Tech trends and business ideas

All things that motivate entrepreneurs

Wednesday, May 23, 2007

Lifeline for smaller BPO outfits

Almost 3 out of every 4 IT startups in India have some or other offshoring / outsourcing focus. Especially after the recent trend of imploding captives, this trend is increasingly becoming widespread and the lineup is only getting longer. Forrester believes that more than 60% of Captive centers set up (by large businesses) in places like India fail to meet expectations. Common reasons for failure: a poor delivery track record, operational problems, a lack of scale, poor morale, rampant attrition, and high costs.

There are more than 3,000 smaller companies in India focused on BPO, call centers and software development. These smaller firms are ripe for acquisition as their margins suffer from the combined effects of rising wages, difficulty attracting talent and now, rupee appreciation versus the dollar. Consequently the expectation is that a lot of smaller 'mom and pop' IT shops in India will be forced to sell to survive. The small shops lack the scale and customer base to weather 18% annual wage inflation on the back of rupee appreciation.
'Captive' IT companies, serving dedicated western clients will have to consolidate to drive scale and increase attractiveness to talented prospective employees. The attraction for larger players to buy them out is on account of their highly trained staff and acquiring a marquee western client (or a few clients) in the process. Captive units of large global businesses providing offshoring services may also find the going unattractive and may opt for buy v. build.

Third-party service providers generally outperform captive offshore facilities because of their expertise, familiarity with local employee psyche and specialization. But the fragmentation in the industry is getting way too much and is almost getting commoditized. It is in this context that Deloitte’s initiative in Private Equity needs to be seen – to enable smaller IT service providers to grow inorganically by consolidation, leaning on private equity support if necessary. If it works well, it’s quite a lifeline for the smaller players.
Sadagopan has a few interesting posts on the subject here, here and here. Vinnie has a different view and his argument is that the 40% margins enjoyed by offshore IT companies is the main driver (aside of IP protection, data security) for clients to bring deals back in, which he articulated so well thro his reply to Sud’s comment under his post – “it's like saying home cooking has failed because restaurants are doing well” – I loved the comment…but captive implosion argument is not entirely devoid of merits.
Will the small Indian BPO players choose to consolidate...Frankly I don't think they've got too many choices.

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Saturday, May 19, 2007

Economics of the Web and network effect

Does it take years for the success of Search Sovereign Google’s business model to sink in…? That too for savvy gorillas like Microsoft…well the late blooming came with a price.

Microsoft Corp, close on the heels of Google's acquisition of DoubleClick has purchased online advertising company aQuantive, for about $6 billion in cash, and is paying a significant premium to to do so.

The move comes amid a torrent of acquisitions in the advertising industry, now in the midst of profound change. Players are engaged in frantic land-grab, as traditional advertising dwindles and advertisers move online.

Microsoft, like Google, Yahoo and others, has realized economics on the Web are subject to “the network effect”: You have to be the biggest player on the block — the bigger the network of advertisers you have, the better you can serve publishers, the more business you will get.

Reflecting the high stakes at play, Microsoft will pay $66.50 per share for aQuantive, an 85 whopping percent premium to aQuantive’s Thursday price of $35.87. It comes after advertising giant WPP moved yesterday to buy 24/7 Real Media, and Google’s recent purchase of online advertising company DoubleClick, and Yahoo’s announced acquisition of Right Media Inc. for $680 million.

The purchase of AQuantive increases the likelihood that the software maker will also buy Yahoo because AQuantive doesn't give Microsoft additional advertisers it needs to compete against Google, Goldman Sachs Group Inc.
What’s left now…?

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Tuesday, May 15, 2007

IT companies to be labor democracies…!

It's time that India opens her borders wide and ask'em to come in and sweat it out. No need for H1-Bs. Come on in, all are welcome - so long as you've got skill and willing to work like us.

