Product Landscape in India
Bengaluru 9-10 November 2011
Key messages
1.
India is entering the product era • Over 2400 product firms generating revenues ~USD 2.0 Billion • The cost of setting up a product startup has gone down significantly from hundreds of thousands of dollars to a few thousand dollars. • This coupled with increasing connectivity, talent pool, ecosystem readiness, convergence of platforms has created a very favorable environment for product startups to flourish and compete globally
2.
The past five years have seen the emergence of new consumer segments for products such as SMBs and Government • Small enterprises use startup products across both core processes and non-core processes • The government sector uses Indian products for local governance and for information management across public sector units
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Key messages
3.
Software products industry enabling balanced regional growth • Number of product firms from tier 2/3 cities have almost doubled in the last 3 years • Over 330 product companies based in Tier 2/3 cities
4.
Established product firms experimenting with new models and initiatives • Multiple growth strategies followed by industry players • Established product firms are expanding horizons, incubating products for new verticals and segments, and formulating partnerships and alliances
5.
Technological disruptions, improvement in infrastructure and availability of capital have helped create a level playing field • Improving connectivity across the country, specifically in tier 2 and tier 3 cities, and higher access to computing is growing the consumer base for homegrown product software and services • Availability of skilled talent, disruptive technologies, sources of funds and strong industry support driving the market
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Key messages
6.
Thriving startup landscape, focusing on localized solutions for India • ~1100 startups in last 5 years; Key focus areas for startups include mobility, SMBs, ECommerce and Education
• Education startups are leveraging IT in developing digital contents for students, provide distant learning, virtual classroom and other related services • Startups focusing on serving the large SMB market are leveraging cloud and web based technologies to widen their customer reach
7.
The funding ecosystem has seen significant enhancement • Software , internet and mobile industry accounts for almost 66% of total VC investments in India • Investment community in India comprises of VCs, Angel Investors; additionally various state and national government schemes now in place to provide funding • Indian success stories such as Makemytrip, Flipkart, inMobi has increased confidence levels of global VCs to invest in Indian product startups
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Software product play has been gaining increasing importance
IT Services
IT Services + BPO
1980s
1990s
• The IT revolution began in India in the early 1980s. Lot of BFSI products came into picture at this stage. • During the economic liberalization of 1990s, large global enterprises began outsourcing their IT management activities to India
• The IT revolution was followed by a wave of BPOs and MNC captives riding high on the cost arbitrage provided by low cost, English speaking Indian graduates • This led to the creation of a large number of jobs for non-engineering Indian graduates
IT Services+ BPO+ R&D
2000 • The IT captives began to mature and move up the value chain in the early years of the previous decade • This paved the way for higher-end Engineering Services firms to establish a presence in the country directly or outsource their requirements to large and niche Indian SIs alike
IT Services +BPO + R&D + PRODUCTS
2010 • The cost of setting up a product startup has gone down significantly • This coupled with increasing connectivity, talent pool, ecosystem readiness, convergence of platforms has created a very favorable environment for product startups to flourish and compete globally
Source: Zinnov analysis
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Indian software products market- Picking up tremendous pace Number of Product firms in India
2400+
USD billion worth revenue from Indian products
1.9 22% 6
Major product segments
Major geographical centers for product firms
30 46
Growth in revenue since last 5 years
Number of product categories
Source: Zinnov analysis, NASSCOM
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Over 2400 product firms in India generating ~ USD 2 billion revenues Indian Software Product Business Landscape Product Companies
Export Revenue (USD billion)
Domestic Revenue (USD billion)
CAGR
2428
14%
1888 1573 1260
22%
1.3
27%
0.6
15%
1.4 1.1
0.7
1.9
1.0 0.7
0.4 0.3
0.4
0.5
FY 2006
FY 2007
FY 2008
…
…
