need for software product companies for india's economic growth

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We deliver Global Engineering Solutions. Efficiently.April 7, 2023

Need fo r Sof tware P roduc t Compan ies fo r Ind ia ’s Economic Growth

© 2014 Infotech Enterprises 2

Can India use the foundation created by the software services industry to go to the next level in terms of economic growth? – Software products offer one viable route

Global Software Products Industry = $1.2 trillion

India = $2.2 billion

The Software Product Industry is a $1.2 trillion opportunity globally…

… with India’s revenues from software products at $2.2 billion in FY13

The Software Outsourcing Industry in India expected to rise to $99 billion in FY14-15 (FY14 estimate at $86b).

With our leadership capabilities developed in the software services industry, India has a higher chance of

succeeding in the Software Products Industry


Software product revenues from India nearly doubled to reach $2.2 billion in 2013 and is expected to reach $10 billion by 2020

FY2008 FY2013 FY2020f FY2025f$0.0

$20.0

$40.0

$60.0

$80.0

$100.0

$120.0

$1.3 $2.2$10.0

$100.0

Revenues

CAGR11.1%

CAGR24.2%

CAGR58.5%

Software Products Industry’s Market Size ($ in billion)

Source: NASSCOM, iSpirt

India has a potential to build a $100 bn software product industry by 2025, growing at a

CAGR of ~59% – contributing significantly to the nation’s current account

2014 will witness the emergence of “Made in India Software Products” on the global

stage

© 2014 Infotech Enterprises

Meeting and exceeding personal

expectations in today’s experience

economy is a top most priority for

innovative CIOs and entrepreneurs

This in turn is driving the need for

companies to produce ‘experience’

apps for their digital customers

4

Transition to an ‘Experience Economy’, ‘Disruptive Innovations’ in Technology, and the Rise of a ‘Digital World’ are helping unlock significant potential for Indian software product businesses

1. Transition to an Experience Economy

Where were we?

Time

Where are we now?

Agrarian Economy

Industrial Economy

Service Economy

Experience Economy

Fo

cu

s

With a rapidly changing mobile and social world, people demand the very best experience


Transition to an ‘Experience Economy’, ‘Disruptive Innovations’ in Technology, and the Rise of a ‘Digital World’ are helping unlock significant potential for Indian software product businesses (cont’d…)

2. Disruptive Innovations in Technology

TechnologyInnovations

Big Data Mobility Cloud Computing Virtualization Service Oriented

Architecture Open Source

Delivery ModelInnovations

Packaged/ License Infrastructure as a

Service Software as a Service Software Appliance Software Enabled

Solutions

Revenue ModelInnovations

License Subscription/ On

Demand Transaction Ad Based Outcome Based

Customer Needs

Software Market Disruptions

Solution Viability

Technology Innovations

Delivery Model Innovations

Revenue Model Innovations

Disruptions are happening at a much faster pace offering huge opportunities in the software product market


Transition to an ‘Experience Economy’, ‘Disruptive Innovations’ in Technology, and the Rise of a ‘Digital World’ are helping unlock significant potential for Indian software product businesses (cont’d…)

3. Rise of a Digital World

A nexus of converging forces, i.e. Social Media, Mobility, Analytics, and Cloud is creating a hot bed for

new business opportunities

Social Media

• Address customers’ social media requirements

Mobility Mobile-enabled business

processes and platforms such as: m-Commerce, m-Banking, etc.

Analytics Data Explosion and the

need for Real-time Insights, end-to-end Analytics

Cloud Cloud platforms, cloud-

specific testing Cloud-enabled solutions pay-

per-use


While India’s role in global technology IP creation has grown steadily, several challenges have constrained the growth of home-grown software product business

Talent starvation at the entry levelFinding/Retaining

talent

Large initial investment and uncertain future

cash flows

Over 50% Completely

self-funded or ‘Bootstrapped”(a)

78% have homogenous

founding partners

Lack of original technology

development mindset

Low presence in global packaged software market

Challenges

(a) Low valuation of the startup: Around 50% of Indian product startups are valued anywhere between $1 million to $10 million, with

nearly 34% of them valued at less than $1 million

Very few exit options for the VCs or angle investors: In Israel the M&A exit value was 7X of the VC/PE investment during the same

period. In US the multiple was 5X. In India it was only 1.1X


However, a maturing ecosystem has helped accelerate the growth of homegrownsoftware product businesses over the past few years

Angel, VC investment boosting the product sector owing to the high potential

Tier II/III cities are rapidly emerging as viable product hubs. Ex: Ahmedabad, Trivandrum, Kochi,

etc.

A number of incubation centers have been established across India, that are helping technology

startups with funds and mentorship. (Approx. 40 incubation centers)

Startups are attracting talents by providing attractive roles, ESOPs etc

iSpirt has partnered with Signal Hill (US based boutique bank) to facilitate M&A activities in Software

product industry and bring in the valuation boost. Example: Facebook’s acquisition of Little Eye Labs

7 7

43

32

48

2006 2013

Angel Funds

VC Investors

Number of active investors

8


Fast growing domestic market requirements will aid the growth of India’s Software product

industry in the days to come

o Small and Medium Businesses (SMB) market in India (India’s growth engine) is huge and the current IT

penetration is very low

India has a critical mass of software product companies (~3,500) which have entered the Maturity

stage of the industry

Currently going through a period of ‘Combinatorial Innovation’

o A host of SaaS success stories by Indian Origin Companies are examples to this

New SaaS markets being created are very large, currently valued at USD 600 billion globally.

Indian SaaS product companies are a part of this emerging market opportunity right from the

beginning

Close to 40% of founders come from the R&D section of an MNC, such as: Yahoo, Intel, IBM, etc.

o A lot of senior talent from MNCs are starting software product companies

9

Domestic market in India is unique in multiple ways – this is fueling opportunities for India-based software product businesses


Why should India focus on Software Products and Expected Outcome for the Country

Rich leadership skills that the country already has in the IT sector

Entrepreneurial Aspirations that exist amongst India’s youth particularly in the IT (software) space

Established vibrant software ecosystem

Facelift for the country – Labor arbitrage has a limit and the IT services space is crowded with the large organizations. Product startups will give the most needed facelift for the country

The product industry with a potential of $100Bn in 2025 could be the next big thing to drive the Indian Economy & to become the aspirational industry for the huge engineering population of India

With the developing favorable ecosystem we can foresee the increase in exit options for the VCs and Angle investors

Leverage existing resources

Expected outcome


Incorporate the teaching of Entrepreneurship and Innovation into our educational system

o India scored a mere 4.95 on entrepreneurship culture as compared to the highest of 7.67 (United States)

o Additionally, we scored the lowest in comparison with 20 countries on Education and Training (at 3.49)

compared to the highest of 6.58 in the recent G20 summit

Research work in Academia has to see light of the day with entrepreneurship

The key to building a successful product company is to have a diverse founding team – i.e.

a combination of technical and business skills vs. a homogeneous founding team

Very early stage funding requires more support (prior to Angel Investing). Government through

proper mechanism has to make small amounts (~5-10Lakhs) available to entrepreneurs. This

needs to be a national Mission

11

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need for software product companies for india's economic growth

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experience

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exit options