The best of Indian IT firms like Infosys, Wipro, TCS boast of hiring more and more global workforce and mostly display them in their Annual Reports. They make a pretty picture and tempts one to think that they play fair game besides getting the talent mix right. In that context, whenever I hear about outsourcing backlash in the US / Europe, I ask what the hell. Outsourcing ring fences client’s bottomline, renders its processes better (the reason why more global corporations look eastwards). To go one step further, new found prosperity of the east winds its way back to those economies by way of tourist $$ / Euros.

To give a perspective -

“Figures from Visit London show that tourists from India spent £139m last year - up from £107m a year earlier and £78m in 2003. About 212,000 Indians visited London last year, up from 130,000 in 2003” - reports Julia Finch in The Guardian.

“When compared to 2005, international visitor spending by many European countries declined in 2006; total U.S. travel and tourism exports to Europe declined one percent in 2006. However, spending increases from Indian visitors (55%), Chinese visitors (21%), Canadian visitors (16%), and Brazilian visitors (11%) helped propel the industry into record-breaking territory” –
reports OTTI, US”.

India earns less than China from overseas, but its tourists give back more than double. We love Disney Land and the London Eye, yeah...!

But Senators Chuck Grassley, R-Iowa and Dick Durbin, D-Ill., would have none of it and have some questions.

I had visited Sen.Grassley’s website which has the full text of questions they raised to oursourcing vendors who cornered the maximum H1-B visas. Between those questions and the awaited reply lie the arguable shade of grey depending on how the game is being played out in the middle – and to be fair to all, to whom those pictures are really meant for.
Or is it just the anti-India outsourcing lobby at work ?

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Thursday, May 10, 2007

New directions, New dimensions at Software 2007

Software 2007

One of the big trends driving Motorola's business is the shift to enterprise mobility. "What goes into the enterprise is what goes in hand and with what goes home, just as the PC did," [Ed] Zander said. He predicted that in the next five years "Internet 2.0," catalyzed by advances, such as WiMax, would create a major shift away from PCs. In his view, mobile devices will replace the PC in many scenarios, which is not unlikely and would be good for his business.

He also predicted that Motorola would invest in more integration and acquisitions to pursue its enterprise mobility goals. Motorola recently acquired Symbol Technologies and Good Technology to expand its footprint in enterprises.

Zander can talk the talk, but shareholders and Wall Street are looking for Motorola to walk the walk after losing money and momentum in the last quarter – even as he has Carl Icahn to put up with.

But this is not about saying we need to change. It is about delivering the change. Change which makes you go wow, not gulp as Vinnie says.

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Traits of a VC DNA

Linking a post each from Shantanu and Fred Destin on this topic. My comments under Shantanu’s post has been reproduced by Fred with some views of his own.
Tell me what do you think of it.


Wednesday, May 09, 2007

End of tech fad, is it ?

I thought VCs giving up serenading tech paradigms (citing lack of disruptive startup ideas) is just India specific. Many VC firms in India have already invested in many other industries including Financial Services, Capital Goods, Infrastructure and so on.

I was in for a shock when I read this. A symposium of venture capitalists to be held next week in Mountain View, CA intends to shift its focus for the evening from the next big thing in the high-tech world to one of the older businesses on earth: real estate.

Déjà vu…Indian VCs can finally take some credit for setting trends – how to give up and shift focus (before you bite the dust)…!

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Tuesday, May 08, 2007

Has to do with upbringing

What do you think of perverts taking undue advantage of the anonymity offered by technology too far - I mean those staying under cover of made - up user names indulging in hate mail, posting nasty, tasteless or sometimes violent vitriolic comments under blog posts where they have no business to be in ? Just two words, doubtful lineage.

Such was the experience of Kathy Sierra, a fine blogger who received death threats, sexually explicit messages - even a threat to slit her throat - earlier this year. She traces the storm to a blog post from April 2006 titled "Angry/Negative People Can Be Bad For Your Brain," which unleashed a slowly gathering snowball of criticism, some of it harsh. Sierra said she believes the outpouring came in part because she was perceived as too optimistic. She has stopped blogging ever since and had vowed to come back online only for an exclusive community of known readers.

