Category Archives: Emerging Opportunity

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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Crackdown on Illegal Music Sites: The Solution is Not So Simple

In a well-coordinated move, the Indian Music Industry (IMI), a consortium of more than 100 music companies, recently managed to get an order from Calcutta High court directing ISPs in India to block 104 music sites on charges of piracy. Some of these sites such as songs.pk, musicindiaonline.com, dishant.com, and smashits.com are extremely popular destinations for music lovers. Medianama.com, one of the top websites focusing on business related to digital media and entertainment, said that the IMI had made a case against each website, quoting Apurv Nagpal, CEO of Saregama, one of India’s largest and oldest music company. Medianama further said that the court orders were obtained on different dates and the first order was against songs.pk.

The order against songs.pk was widely reported in media and we had even discussed it in our editorial meeting in Dataquest. But I came to know about the blocking of the other sites when, while searching for the lyricist of a 60s Hindi film song, in the third week of March, I clicked on a Google link and found the message that the site has been blocked because of orders from DoT. It is only when I did a couple of more queries that I saw a few write-ups (none in the traditional media) about the sites being blocked because of the orders from Calcutta High Court. Medianama even gave a list of all the sites. I found that many of the sites that I often visited to find/confirm info about songs (esp the year of a film/lyricist etc) are in the list. Most of them are music streaming sites.

According to IMI, these are illegal sites while there are a few sites such as raaga.com, gaana.com, in.com, and dhingana.com that have legally obtained licence to stream music. The average user of the sites, however, have no way of knowing which one is legal and which one is not. Most of the people I know who use these sites are heavy purchasers of legal music. When I asked a few of them, most of them said they choose these sites because of ease of navigation/look and feel. I agree with that but have one more parameter: accuracy of information about songs. This, because, there is little to choose when it comes to the quality of sound or speed between one site and another. The Saregama site scores heavily on the accuracy-of-information front while it is poor when it comes to presentation and does not work quite often. Flipkart’s Flyte—though much better in terms of presentation and navigation—has quite a few mistakes when it comes to information on songs—one common and frequent error being combining films of the same name (one released in 40s and another in 90s, for example) to a single album.

So, while feeling good about the success of the anti-piracy moves, I was a little sad that these sites—to which I often trurned for a quick check-up of info—would not be accessible any more. But as feared by many analysts and legal experts, they resurfaced under different names. Songs.pk became songspk.pk; musicindiaonline.com became musicindiaonline.co; and dishant.com became dishant.co and so on. So, while the music industry may have won a battle—that too partially, what with all the resurfacing of some of the sites—the war is still far from being over.

But what is this war all about? On the face of it, it is piracy and loss of revenue to the music industry. From a moral and legal point of view, the IMI action looks plausible. But when you look at it practically, it is bound to fail because of two reasons. One, well discussed by many bloggers, is technical: it is virtually impossible to completely ban sites. In any case, restricting through ISPs would work only in India.

But the other reason—and I think it is far more important—is that the music industry is not yet prepared to embrace the change that would actually give them back the power. We have come to a situation like this because the music industry has been lax in moving with the times. People’s unwillingness to pay is only part of the reason for piracy. An equally strong reason is access to music. In my school/college days, for example, there was virtually no way to “get a song” without “recording it (read piracy)” till Gulshan Kumar exploited a loophole in the law to re-record many of the yesteryear’s hits in newer singers’ voice and offer an alternative. And even though these songs stood nowhere in comparison to the original, people lapped them up because they were affordable and more importantly, they were widely available. In fact, many people in my generation might have first listened to a song in Babla Mehta’s voice before listening to the the Mukesh original! Kumar created a few star singers such as Kumar Sanu and Sonu Nigam in the process! And brought about the first big change in the industry.

While Kumar’s method and today’s illegal websites’ methods vary in terms of their legal status, their basic raison d’ etre is the same. T Series under Gulshan Kumar and many sites of today were created to make music reach people in a music-hungry nation in an easier, friendlier and cheaper manner.

Today, the users of those sites, if asked to pay some money, could actually end up paying, provided pricing is right and paying is trouble-free. After all, they have been paying for things like caller tunes amounts which are often 20-30% of their montly spend on mobile!

My argument is not meant to justify illegal streaming, but to point out that the music industry is as much responsible for the problem as anyone else. And it cannot fight the disease by trying to cure the symptom.

A look at the table here would tell the story. The data is from Google AdPlanner and may not be 100% accurate. But even if you take 30% error margin, you get to see the point. Why should an obscure name like song.pk would get millions of pageviews while India’s best known music brand—which also has a vast collection available in its site for downlaod—can muster only a few thousands? Yes, the fact that they are free could be a big reason; but you will be fooling yourself to argue that it is the only reason.

