The changing face of the software products sector
For India’s handful software product entrepreneurs, it’s been a long slow burn that’s paying off only now
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Bangalore: Waiting for a response from the chief information officer (CIO) of a Fortune 500 company, Manav Garg opened his inbox anxiously. Little did he know that the next few days were going to be a back and forth email fight for an hour of the CIO’s time.
“Sorry, I don’t want to waste any time with you,” read the email. “Not even an hour.”
“How about 15 minutes?” asked Garg, chief executive officer (CEO) of Eka Software Solutions Pvt. Ltd, a commodity trading and risk management software maker. To this he got an affirmative response. He took the next flight to Singapore, where the meeting lasted over three hours. The next thing he knew, he had signed up his first Fortune 500 client.
The Indian product landscape comprises more than 3,400 companies, with around 500 firms being created every year, for over a decade now, according to a recent report released by industry lobby group Nasscom. The total revenue of the sector is close to $2.2 billion, but is predicted to grow into a $10 billion industry by 2020.
Each company has its own story to tell—about their journey and the challenges en route.
When Garg built Eka Software in 2001, he did not have any experience in software, but knew enough about design, marketing and sales. This was the driving force of the product’s success story, he said.
“A lot of guys who are working in technology companies have good technology backgrounds, but they’ve never been through a full product life cycle, so they don’t know what it takes to build a product completely, what it takes to market it, what it takes to attract customers, and, of course, support the product at the end of four-five years,” said Indus Khaitan, co-founder of Bitzer Mobile Inc., a San Francisco-based Indian product start-up.
Experts categorize Indian product companies into three kinds: first that targets a small number of large B2B (business-to-business) clients and needs a sales force to function, second that has an online sales force and targets many smaller B2B clients globally, and the third that targets only India and does not need a sale force. Eka Software focuses on medium and large businesses, providing their product services to 34 customers across 15 countries. The software suites each cost between $500,00 and $25 million.
Gone are the days when Garg had to plead people for their times.
Today, Eka Software, one of the biggest product companies from India, has raised three rounds of funding from Nexus Venture Partners, GP Group and, most recently, from Silver Lake Kraftwerk, and sees acquisition offers pouring in. But the company is in, what ecosystem experts call, “a company mid-life crisis”.
“For the last four or five years, we have got at least 15 to 20 acquisition offers, but we want to scale up. For product companies, it is easy to get acquired, but difficult to scale. We want to take this as a challenge,” said Garg.
R. Wang, founder of enterprise research firm Constellation Research Inc., said, “There’s no reason why the products ecosystem can’t be successful in India, but it’s important for that there be a push towards expanding it in the same scale as the services industry and really productizing that ecosystem.”
The main focus area of Indian product companies are on technology—which includes mobile, enterprise software, social networking, cloud computing and education—and banking, financial services and insurance (BFSI), comprising 42% of the total products.
“India until recently has mostly seen a services play when it comes to IT (information technology). However, companies such as InMobi, Flipkart, redBus have begun to rewrite this story,” said Naveen Tewari, founder and CEO of InMobi, a mobile ad network. “However, we need several more such success stories for investors and large enterprises to have the confidence to consistently take big bets on Indian start-ups.”
Garg was not the only one who had trouble finding customers.
Shivkumar Ganesan recounts entering his bachelor pad and frantically logging on to his computer, the advent of smartphones still unknown, to search for people he had just met at the start-up conference. He attended every event that gave him the opportunity to meet new people.
This was his routine seven years ago, in 2006, but he still said it is the best way to build a prospective customer base.
“All I did during networking events was meet the maximum number of people and say, ‘Hi. How are you? What do you do? Can I have your card?’ and add them on LinkedIn. When I started Exotel in 2011, I had to start with my contacts and say, ‘Hey. Do you want to grab a coffee?’”
In Exotel, his second start-up, he had built a telephonic solution for a problem he was facing in his first start-up, Roopit. The product is customer management software that helped small and medium businesses to handle customer calls without a dedicated call centre set-up.
Some people met him for coffee, while others did not, but Ganesan did not give up. He was persistent in his attempts, which eventually paid off. He now has 500 customers.
“The biggest challenge for product start-ups like us is that only some young entrepreneurs are technology-friendly. We need to try everything to make people understand that software is their friend,” said Ganesan.
India has seen as many as 145 venture capitalist deals in the software, Internet and mobile industries, worth around $711 million, in the last six years. This accounts for 65% of the total venture capital investments in the country, according to the Nasscom report.
Conviction to build
Some product companies did not need money; they needed the conviction to build a new market in a country like India.
As the entrepreneur couple, Sangeeta Banerjee and Venkat Kandaswamy, wondered how to make Indian apartment owners believe that using their software would help them perform billing and accounting more efficiently, an idea crossed their minds.
“Our prospective customers were people who did not believe in using software and paying for it. We marketed the product as an efficient part-time assistant for the apartment manager,” said Sangeeta Banerjee , CEO and co-founder of apartmentadda.com.
Though this approach worked and won them a few initial customers, there was a major challenge to overcome: long sales cycles because of distributed responsibility and decision-making.
They did everything to cut short sales cycles. They even altered their pricing strategy and priced the product at a subscription of Rs.15 per month per apartment.
Today, apartmentadda.com has 2,700 real estate clients, reaching close to 150,000 apartment owners in the country, with no external money raised from venture capitalists.
Sixty per cent of Indian product companies are focused on India as their primary market while a smaller fraction target the entire globe, experts said.
“We could have gone global, but we feel that India was in itself a big market to crack. Now, when an apartment complex is built, real estate developers look for software like ours to run the show. This is a big triumph for us,” said Sangeeta Banerjee.
Experts predict great things for this dynamically changing sector of companies.
“All the products we’ve created in India are not core tech. When the next generation of kids, who are graduating from schools and colleges, will come out and propel the power of deep tech research, the new category of innovations will happen,” said Pallav Nadhani, co-founder and CEO of FusionCharts, a charting software company.
Ravi Gururaj, chairman product council at Nasscom, said, “There is so much energy and activity in the product space. When the price of smartphones comes down to Rs.2,000 and everybody yearns to have one, that day all these mobile products and companies will flourish. It might not happen over the next year, but if you wait for five years.”