Did Easy Money Derail Indian Software Product Companies ?

Sridhar Vembu, the CEO of Zoho makes an interesting observation in a Hacker News discussion thread, about how easy money during the boom years prevented software product companies from taking shape in India.

"I have a different perspective on this, having built a product company (Zoho Corp) in India for the past 13+ years. Basically India's emerging IT industry coincided with the global credit bubble of the past 2 decades, which simply inflated the IT services industry to monster proportions, in the process sucking the oxygen of talent out of the system. So product start-ups that could have been never got off the ground.

This is the mirror image of the process in the US that funneled talent towards the financial complex, which meant the IT industry had to import talent or outsource the work. A good percentage of the talent came from India, and a lot of the outsourced work went to India. In that environment of easy money flowing into services, product companies found it hard to recruit talent (which the author of the post also alludes to).

This process basically derailed the emergence of product-based IT industry in India. Some of the Indian services giants of today (Wipro and HCL in particular) were product companies originally. They built some innovative products in India (an x86 based Unix well ahead of Linux, an IP concentrator/router for ISPs in early, to quote two examples) in the late 80s/early 90s. But once the 90's boom got underway, they found it far more lucrative to rent out the talent than to build products.

In Economics, it is impossible to argue "what might have been", but I believe the configuration of IT industry in India points to how the bubble massively distorted an industry."

I have been discussing the impact of easy money with friends for a while now and while it's a crucial factor, it's important to keep in mind that countries like Israel have chosen not to take the services route. The availability of easy money must have dovetailed with something else for software services (popularly known as body shopping) to take off in a big way in India. Dharmesh Shah, a successful serial startup guy makes some an great point in his post Why There Aren't More Software Startups In India:

At the risk of drawing stereotypes, I think Indians in general are a little impatient and like to see quicker “payback” periods on their investments; There are a few number of them (than in the U.S.) that are willing to spend the 2+ years it might take to build a product, see how the market responds and “tweak” the business as necessary to get it to a successful state;Product companies are also more “random” and difficult to control the outcome of;They involve a large number of “creative” factors that will largely influence whether the product succeeds or not. I’ve found Indians to be almost overly practical (in the short-term sense) and not passionate about some of the softer things (like user experience, marketing, branding and other things) which in today’s world are large contributors to future outcomes of software startups;They’d much rather work on the “harder” stuff that they can better control and predict;This is a bit of a “squishy” argument, but it’s a squishy issue;I guess the evidence of progress I’d like to see is a cool software product coming out of an Indian startup along the lines of an Adobe Photoshop or even a 37signals Basecamp.

An example of the impatience, inability to tweak the business, and overly practical attitude that Dharmesh talks about, is a Bangalore based company that's not too happy with it's clients for which it is currently developing and testing IPhone and Android applications (They inherited these customers after taking over a smaller company). The US based clients that outsource to them are mostly small to medium sized companies with relatively low billing rates. A lot of people would kill to get into IPhone and Android development now, but this Bangalore based company is very unhappy that they are not able to maintain their 60% plus boom era margins doing mobile application development. No attempt is being made to convert the expertise developed so far into a product making strategy. As a friend who works there observed, "They are only interested in projects that involve billing a hundred people or more".

Fred Brooks On COBOL's Success

(~00:53:00) Question: In your slide on the conceptual integrity examples you made a passing reference to the ones on the left were not the ones with the fan clubs, but in many cases were the successful products. Given that, just how much value is there in the conceptual integrity if the successful products don't need it ?

Fred Brooks: Now, well, look, let's take COBOL - there were very strong forces to make COBOL market successful that had nothing to do with it's excellence. COBOL is a language, it was written, it was designed to be read, not written. It was designed so that bosses could see, could understand the code that people were writing. It is a committee design. It does not have conceptual integrity. But it had the department of defense mandating it, and so talk to me about market success when you have a DOD mandate when DOD is big customer. So there are many other factors other than the inherent excellence of the product to determine the whether it's a market success

(via podcast of Fred Brooks' keynote "Collaboration and Telecollaboration in Design" at OOPSLA 2007 )

Also at around 20:35:

Fred Brooks: How many people ever got delight from COBOL ?

