Bangalore: Its stablemate in the Tata group,Tata Motors Ltd has already launched the Nano, the cheapest car in the world. Now, Tata Consultancy Services Ltd (TCS) wants to do a “Nano in software" by scaling up its so-called IT-as-a-service business to cater to the needs of around eight million small and medium-sized companies in the country.

Smart thinking: TCS’ Ramaswamy says the firm wants to scale up its so-called IT-as-a-service business to cater to the needs of around eight million small and medium-sized companies in the country. Hemant Mishra/Mint

“This is a story about Nano in software," said Venguswamy Ramaswamy, global head for small and medium business at TCS. “The Nano model is about volume, notvalue. It is a question of how many cars you can sell. In our business, it is a question of how many customers you acquire. Customers can be small; it (the volume) has to be very big."

TCS, which has been testing its IT-as-a-service offering for 18 months, currently has 60 customers, including skincare firm Kaya Skin Clinic and discount clothes store chain The Loot. The company declined to comment on the number of customers it hopes to acquire or name the telcos with which it is talking.

The segment the company is targeting—small and medium-sized business—is a lucrative one for technology firms seeking to sell products and services and companies, both local and multinational, are working on ways to tap it.

Indian small and medium businesses are expected to spend $16.8 billion (Rs78,624 crore) on technology, which includes hardware, software and bandwidth in 2010, according to Access Markets International (AMI) Partners, Inc., a technology researcher. AMI estimates there are four million such firms in the country, while Microsoft Corp. estimates there are eight million.

“The managed service provider is getting more traction in India. Because most small and medium businesses don’t have an IT team, instead of building their own IT infrastructure (and managing it), they just outsource," said Abhilash D.B., research analyst with AMI. “They want to minimize their capital spend and concentrate more on their major business."

TCS has built IT-as-a-service offerings around its own software applications for use in five sectors, manufacturing, retail, healthcare, education and professional services. The solutions are run from the company’s data centre and leverage open source software for common office applications.

The company owns the hardware, a computer with little storage that accesses applications through the Internet. TCS expects customers to sign on for a minimum of three years. This is different from other business models, where the software is rented, but the customers need to buy hardware and bandwidth to access the applications on the Net.

Small firms spend between 0.5% and 2% of their revenue on technology, but that is split among as many as 12 vendors, according to TCS.

“With this service, the share of wallet for TCS will go up. We are making them to buy all of it from TCS. That is the trick here, otherwise TCS’ Arpu will be very low," said Ramaswamy.

Arpu, or average revenue per user, is a term used in the telecom industry.

The system integrators for TCS will acquire customers for a commission, and help them transition to the new service; they will, however, be billed by TCS. Telcos will sell the product and bill customers for it, sharing their revenue with TCS. “90% of it is TCS intellectual property, that is the reason we can be competitive," added Ramaswamy.

He said that TCS’ nearest competitor is at least two years away from offering a similar service.

Not everyone agrees. Two of TCS’ multinational rivals claim their model is better

“The IT-as-a-service with hardware and software model is not a big challenge as a technology. But I think to take it to the market and customer adoption is a challenge," said Rajeev Sodhi, director (online business) at Microsoft.

“Contrast the model we have. It is far more inclusive with all the partners. For us, to build our own laptops, selling as bundled package (with software) at Rs10,000 per month is not the right strategy. For sustainability, you need to support partners, who will deliver IT and applications which will be relevant for small firms," Sodhi said.

IBM said it also has a model of combining hardware, middleware, applications and services together. “Our solutions are exclusively designed for small and medium-size businesses, with high flexibility and better RoI (return on investment) in mind rather than simply repackaging enterprise solutions at a cheaper price," said Ramesh Narasimhan, director for general business in India and South Asia, in a statement.

Wipro Ltd, India’s third largest IT vendor, launched its pay-as-you-use service for small and medium firms a year ago, offering the back-end infrastructure and run applications of partners such as business software maker SAP AG, and is targeting clusters of small and medium businesses for this. It is serving four customers currently.

“Customers can choose their own PC (personal computer) infrastructure, either ours or any other vendor," said Anand Sankaran, senior vice-president and business head (India and West Asia) at Wipro.