The technology products sector in India, which for the last two
decades has been dormant and overshadowed by the country’s
USD 76-billion software services industry, is on a steep growth
trajectory. India is emerging as a software hub globally with over
2,400 product firms generating USD 2 billion of revenues, according
to NASSCOM. Around 1,100 product startups have been launched in the
last five years alone with an impressive 22 percent growth in
revenues during the
period.
The startups are focusing on localized India-specific solutions
built around key areas such as mobility, SMBs, e-commerce and
education. They are targeting four broad industry verticals, viz.,
B2C (Business to consumer), B2B (Business to small business), B2E
(Business to large enterprise) and B2G (Business to
government).
Why Now?
So, what has changed in our ecosystem today that did not exist
in the past? Why are more and more product companies starting to
emerge now? Karthik Ananth, Director of research firm Zinnov,
points out three key changes that have occurred in the Indian
market place. First, there is a strong and growing demand for local
products in the domestic market today. Right from banks to cab
services like Meru — all make use of high-tech software and
technology to reach their customers. This was non-existent even a
decade back. The second aspect is the evolution of the entire IT
industry in the back of IT services model that focused on providing
people (services) for solving customer problems. As Indian
companies spent more time with global customers, they gained deeper
understanding of the end customers’ business and the ability
to develop end-to-end capabilities to build products around it.
Third, MNCs have been increasingly using India as a base to build
global products, which is creating a culture of innovation within
the Indian
companies.
The funding ecosystem has also seen significant improvement
today. The investment community in India largely comprises of
venture capitalists (VCs), angel investors and various other state
and national government schemes. Indian success stories such as
MakeMyTrip, Flipkart, and inMobi have increased the confidence
levels of global VCs to invest in Indian product startups. Industry
veterans and leaders are increasingly willing to invest time,
mentor and champion the cause of startups in their chosen areas.
For example, in 2009, Infosys co-founder NR Narayana Murthy started
Catamaran Ventures, a VC fund for incubating Indian startups. It
was aimed at encouraging and supporting young entrepreneurs with
brilliant business ideas. Ventureast, one of India’s oldest
VC firms has a dedicated fund—BYST growth fund specifically
for the SMBs. Global MNCs such as Citrix have also started
incubators and seed funds to attract product
startups.
The emergence of disruptive technologies such as cloud,
mobility, sustainability and social networking are all adding up in
making the ecosystem conducive for product development. The number
of engineering graduates passing out of India is growing at more
than 20 percent, which provides the required talent
pool.
Interestingly, the number of product firms from tier-2/tier-3
cities has almost doubled in the last three years. Over 330 product
companies are based in tier-2/tier-3 as of 2011 as per NASSCOM
statistics. This trend is because the cost of setting up a product
startup has significantly gone down with the zero-capex model of
the cloud. The other reason is improved Internet/wireless
connectivity (3G, LTE and
broadband).
Billion Dollar Companies
Emerge
Product companies have finally started to take off in the
country. For instance, Zoho’s enterprise products claims to
have 15,000 global customers and its web products have 5 million
users, according to the company. Zoho, which offers an alternative
to Microsoft Office and Google Docs, generates more than USD 100
million in revenue every year. Bangalore-based Tringme provides a
VoIP telephony platform that handles over 42 million minutes of
calls per month and serves over 11 million users worldwide. Founded
in 2007, Ozonetel’s flagship offering ‘Kookoo’ is
India’s first cloud telephony platform for entrepreneurs and
businesses who want to develop their own apps which uses telephony
channel.
NASSCOM Product Forum Chairman, Sharad Sharma, forecasts that
India will have at least a USD 1 billion tech startup per year for
the next three years and many more over the next decade.
Nasdaq-listed online travel company MakeMyTrip is already valued at
over USD 1 billion. The others in the pipeline to join the
billion-dollar league are companies like mobile ad network InMobi,
online retailer Flipkart, and India’s largest coupon site
SnapDeal.
Going by the trend, it’s clear that the Indian IT industry
has come a long way since its humble beginning by helping American
companies fix the Y2K bug in the late 90s. Given the changes in the
funding ecosystem, emergence of disruptive technologies and a
cultural shift towards greater innovation, there is no doubt that
more products will be incubated from India in the years to
come.
About Author
Ayushman Baruah is a Bangalore-based business and technology journalist with an insatiable appetite for news. He closely monitors and writes on emerging technologies such as cloud, mobility and social computing. Driven by his interest, he eagerly tracks the Indian IT-BPO sector keeping a close watch on the performance of the companies which thereby shape and shake market trends. During his career, he has covered tech events both at the national and international level and written several trend-setting news, features, and opinions.
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