Why Indian Software Product Companies Need More than Ideas and Funding

There has been a lot of discussion around why India, home to some of the world’s largest IT services firms—and often dubbed as an IT superpower—has not been able to produce even one large independent IT product company.  Companies which have built some products have either remained small, closed down, sold themselves off, or have switched to services to sustain themselves.

Some of the reasons that have been offered as explanation are as follows.

Indians are not good at innovation. This is the most superficial explanation that you hear, usually from those outside the IT fraternity, with a limited understanding of this industry. This is flawed because of two reasons.

One, it makes an inherent assumption that building products require innovation while providing business solutions as services companies to enterprises do not require  innovation.

Two, by labeling Indians as not good at innovation, it fails to explian how Indians have built extremely successful product companies in the United States and how they have excelled in product management and other so called innovative functions in large non-Indian technology companies.

Indians are risk-averse. Well, there is some truth in the statement. The services business worldwide, because of various reasons, is  fragmented and that gives a chance to smaller companies to remain small and still make money. Usually, not so with product companies.

After the success of TCS, Infosys, and Wipro, many smaller companies in India positioned themselves along similar lines and started offering services using cheaper manpower. Since the demand was high, they managed to survive, without taking too much of risk. Since the major investment often were done after winning a contract, it was fairly de-risked. The presence of large number of such companies in India has given an impression that Indians do not take risks and and follow something that is tried and tested. But let us not forget that it is because a few companies took the risk initially, others could cash in on the wave.

In any case, while the statement does manage to explain, to some extent, why too many companies have not entered the product business, it still does not explain why those who have, have not been able to succeed much.

There is no ecosystem. Most of those who have tried their hands in creating products believe that India does not offer a supportive ecosystem. They are not exactly off the mark.

India does not offer any major incentive for creating IP. The demand from local market is not very strong, unlike in some other countries. Further, the services branding is so strong that few VCs/investors back a company which wants to play long term in products. If many of them do invest in some product start-ups, it is for quickly selling to large technology companies.  They are always pushing the start-ups for maximizing revenues in a short time, not always a great way to create long term value.

All these factors have created some hurdles for product companies, feel those who want to change this. I think they are right.

But to be sure, it was the same scenario when services business started. Indian government has always been late to step in, if at all. The local demand was absent. And there was little funding. In addition, there was no skilled manpower. But Indian companies started at the low end by tapping the Y2K opportunity and slowly climbed up the value chain.

So, while it is true that a supportive ecosystem would absolutely help the growth of India as a product hub, it is difficult to believe that itself would kickstart the product revolution.

Indians are not good in marketing. Many believe that Indians, in general, lack in marketing capability and products require far more marketing skills than services, which survives on cold calling and sales efforts.

I am not sure whether I agree with this statement.

Some Indian marketing ideas now serve as global case studies. Further, assuming, for a moment, it is true I believe, it is too tactical a thing to offer as a reason for  lack of product success stories from India. Indians are not exactly known for following systems, processes and standards. But Indian IT services companies lead the world in quality, standard practices, and creating systems and processes. Something like this can always be learned.

There have been laudable efforts in recent years such as NASSCOM Product Conclave and the formation of ProductNation. I am sure they cam surely address some of these gaps such as lack of ecosystem, help the companies in marketing and market the idea that India has everything to offer world class products that it has already done in a few areas such as banking. In core banking, for example, a majority of top providers are either Indian or have an Indian genesis.

I have my own reason to offer. Again, I would like to clarify that I offer it as yet another reason and would not claim to be the only/principal reason. I call it lack of user/product centricity.

If we look at history, we would find that while India was the place that was home to great ideas/abstractions/philosophies/sciences—such as concept of zero, algebra/geometry, astronomy, Ayurveda. Our neighbor China has always been known for inventions and discoveries of tangible things—such as magnet, tea, paper, silk.

Is it just co-incidence? I don’t think so. Our domination in modern days—India in services and China in products—stems from the same differences that existed a few hundred years back.

And you can tell this from your experience. During one of my flights from San Francisco to Seoul (some time around 2005-06), I met the owner of a  small Californian garment manufacturer, who had outsourced to a unit in China. He had come to India once to do preliminary survey but went back a little confused. What he told me can be a pointer to possibly what we do not have. I will not use the word “lack”. It is just a different way of looking at things.

He told me when he went to China and started talking to prospective partners, the discussion steered towards the type of garments he manufacturers, who they are meant for, quantity of manufacturing and so on. He was perfectly comfortable with those  queries.

In India, he was asked questions about how many people he would like to employ, what is the cost of production there, what is the saving that he is expecting, even before they asked him about his users/products. He did not have clear answers about many of those questions and left confused.

When I met him, he did not have any concrete plans for India but he had not given up on the idea. He had hope that he would come back one day. For some reason, he believed, Indians could do it better. The only tangible reason I could gauge from the conversation is this: if they are designing so well for Bollywood, they can do a great job!

I think we all have faced similar situation. If you talk of a new business idea, the discussion here steers more towards business models, funding, marketing challengers. Rarely do we go into things like users and and the actual products!

Frog Design, owned by Aricent, a company with Indian genesis, opened a development center in India, but decided to open its design studio in China. The reason was the same.

This is also what separates an application development for a client and a product development. While the technology and development process are similar, in a typical ADM project, the client briefs the specification. The same is the case with outsourced product development, where Indians have succeeded significantly. In a commercial product, the firm has to do its own user research to decide the features.

One may debate on whether a Steve Jobs of way of deciding for the user or a Nokia/Samsung way of detailed user research is better, but the commonality in both is that the user is foremost in the minds of the designers. Without that, creating a great product may only happen as an accident, once in a while!

Many would argue that B2B product development is different. I would disagree. While B2B means the user research cycle may be a little shorter, it  nevertheless requires the same user centricity that  any B2C product requires. You are finding about the user and designing accordingly. You are not designing to a specification.

The difference is subtle but crucial.

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