Kathy, as I knew has been a great thinker and some of her posts I’ve stored away in my rack. I am all for disagreements and free-for-all over the internet and ranted about banning blogs over security issues even for a few days. But anything stretched too far, sucks. One should know where good taste ends and sourness begins – sort of self regulation. But then it’s a quality that normally comes early on in one’s life, when values get instilled and presents as manifest pedigree throughout.

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Sunday, May 06, 2007

Do VCs need trust your product ?

Most startup founders approach me after their direct pitch to VCs go without a trace. Factual reasons could be many – a lousy pitch, bad timing, no homework done on target customer segment, market size, competition or made the pitch to the wrong one. But almost everyone have the same explanation – the VCs just want web apps ; they don’t understand our product. As if making amends, many often confound me with this first question – Do you trust our product ?

My standard (yet honest) answer is “I would have to”. Some of them are baffled at that. It’s time that I set the record straight thro this post. By using it as a template, I can avoid wasting my vocal energies with the next carper that comes along.

I would never say you abandon the product of your labor in one mighty fling because half of the world found it crappy. If deep inside, you have a feeling that it’s a winner, it probably is. Do not prevaricate. Rather than expecting others to *trust* your product, you must go the extra mile to disprove them by demonstrating on your own how well the market welcomes it.

Nobody, I repeat nobody will *understand* or even try to understand your product as much as you do and your customer will ; just because you are the only pair having an interest in its functionalities and outcome. A VC’s interest is focused on your team’s ability to market it, its scaling / revenue potential and based on that, the ultimate enterprise value. It's impossible for any VC to have mastery over every technology or product. If that's a criteria, the VC model would've never survived. For instance, it's the same John Doerr of KPCB who built the unrivalled record of backing industry defining startups in fields as diverse as Computing ( Sun Microsystems, Compaq), Software (Lotus, Intuit), Biotechnology (Genentech, Millenium), and the Internet (Netscape, Amazon).

A VC often bets on the team, not on the product. He does not take the risk entirely, he just partakes in it. If the team is good, it will try, err and entrench the product in its logical destination – the customer’s mind. VCs know it only too well and smart consultants know the VCs ways much better because they track the deal world closely.

When founders pop the question prematurely “do you trust my product”, they have no choice but to reply in the affirmative simply because it’s not the VC/consultant’s business to get pleasure out of knocking an upstart cold – they just meant `if your product is indeed great as you say, let’s hear it from the market”. They stopped just short of elaboration of the obvious.

The founders get judgmental too soon, blame the VC mentality, self-inflict the wounds in an impulsive tirade and begin to sink in a sea of wallow even as the game has just begun. My advise - don't.

Also read my related post here.

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Wednesday, May 02, 2007

Mashup of a gallant kind

What would you do if you realize despite your celebrity status and fantastic track record, you’ve hit the dead end in a startup that looks up to you for advice and pays you well ? Excuse yourself citing other pressing commitments ? Or would you just keep wandering into the unknown `hoping’ for some godsend lead hating to let go off the retainer ?
If you were Jeff Nolan, you would go straight ahead and admit that you’ve run out of gas. Here’s what Jeff had to say on why he did what he did.

Teqlo is a fantastic concept and a potentially very disruptive business but it became clear that it needs more time in the oven in order to further develop and, more importantly, package the service. Spending 6+ more months in development before re-entering the market is not what I want to be doing, and as the single most expensive employee in the company it really doesn’t make much sense to be paying me when 2 additional engineers would do the company far more in the way of value creation.”

Humility, Honesty and Chivalry – all rolled into one ! Very unusual qualities for a one time VC. May be that’s exactly why he has those :)

Incidentally, this is the same Jeff who said this while departing VC business for taking on operational reins earlier -

“I missed having direct operational control and I missed the sense of accomplishment that comes from successfully executing direct operational control, and quite honestly, all of the venture deals I was looking at started to look the same. I missed having a team. I was also concerned that my experience in operating roles in enterprise software was becoming dated and perhaps not as relevant to the state that the business is in today; it's one thing to spend 4 hours in a board meeting talking about a business, it's another thing altogether to actually do it”.

Very, very rare breed indeed.

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