Update (18'Aug 2009): The question seems to be motivated by a slide that has a table from the twentieth anniversary edtion of 'The Mythical Man Month'. Quote from the book (page 202):

A little retrospection shows that although many fine, useful software systems have been designed by committees and built by multipart projects, those software systems that have excited passionate fans are those that are the products of one or a few designing minds, great designers.

Fig. 16.1 Exciting Products (page 203)

Yes	No
Unix	Cobol
APL	PL/1
Pascal	Algol
Modula	MVS/370
Smalltalk	MS-DOS
Fortran

IT Startups And The Immature Indian Market

There's lot of hand wringing over the lack of "real" startups in India. Most of the arguments totally miss the point that the market for technology products is barely incipient in India. Ashish Gupta nails it:

Ashish Gupta, Managing Director, Helion Advisors Pvt Ltd, feels it is difficult to sustain a company that sells technology because there isn’t a good enough market for technology in the country. Also, customers often prefer to buy solutions from established multinational companies rather than from an indigenous start-up.

‘Why should I buy IT from a start-up and add more risk to my business,’ is what many buyers ask, says Gupta. However, companies that sell services based on technology have far better chances of success in the Indian market, he adds.

(via The Hindu Business Line)

Related: Why Developing Software for Indian Companies is Not Easy

Why Google Owns Wave

If you make it so complicated nobody else understands what you're doing, you own it.
- Dave Winer during a discussion of Google Wave during a 'Bad Hair Day' podcast

Compensating Users of Social Networking Sites

It's amazing how little discussion there is about compensating users of social networking sites for user generated content, community activity, the free marketing via blog posts, tweets, etc - the primary response generally is to point out that the people running the site are not the only ones benefiting from it; Why would the user stick around if it was not a gainful or enjoyable experience in some way ?, and so on. I still remember feeling a bit peeved when reddit was taken over by Conde Nast - I was an early user and though my contribution was nothing earth-shaking , I couldn't help feeling that it was unfair. Dave Winer wonders why user's can't be compensated during a 'Bad Hair Day' podcast (~26:35) :

Take a guy like Scoble who pours his heart and soul into these products when when he really gets into it, why didn't a guy like that not get any upside. Why only employees of the company ? Why can't a user gets some stock ? I don't actually see why not.

The Pinnacle Of PR Success

The pinnacle of success, as far as PR is concerned, is getting your marketing material into the NY Times, disguised as journalism.
- Owen Byrne

Owen Byrne is the guy who originally built Digg. Owen Byrne's comment is part of a Hacker News discussion thread about to an article N.Y.T piece "Spinning the Web: P.R. in Silicon Valley". Paul Graham's essay about how PR works, 'The Submarine' , is also insightful.

All honourable men

Deccan Chronicle: You have, of course, resigned from Infosys. But have you had time to think about conflict of interest issues that might still arise?

Nandan Nilekani: The only time issues of conflict of interest will arise is during procurement. I will ensure that the UIDAI’s procurement is open and transparent. If need be, I will recluse myself from the decision-making process on procurements.

- From a Deccan Chronicle interview with Nandan Nilekani

The same day PTI reports that Infosys will bid for UID project:

Gopalakrishnan said Infosys would bid for projects under UIDAI like any other e-governance projects, but saw no conflict of interest though the authority would be headed by a former company top executive.

- From PTI report carried by rediff.com

Of course there is no conflict interest ! Why ? Because the MSM folks have told us repeatedly that Infosys executives are a bunch of demi-gods. Look at the amount of genuflection that's happening in Infy's neck of the woods. Yuck!

As the good old days of inflated head counts and billing rates comes to an end for Indian outsourcing companies, the big outsourcing companies will bid for, and push for huge local government projects. It's been happening for a while - the passport seva scheme of TCS is one such example.

Excessive 'Head Count' And 'Billing' Days Over For Indian Software Companies ?

