Dhiraj Rajaram helps answer questions for a living. The questions are mostly asked by some of the world’s largest corporations, which seek him and his team out when they need insights while making decisions on consumer behaviour. Rajaram’s two-year-old start-up, MuSigma Business Solutions Pvt. Ltd, uses specialized software to study business data and throw up underlying patterns that can spell success or failure for, say, a new product launch.

Such insights drawn from raw data, termed data analytics, is what the world’s largest software company Microsoft Corp. was looking for when it turned to MuSigma (pronounced mew-sig-ma). In the run-up to the launch of Vista, Microsoft’s latest operating system, data analytics professionals at Bangalore-based MuSigma worked on a ‘predictive modeling’ project that offered inputs into the final design plan for the software that hit the shelves early this year.

“MuSigma helped us identify characteristics of organizations that Microsoft should focus on; it helped define the customer for Vista," says Jerry Tarter, Microsoft’s country representative for the so-called knowledge process outsourcing business in India. Across the Atlantic, a UK-based mortgage lender with over 32,000 default cases wanted to shore up its recovery rate, which had dipped to below 1%; MuSigma analysed the client’s bad debt portfolio to decide on which accounts be retained for collection and which be sold off.

Expert advice: Dhiraj Rajaram’s start-up, which specializes in data analytics, uses specialized software to study business data.

This client list has guaranteed enough attention from investors for the 150-strong start-up. “MuSigma is one of the few leaders in analytics in India with a customer list that includes several fortune 50 companies. This is definitely one of its assets," says Ashish Gupta, partner at early stage venture capital firm Helion Ventures, which has invested in outsourced financial research firm Amba Research (India) Pvt. Ltd.

MuSigma has some $1.8 million (Rs7.2 crore) in funding from a set of angel investors in return for an undisclosed stake, while employees currently own around 40% of the firm. “As the analytics industry sheds its niche tag to become more mainstream, small data analytics firms will be valued at five times their revenue", says Subrata Mitra, partner at Erasmic Venture, an early stage fund, who has made a personal investment in Mu Sigma.

Rajaram does not reveal revenue numbers and says typically billed revenue per employee at a data analytics firm in India can be around $70,000 per year. The MuSigma chief executive expects to post a five-fold increase in revenues by 2010.

This growth is expected to come by expanding the scope of business from its current roster of Fortune 50 clients itself rather than adding on new clients. This strategy is expected to help the company earn higher value business. “The gross margins in the data analytics space can go as high as 50%, with some deals even offering a 100% profit margin," says K. Ganesh, CEO, TutorVista Global Pvt. Ltd, an online tutoring service. Ganesh was one of India’s early entrants into the back office services space, co-promoting CustomerAsset Pvt. Ltd and running it for four year before selling out to ICICI OneSource Ltd in 2004. The acquirer has since changed its name to FirstSource Solutions Ltd.

MuSigma is already working on building depth into client relationships. For instance, there is currently a team of six at the firm dedicated to servicing Microsoft. “Going forward, we expect to have between two-three such teams working exclusively on different areas of business for us such as Office and Windows," says Microsoft’s Tarter.

Demand for data analytics from India—ranging from improving sales force efficiency to fine-tuning a new product launch to optimizing budgets for mega marketing campaigns—is expected to grow, as is the industry itself. Meta Group , a research and analysis firm for IT products, estimates an annual growth of 35-40% for the global analytics industry from $8.4 billion in year 2000 to $24 billion in 2008. Gartner Inc. last year listed business intelligence the top priority in a company’s information technology budget after a survey of 1,400 chief information officers. “Analytics is a large enough space that the challenge will not be the availability of customers but rather the ability to grow fast enough to deal with that demand," says Gupta.

The Indian advantage, as in other outsourced services, is powered primarily by cost arbitrage. Depending on the level of skill, a data analytics professional can earn from Rs8 lakh a year at entry level to Rs16-18 lakh for an experienced statistician. In contrast, analytic professionals in the US earn about three times more: annual wages between $120,000 to $150,000. “We probably get a cost benefit of between 25% and 30% by working with MuSigma," says Tarter of Microsoft.

But it is not just cost driving business into India; it is also a shortage of skill. “In 2004, while working for a Fortune 100 financial services company in the US, I saw that well-paying analytics positions in organizations remained open for more than six months. This is no more a cost arbitrage game but rather an arbitrage of intellectual supply," says Rajaram. “The aim is to build the world’s largest math factory." By 2010, Mu Sigma aims to increase headcount to 800 at its delivery centre in Bangalore.

Number crunching skills alone, however, may not be enough for customers who turn to analytics companies to drive business decisions. Says S. Ramakrishnan, founder of another analytics firm Marketics Technologies: “Clients do not come with an analytics problem or a math problem, they come with a business problem. Converting the business problem into an analytics problem needs very different skill sets compared to maths."

Rajaram agrees with that: “We need to merge skill sets, MBAs who understand the business and Ph.D.’s who can read the pattern behind the numbers," he says.

MuSigma has an in-house training programme that the company grandly calls MuSigma University, to build specialist skills across financial services, retail and consumer products, pharmaceuticals, technology and telecom industries that the company focuses on.

With a goal of gathering 800 mathematicians under the same roof, Rajaram believes the numbers game has just begun.