IT & ITeS Enterprise in India: an Outsider Perspective based on trends in Investment & Technological Evolution

Why should an outsider perspective matter?

I tend to believe that way too many people have taken Steve Jobs maxim, ‘customers cannot tell you what they need’ at its face-value and in the process probably haven’t realized fully that the very user-experience guidelines Apple Inc., so vigorously pursued, propagated to the developer community made the tech-consumer an integral part of the technological evolution & hence an “insider” for all practical purposes – After all within six months of launching iPhone, Jobs recalled his earlier decree of ‘No third-party apps on iPhone’ :-) - I rest my case here.

Life, tech & the metaphysics of a cyber-quest

The exabytes of sheer information thrown up by an internet-query and the consequent collateral learning at times gives a radically different perspective of the principal quest &/or changes the very course of the search/ research.

That’s precisely what happened when I set-out with an innocuous query ‘Life+Tech’ to check-on how the marriage of life sciences & technology is working out as indicated by the quality of innovation and the investor sentiment towards this emerging IT subset globally and, if India is in-sync with these trends – I strayed off-course quite a bit soaking up some non-serious gyan on gamification, cross-application potential of game mechanics to health & wellness, dallying a while with the first ever ‘drug discovery’ game, Syrum & eventually decided that I’d do good to first understand how the IT & ITeS enterprise is poised in India & then go about speculating on where it could go from here, towards life-tech or some other direction altogether.

The quantitative & the qualitative sojourn

As I looked into the openly available, mostly undifferentiated data** & the trends, I used the following assumptions in order to get as close to reality as possible;

• Wherever the VC activity has been clubbed under PE, I considered all early-stage & some growth-stage deals as essentially venture deals
• Where I depended on individual alerts of certain deals, I considered funding up to series-C as venture funding & series-D too if that involved at least one VC 
• No acquisitions, Mezzanine funding rounds have been considered as Venture capital (which of course wasn’t much)
• Since I was looking into IT sub-category trends & the only categorization ‘Industry Codes (VEIC)’ by NVCA is surprisingly devoid of some well-understood terms such as “Cloud”, “Apps” etc., I decided to use my own simplistic terminology that’s hopefully self-descriptive

**My primary source for the data was Yourstory.in which derives its own info from Venture Intelligence alerts & reports. In addition to this I have also used, primarily for cross-verification of primary category figures, the MoneyTree reports by PWC & NVCA from data provided by Thomson Reuters ……. phew

True to my enlightened detour, the not-so-cursory analysis of the available information on IT & ITeS related investments in India in 2012 drew an interesting picture;

• Commerce sub-category (B2C e-commerce) hogged the largest share of 45%
• Services sub-categories (B2B BPO, Cloud, Edutech, IT Services, Telephony) cornered second highest 22%
• Analytics sub-categories (B2B Internet & Mobile Advertising; web-analytics) that are focused on the increasingly crucial data mining, analysis and consumer demographic profiling gathered 20%
• Product sub-categories (B2B Mobile apps; PaaS; Software; Health-IT & Gaming) managed only 13% share of investments, helped in a large measure by the Mobile Apps category

From the above observations it can be inferred that the investor sentiment in India is very strong towards Commerce, strong towards Services & Analytics and weak towards Products. This also could mean that the investment in IT & ITeS in India is driven more by the local than the global potential–while this statement may sound altruistic, the statistics seem to support it;

It’s an irony that my initial interest ‘Health-IT’ is very insignificant at 1% of funding – a cursory review of the ‘mobile apps’ companies also doesn't indicate any healthcare component being pursued – so much for my principal quest!

Takeaways for the investing universe, primarily for the VCs

There’s only as much space to jostle around on the e-com super express

• The e-commerce opportunity while looks tempting is surely reaching the tipping point wherein differentiation & achieving of critical mass is going to be a huge challenge
• Compounding this is the fact that the global biggies like Amazon, eBay et al that could’ve offered a superior exit option by way of an acquisition have started to get-in on their own (Junglee.com, ebay.in) – banking on the relative ease of establishing a virtual enterprise
• It’s also apparent that the likes of Amazon are now gearing up to ‘Walmartify’ their online shopping and go physical to enhance user experience! – If not anything, this points out to the cyclical nature of consumer preference of a buying experience & hence the caution one has to execute in putting too many eggs in one basket.

The Quants will rule and later they won’t & then again they would

• The monetization of analytics opportunity will surely out-pace e-commerce & services given the eventuality of any business is to understand consumer & maximize the consumers buying impulses.
• Quite interestingly the innovation quality of Indian companies in this domain seems to be pretty high – probably since analytics combines Math & Jugaad, skills Indians inherently seem to possess.
• I’d also think it makes business sense for the quant in consumer analytics context to be essentially an ‘insider’ &  hence Indian analytics enterprise could always showcase an edge, a value-add
•  Eventually, while the ‘insider advantage could work in favour of Indian analytics enterprise in the shorter term, the Math + Jugaad + Semantics combination could open the world to India in a big way, touch wood.

Hop onto the Gravy (app) train early on & dish out by the dime

• Mobile apps development is essentially a platform (OS specific SDKs et al) based innovation that enables small & Individual pools of expertise to emerge quickly & thus very amenable to garage innovation
• While building of apps is innovation per se’, it is more ‘applied innovation’  (owing to the afore mentioned platform technologies) & hence India won’t necessarily face a quality-of-innovation prejudice
• Added to this is the global trend of healthcare going mobile progressively, there’s an open opportunity of cellular network providers tying up with local app developers, for the service & transactional ease they’d bring in.
• Apps are evolutionary products with a limited shelf-life (before being reinvented in a different version) & hence inherently man-power intensive. Given this context & given the explosion of engineering education making available qualified young (& economical) tech work-force that can think in English, India has the potential to become the ‘China’ of mobile apps – if only the rough edges of campus-to-corporate transition can be smoothened out sooner.
• Using this & some of the 'local' advantages i mentioned under Analytics, I'd think there's no reason why Indian enterprise shouldn't give an India flavor to its Gaming?, after all, all nationalities like to play by their own rules :-) - this would also expose the average indian youngster to the game mechanics that from whatever I read, is poised to dominate every tangible domain in the years to come.
• And finally, a domain where VCs can play evangelists, stoke the fires of enterprise & seed the self-sustaining revolution of mobile apps – all with minimal risk & funding :-)

And hey, is Mobile Hardware IT too? – thought NVCA said so…

• Is it me or wasn't there really any investment into the super accelerating mobile handset Indian enterprise in 2012? Unless this is already reaching saturation which I seriously doubt, there’s still a good open investment opportunity. But of course given the capital intensive nature of these start-ups, the scope for venture funding may be low and only at very early stages, but if successful this could turn into a multi-X return by series-B funding itself.

After Thought:

What’s with financial analysts & their compulsive fetish for quarterly reporting? – I’d agree quarterly trends do matter in consumer markets, but I’m utterly confused about their utility in a long-decision-cycle B2B environment like investing – enlighten me folks, I’m all ears!