Is Infosys’s monetization plan paying off?4 min read . Updated: 03 Aug 2016, 02:16 AM IST
Firm's bid to monetize platforms has begun well with the business bringing in $52 million in the Apr-Jun period
Bengaluru: Infosys Ltd’s big push into monetizing platforms to make them a $2 billion business by March 2021 has started well with its platforms offerings, including its artificial intelligence platform Mana, bringing in $52 million revenue in the April-June period.
This is the first time Infosys has shared details on the performance of its platforms business, which falls under the ‘new’ category of chief executive Vishal Sikka’s ‘renew’ and ‘new’ strategy to reinvigorate Infosys and make it $20-billion company by March 2021.
Infosys ended the year to March with revenue of $9.5 billion.
Significantly, Infosys expects its computing platforms business to soon hit what it calls the “hockey-stick" growth phase (meaning a sharp, almost vertical increase in business, reminiscent of the way the handle of a hockey stick is shaped). That means a sharp increase from the current revenue from platforms that translates into a $200 million-a-year revenue run-rate.
This is encouraging primarily because this means technology platforms can help the poster-boys of India’s $150 billion outsourcing sector increase non-linear revenue (which means revenue growth is not linked to growth in the number of employees).
“We are happy the platforms we first sold last year did a $52.5 million business this quarter," Infosys’s head of platforms, Abdul Razack, said last month.
“This business is recurring income every year, and the way we see it, we are hopeful it will soon be entering what is called a hockey-stick growth phase," said Razack.
Infosys unveiled its first data-analytics based platform, Infosys Intelligent Platform (IIP), more than 15 months ago.
Analysts, understandably, are excited by the start made by Infosys, which disappointed many when it reported a poor 2.2% sequential dollar revenue growth in the first quarter, and lowered its full-year growth outlook to at-best 12.3% from the earlier 13.8%.
“We are seeing platforms introduced in many of the clients during the sales process as both a differentiator and accelerator with clients," said Ray Wang, founder of Constellation Research, a technology research and advisory firm. “The success Infosys and others with platforms will see comes from the scale. By selling the same platform to every existing client and showing how they can configure and not over-customize the platform, the forecast numbers ($2 billion by March 2021) are achievable"
Since Sikka took over as the first non-founder chief executive officer in August 2014, Infosys has launched three platforms, including Infosys Intelligent Platform, Infosys Automation Platform and, earlier this year, Mana, to automate basic technology work for its clients.
In October 2014, Sikka hired two of his former SAP colleagues, Navin Budhiraja and Razack, to Infosys, and entrusted Razack with the responsibility of heading the platforms business. The team of Budhiraja, who is Infosys’s head of technology, and Razack, along with hundreds of Infosys engineers, have since then put their weight behind developing the platform and putting a team of sales executives to sell them.
For now, five of Infosys’s clients are using Mana, while the company has done over 220 engagements using IIP and another 150 using IAP.
What is a platform?
A platform is a computing program that allows third-party applications to run on it. Think of a technology platform as an operating system like Windows for desktops or Android for smartphones. Indian technology companies, such as Infosys, have built platforms, such as IIP, a computing program which when used by a client helps the IT vendor gather mounds of data, analyse, and serve the desired results. Mana, the most advanced offering from Infosys’s platform subset, even helps predict failure rates and offers an alternative solution to the engineer overseeing the process.
Traditionally, an army of engineers would be deployed to run every technology process; now, with these platforms, technology vendors can do the job by deploying less than half of engineers. Sure, this means IT firms have to forego revenue they would have earned under the old model (when billing was by hours), but since usage of platforms means they save on salary costs and increase the efficiency of clients, most of them are building platforms.
Infosys’s bet on platforms mirrors the approach adopted by its larger rival, Tata Consultancy Services Ltd, which last year set up a new business unit called Digitate dedicated to its artificial-intelligence (AI) platform Ignio, and Wipro Ltd’s Holmes platform. For now, both firms have shied from disclosing the revenue generated from the two business though, according to CEO Abidali Neemuchwala’s internal strategy discussions, Wipro expects Holmes to generate $60-70 million in revenue and free at least 3,000 engineers from mundane software maintenance activities in this year.
Indian IT firms can certainly look to increase average revenue per employee (RPE) by generating more revenue from platforms. RPE of Indian IT services firms declined in the last year. Infosys has already outlined a target of increasing the revenue generated by employees working on a project (full-time equivalent, or FTE) to $80,000 by March 2021. It was no surprise that with an increase in business from platforms business in the April-June period, Infosys was able to reverse the trend of falling FTE to $50,900 at the end of the June period from $50,700 at the end of the March quarter.