunity at the unlikeliest of places. In Bangalore, when Swamy asked an autorickshaw driver for the time, the man pulled out his mobile phone. “Here, I thought, is a connected Indian. That was the moment—I wanted to do something on the mobile platform,” he recalls.
Cut to the Airtel advertisements featuring film stars Madhavan and Vidya Balan trans-ferring funds using a mobile phone—it is actually mChek that actually facilitates the transfer. mChek’s other customers are Citibank, Sifymall and Future-Bazaar, among others.
Soon after his “magic moment” in a Bangalore autorickshaw, he met John Kattakayam and Bhairavi Gade, two technology whiz kids, who were working on several software product ideas, through matchmaking efforts of venture capitalists. The three of them came together to found mChek, focussed on mobile payments. They received their first round of funding in 2006 from Draper Fisher Jurvetson and angel investor Rajesh Jain—a sum of $5 million (Rs 22.7 crore).
Swamy, who has held senior positions in Silicon Valley at mobile content companies like Portal Software and Xerox PARC, feels there is a great opportunity for mChek’s products as the Indian mobile market is different from the rest of the world. “But products that will work here must be developed here. Then, they must be robust and attuned to low average revenues per user,” he says.
MChek clocks revenues on a per transaction basis; therefore, the more successful the product, the more money mChek makes. Swamy’s aim: all mobile phone users should use mChek, which already has a 50 per cent share of the mobile payment market in India, five times a day in the near future.
Iviz techno solutions
|CEO: Bikash Barai, 26|
Area: Ethical hacking and enterprise penetration
Based in: Kolkata
Initial investment: Rs 10,000 raised from selling paintings by Barai and Rs 10,000 from research stipends of CTO Nilanjan De
5-year goal: To be a global player in the information security space
This one looks straight out of a novel. Bikash Barai (26) and Nilanjan De (27) started iViZ Techno Solutions out of their hostel rooms at the Indian Institute of Technology, Kharagpur. The first funds came from paintings that Barai sold and some scholarship stipends that De managed to save.
Today, the company counts among its clients two of the top three software services companies in India as well as most of India’s top 20 website companies and most of India’s defence establishment. What does it do? Barai explains the product: “Companies often employ hackers to test their systems. Such people are not easy to find, and harder to retain. We created an artificial intelligence-based tool that will simulate the actions of the human hacker.” It even improves upon the human hacker. “Even the best hackers may not retain the same degree of enthusiasm once they have found one point to breach the security. Our tool keeps attacking the system from all directions even after finding weaknesses,” Barai says.
Without any initial funding, it was tough going. “We had absolutely no money, very little experience and zero support from anywhere,” Barai says. “We saw many of our classmates go into high paying jobs while we could manage to find only Rs 1,000 a month to spend on ourselves. It was tough,” he adds. The first funds came from a customer, Erevmax, a software company focussed on the hospitality sector, which gave the duo a project as a test. “However, the end-results were so fascinating that they funded our company.” This brought in Rs 1 crore. The first round of formal venture capital funding of $2.5 million (Rs 11.3 crore) came from IDG Ventures in 2007.
Last year, the company was ranked sixth among the world’s best security start-ups by Intel and was placed second in Asia. Today, it has a presence in Mumbai, Delhi and Bangalore apart from its headquarters in Kolkata. If this sounds like magic, then here’s something else to chew on—Barai is also a magician who performs magic shows for charity.
Spreadsheets to applications
|CEO: Suresh Sambandam, 35|
Area: Help companies create web-based applications through spreadsheets
Based in: Chennai
Initial investment:: Rs 1 crore in 2003
5-year goal: 100,000-300,000 active accounts yielding between $35 million and $100 million (Rs 160-450 crore) in revenues
Spreadsheets have become the lifeblood of most companies. Now, Suresh Sambandam and his team at Orangescape are adding value to this important management tool. Their product, Dimension, allows companies to create Webbased applications using spreadsheets without the worry of programming. “The client can create a model of the application on a spreadsheet and our product automatically transforms it into a Web-based application,” Sambandam explains.
Sambandam has been an entrepreneur for five years now. He was heading the Indian arm of the US-based Selectica in 2003 when it was sold to Accenture. Sambandam and few colleagues decided to not join Accenture and, instead, entered into a $500,000 contract to consult with it. This money was used as the seed capital for Orangescape. A couple of years of fundamental research later, Dimension was ready. The company is following an online and offline sales model and has already bagged 40 very big clients—including Citibank, Hindustan Unilever, Fullerton in India and 24x7 Customer—globally.
Orangescape, which has received no formal funding yet, “is now looking for funding as we plan to scale up the venture so as to be able to provide our product globally”. Dimension is in its third release and Sambandam feels confident about taking it global now. “The next release of Dimension will be available on demand online,” he adds.