I was chatting with a friend at a mid-sized software company in Bangalore; he said that foreign clients were increasingly insistent that they would pay a fixed amount (typically $20/hour) for the projects he had been working on in the last year or so, regardless of the project member being a developer, manager, or tester. We were joking that software billing rates in another year's time would fall to McDonald's hourly wage. Anecdotal evidence from friends and ex-colleagues working on software projects for foreign clients in India seem to indicate severe reduction in hourly rates and head counts due to client pressure in the last one year.

Well everybody knew that it was a scam - the software boom in the nineties meant easy money for most outsourcing companies. I remember a cousin of mine mentioning the case of a Japanese client who was charged $8000 for changing the text on a dialog box. Not a single project ever ran without being overstaffed and the client being fleeced. There is enough schadenfreude to go around. While computers and software are supposed to make us more efficient and reduce unnecessary man power, Indian companies ironically used the software boom to increase the number of people employed. A person's worth at an India software service company was typically measured by "How many people report to you ?". Incidentally Sloka Telecom founder Sujai Karampuri also wrote "Why do we have so many jobs in Bangalore ?", which explains the dynamics of outsourcing quite well, though it's not comprehensive. The less said about the daylight robbery that went on in the name of ERP, the better.

A recent issue of Forbes (Indian Ed) covered the changes the management at Indian IT services bellwether Infosys is considering in the face of falling revenues. There seems to general agreement among the top executives that revenues based on project head count are getting squeezed and the company needs to find alternate ways of generating revenue.

...

Some indications of the emerging, new Infosys are already coming in. Ask Dhar. His elevation to the EC came just a year before the worst downturn in living history hit the world. It has been baptism by fire. And the decisions he has been taking have been unlike any at Infosys of the past.

Dhar found himself in a rather awkward spot with one of Infosys’ oldest customers — a telecom giant in midland Europe. The client was under serious pressure to reduce costs and the Infosys contract was in peril. Dhar knew he had to act fast. He was aware that a host of rivals had already offered to cut their price by 25-30 percent. If Dhar did not respond on time, Infosys would be edged out of other juicy contracts that were on the table.

He then did what would have been once unthinkable inside Infosys. Rather than reduce his per hour billing rate (which would have hit revenues and profits), Dhar decided to change the way the client was billed.

For a third of the value of the contract, he promised the client an upfront cost saving. Infosys would now charge the client on the number of technical problems it would solve instead of charging for the number of hours it worked in doing that. In sum, he was proposing an outcome-based model.

Now, the risks were considerable. To ensure that they still earned a profit from the account, Dhar had to bet on far fewer engineers than usual to use their native intelligence to pull off the job. But there was no guarantee that they would be able to accurately predict the rhythm of the job. In fact, in the first six months, the company might even lose some money working this way. But in the long run, Dhar believed it was the best thing for both the client and his company. “It’s always been at the back of our mind to move to this model, but we never had the incentive to do it. This downturn has given us the reason,” says Dhar.

...

Gopalakrishnan has put together a five point plan for getting Infosys ready for the next stage. This includes increasing the share of higher value services like consulting, delinking revenue growth from staff addition, pursuing large deals of above $500 million, improving efficiency and finding new locations for talent.

Update (23'June 2009): Hacker News reader edw519 makes a great observation in a comment on this post:

“It’s always been at the back of our mind to move to this model, but we never had the incentive to do it..."

You may have the incentive, but do you have the capability?

Fixed or value based contracts not only require better expertise, they require different culture. Even your good people have become do indoctrinated with the concept of fleecing the bill that they may have actually forgotten how to compete by simply getting the work done efficiently and effectively.

Good luck. Better yet, good luck to your customers.

Statisticians

A couple of jokes about statisticians from Oxford mathematician Peter Donnelly's TED talk.

Someone, one of my senior colleagues told me when I was a youngster in this profession rather proudly that statisticians were people who liked figures, but didn't have the personality skills to become accountants.

And there is another in-joke among statisticians, and that is, how do you tell the introverted statistician from the extroverted statistician ? To which the answer is, the extroverted statistician is the one who looks at the other person's shoes.