And yes, these traffic figures are for Marh 2012, which for the blocked sites, are a mere fraction of what they used to get before the ban. As one can see, the loss of these sites has translated to gain for some legal streaming sites and not for Saregama.com.

Traffic: Music Sites in India

SITE TYPE UV (India) PV (India) COMMENT
Songs.pk Illegal/blocked 5.6M 23M Dropped by almost 2/3rd between Jan-Mar
Smashits.com Illegal/blocked 830K 8.3M Dropped significantly between Jan-Mar
Dishant.com Illegal/blocked 570K 2.2M Dropped significantly between Jan-Mar
Musicindiaonline.com Illegal/blocked 320K 3.8M Dropped by almost 3/4th between Jan-Mar
Hummaa.com Legal 680K 2.6M No major gain between Jan-Mar
Gaana.com Legal 2.9M 16M Significantly moved up between Jan-Mar
Raaga.com Legal 2.2M 9.8M No major gain between Jan-Mar
Saavn.com Legal 1.1M 70M Significantly moved up between Jan-Mar
Dhingana.com Legal 1.6M 7.5M Actually dropped between Jan-Mar
Saregama.com Music Label 130K 230K No major gain between Jan-Mar

Source: DoubleClick AdPlanner by Google. All figures for March 2012 and for India traffic. K stands for thousands and M for millions. UV: Unique visitors. PV: pageviews

Most music companies believe that they can continue to do what they have been doing so far—recording the music, owning the copyright, and revenue should come to them automatically, even from newer channels. Legally, it is a valid stance. Practically, it is not.

So, what is the solution? It surely is not rocket science. Most of them know the answer; it lies in mainstreaming these sites and not excluding them. Medianama has carried an interview with Saregama CEO, who admitted as much.

We don’t want these sites to be shut down, we want them to pay a license fee and flourish as a business. There are legitimate businesses in operation too. The scope is there, and we want these sites to be legal.

But they must act. It should be right approach; right and transparent pricing. In another story, Medianama said that IMI was unwilling to share pricing. While sharing any exact pricing may be tough, it should reach out with a rough idea, because many of these sites are run by young kids in their 20s. They will not come running to get into sophisticated discussions.

It is not really lack of intention that is the problem with the industry. It is the discomfort with the disruptive changes. Take Saregama for example. It takes one step at a time. As a buyer of legal music all through, I have tried everything and can say with some authority how it has evolved. First came hamaracd but not with mp3. So, you could get around 10-12 tracks for Rs 300 or so. It won’t work half the time. Then came their current website with provision to download mp3s for a price. Then came a set of MP3 CDs—really beautiful compilations of old Indian light music—film, bhajans, ghazals—priced for Rs 75 for 40 songs. Almost all of them are gems. But try to look for them in any big store—Landmark, MusicWorld, Planet M—you will never find too many of those titles. The company site is silent about this series. Then came Flipkart’s Flyte, which made the downloads far easier and friendlier. Yet, unlike books, music is a mass market product and e-commerce with credit card/online banking is still pretty unreachable for many. Not surprisingly, cash on delivery has been the preferred mode for most e-commerce buyers in India. That is not an option in downloads.

With always connected devices, the future is clearly streaming. My own experience says that 80% of the music that I buy, I do not listen for more than 2-3 times. So, I will not mind if I can pay a very small price per listening a song. That requires a completely different kind of pricing. So, any song that costs Rs 6 at Flipkart Flyte should probably cost no more than 30 paise for listening once. This is not a suggestion by me based on any calculations, but just an illustration. The actual calculations may show even more dramatic pricing. What I want to point out is that it requires disruptive thinking.

But I must reiterate the point I made earlier. The bigger issue is ease of paying and not pricing. Even if it is 30 paise, a user with no credit card or online banking can do precious little. If, on the othe hand, the payment is through, say, a mobile, it is absolutely possible to target a much biggger base of users. It can be really simple. An SMS goes out with a code. Once the user enters the code, he can stream/download the music and it gets debited from his mobile balance. Yes, it requires talking to a couple of players—an operator/an independent payment gateway etc—but it is not impossible. And I am not stupid enough to believe that these ideas are my original and have not occurred to the bright guys who run the music business. Or for that matter, this is the only way it can be done!

The problem is not lack of ideas; it is not even lack of intention. It is just lack of strong will to disrupt a model that has been in place for so long. If the music industry does not do it, someone else will do it. Apple has already done it to a great extent, creating value for itself but making the music companies a little richer, which they seem . But as Apple without Jobs is beginning to face the possibility of an anti-trust trial in case of e-books, the closed model is being threatened.

As of now, the illegal web sites may be getting a few ads, which makes them sustain the business. But if they have to be in this business, they will have to charge the consumers or get targeted ads. These sites have to be convinced that they have to walk half way. The music industry must walk the other half. But as big boys, the onus is on the music industry to drive the change. Else, change will just happen—to them.

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