Window dressing

Written by Rakesh Raman | Updated: Dec 21 2007, 03:50am hrs
January 2008. When Nasscom president Kiran Karnik passes on the baton to Som Mittal, Indian software mavens will have more than just a few things to think about. Inwardly, Indian software companies are well aware that the hype around them has begun to disguise the reality of their performance and future. Far from being a software superpower, as the spinmeisters spun the image, India barely gets a 5% sliver of the global IT services market estimated at $700 billion.

With Mittal at Nasscom, will hype get even further ahead of reality Challenges abound. Today, our software makers have their eyes set on foreign lands, ignoring the domestic market that could be potentially useful for gaining a grounding of solutions that other emerging markets may be clamouring for as they emerge. By market estimates, Indian software companies earned just $7 billion in FY07 from local users, as compared to five times more money from foreign buyersthough performances at home as well as abroad are equally lackadaisical. So, can a software superpower afford to be powerless at home

Even the Switch firms (moniker for six major software companies: Satyam, Wipro, Infosys, TCS, Cognizant, and HCL) have yet to prove their mettle, as these six together dont get even 2% of the global services revenues. Individually, none of them has a share close to even 1% of the world market.

The trouble with most Indian software players is that they have failed to keep pace with time, and continue to follow archaic business modelsbehaving like bodyshoppers. In technologically advanced markets, they are not valued as highly as they claim. For example, local software exporters continue to serve on risk-laden fixed-price contracts as opposed to long-term and lucrative time-and-material business models. Reason: foreign software buyers treat Indian professionals as mere code writers, and not as intelligent analysts who can handle end-to-end consulting projects that integrate tech solutions with users core business goals. So skills, or the lack of them, have been a major worry. Though Indian tech education institutes turn out about 200,000 people every year, most of them are just not employable for high-end projects. Informal training schools are mostly in the business of capitalising on the hype by fleecing gullible job seekers.

And thats not all. Software businesses also lack market understanding, and so fail to move up the value chain. Even the big software companies prefer to work as day-to-day traders with myopic vision, relying mostly on low-end services. Thus, theyve failed to make any serious attempt to produce globally acceptable software productsa high-margin business.

The challenge is not just on product development. Software makers need to adopt contemporary distribution modes as well. Pay-per-use models like Software-as-a-Service (or SaaS) are getting more popular because they save capital expenditure for corporate buyers who want to pay only for what they use, just as theyd pay for water or electricity services. Leading companies like Microsoft (with Office Live and Windows Live), Salesforce.com (with on-demand CRM software) Google (with Google Apps) are already aggressive in the variable fee-based software sales arena.

Piracy is another irritant that deters companies from the products business. Of every 10 packages in use here, at least seven are stolen. Nasscom has been asking users to pay for software products, but its voice has gone unheeded. Mittals job wont be easy. As Nasscom spreads its tentacles into such pies as business process outsourcing (BPO), it must confront new issues ranging from lack of human care at BPO centres to information vulnerability.

So Mittal will have lots to do once he takes charge. He can, of course, choose to become a mere spectator, letting things slide the way they have been. Alternatively, he can emerge as a true torchbearer for propelling the snoozing Indian software juggernaut into the modern business world that is full of opportunities, and put an end to the self-perpetuating schmooze session that Nasscom has been spearheading. Will he

The author is a technology market analyst. These are his personal views