This week I was able to attend the first ever NASSCOM conference targeted towards product companies based out of India. Having realized the trend in Indian IT companies to shift up in the value chain from services to products it is quite appropriate for NASSCOM to start this initiative.
The conference was attended by who’s who of the Indian IT companies. CxOs and VPs from reputed product companies such as Subex Azure, Yahoo, Philips R&D and of course digité 😉 were present for the conference.
The keynote speech by Sabeer Bhatia was the highlight of the conference. He made some very insightful remarks and said that for product companies to be successful they need to,
- Challenge the status quo: Here he gave an example of iPod. When iPod came out there already were 30-40 MP3 players in the market. But Apple was able to challenge the status quo in that market and invent new market for themselves via innovative design.
- Think out of the box. Sabeer criticized and cautioned that Indian educational system is such that we are not trained to ask questions. You cannot build new and successful products by just doing more of what is already known. You need to think out of the box. Product development needs to be disruptive and not incremental.
- Take more risks. Sabeer quoted that silicon valley is built on failures not on successes. Nine out of ten companies fail before one succeeds. Hence it is essential to take more risks.
- Think global. Build products that solve global problems not just india’s problems.
- It takes time to build a successful product company. 4-5 years are needed to successfully build and launch a product. He mentioned how lucky he was to conceive, develop and launch hotmail in just 18 months which was a lucky anomaly.
- Products are built not by large teams but small teams of highly motivated individuals. Founders of the product companies need to have product DNA!
Throughout the first day it was clear that no one was sure about the exact definition of the term “product”. It was finally Samir Palnitkar of Airtight Networks who put it in simple terms. He proposed a definition for the term product as, “Anything that scales disproportionately and does not require additional human resources for scaling up”.
Services companies have the distinct disadvantage that they have to increase their head count in order to scale in terms of revenues. On the other hand product companies, with an initial investment for building a product can then scale and sell it to as many people as they can, without too much additional cost. Incidentally, this is why the valuation for a services company is 1-1.5x (of revenue), whereas for a product company it is around 3-4x. An interesting comment from Dr. Lin L. Chase (Sr. Vice President, Technology R&D-India, Accenture) was that she has seen recently that product companies with SaaS offerings are demanding 6-7x valuation!
There were few other very insightful remarks by many other individuals. I won’t be able to attribute them correctly but will still list a few of them. Someone gave excellent advice to new upcoming product companies in India, “to spec the product globally but sell it locally”. Idea is to make the product successful in the local market before undertaking the global market challenges. The talk by Ashish Gupta of Helion Venture capital was very impressive.
One other remark was also very good. It was that don’t position your Indian product company on the basis of cost advantage (due to low labor costs). Instead of using the “low cost advantage”, position it as “innovation leverage”. E.g. instead of saying that you can build the product for 1/3rd of the cost, you can say that you can innovate three times more for the same amount of dollars!
Interestingly everyone was in agreement that “any arbitrage will tend to eliminate itself over time”. So the cost advantage enjoyed by Indian software services industry is going to be fetching diminishing returns. This is going to create some interesting conditions for the local IT market and will push it further in the direction of higher margin business models such as becoming product development companies.
All in all, I had a very good time at the conference and am looking forward to attending and participating in more such events by NASSCOM.
-Suhas A. Kelkar
VP, Product Management,