FY 2011 (Est)
Source: Zinnov analysis, NASSCOM
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Explosive growth, especially in the digital and business productivity software segments Increase in number of Product Firms
Segment Server/Infrastructure software and Storage Business and Productivity Software
2007 121
595
Digital
584
Client / Desktop, System Software and Tools
67
Semiconductors
15
Others
191
2011
CAGR
Key Users
5%
BFSI, telecom, Government, Datacenters
9%
SMBs, Mid-market, Enterprises
16%
Consumers
8%
SMBs, Mid-market, Enterprises
12%
Hardware equipment manufacturers
9%
Web infrastructure, Backup
147
843
1051
91
24
272
Source: Zinnov analysis
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New customer segments for Indian products have emerged- Consumers, SMB, Government • Large enterprises within telecom and healthcare sectors use startup products
ADOPTION
CURVE
B2B
• Products are generally deployed across non-core processes such as value added services (VAS) within the telecom sector and management information systems (MIS) within the healthcare sector
• Consumers use most of the products within the e-Commerce and Internet category
B2C
• E-Commerce revenue have grown significantly over the past few years due to increasing awareness, improving connectivity and payment scenario
• Small enterprises use startup products across both core processes and non-core processes
B2b
B2G
• Indian products are gaining traction across all major sectors such as retail, manufacturing, professional services
• The government sector uses Indian products for local governance and for information management across public sector units
Source: Zinnov analysis
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Products industry enabling balanced regional development- Significant growth in Tier 2 cities Product companies split across major regions in 2011 and growth over 2007
735
10%
Mumbai 200
9%
11%
Tier 2 Cities
Bangalore
Mysore, Belgaum, Gulbarga, Hubli
Hyderabad
Secunderabad, Vishakhapatnam, Vijayawada
Pune
Pune
Chennai
Calicut, Trivandrum, Madurai, Coimbatore, Cochin, Vellore
Mumbai
Goa, Ahmedabad, Vadodara, etc.
Delhi
Gurgaon, Noida, Chandigarh, Mohali
Kolkata
Patna, Bhubaneswar
330
Tier 2 cities
82
13%
Kolkata 470
18%
Hyderabad
359
10%
Chennai
Pune 950
Tier 1 Cities
18%
11%
NCR
481
2007-2011 CAGR
Bangalore
Product companies have grown fastest in Tier 2 cities Source: Zinnov analysis
Note: The 13-Nov-11
cities marked in bold are emerging Tier-II cities for product startups
10
Established product firms expanding horizons….
Vertical Focus
• Product firms are focusing on emerging sectors such as SMBs, retail, healthcare, and education. • These sectors face several challenges which can be overcome by technology
Product Architecture
Business Model
• Product firms are exploring emerging technologies such as Cloud computing and virtualization to deliver solutions to customers. • These technologies help reducing cost of acquisition for customers due to amortization and economies of scale • Product firms are innovating on business models to enable reach by partnering both across and within industries.
• Large product firms are partnering with smaller channel players while small product firms are partnering with large enterprises • Large product firms are broadening their focus beyond the metros and tier-1 cities.
Location Focus
• A large addressable market opportunity which is currently untapped lies within the tier2 and tier-3 cities and product firms are on their way to create this market
Source: Zinnov analysis
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…And are incubating products for new verticals and customer segments SMBs • •
TCS has a SaaS offering for SMBs, TCS iON, which is an integrated suite of hardware, software, and network solutions mKrishi by TCS is a mobile agro advisory system that connects farmers to an ecosystem to make better decisions
Cloud computing • •
HCL offers solutions for cloud computing: Migration++, Nimbo and Agora which help businesses migrate to the cloud and offer a service delivery platform Persistent Systems has launched eMee, a social networking tool for businesses
Healthcare • •
Mphasis’ Hygea is a Hospital Management Information System which helps manage complete hospital operation and workflows Wipro has separate healthcare solutions for Large hospitals and Mid-sized hospitals
Source: Zinnov analysis
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Industry players establishing partnerships for success Infosys Flypp
TCS Co-Innovation Network (COIN™) TCS’ Co-Innovation Network (COIN™) is a rich and diverse network that provides value to its customers within the entire technology landscape
Alliances
Services Offered
Startups
VCs - India
Academia
Developer Portal
Retailing Platform
WorkLight
Helion Ventures
IIT, Kanpur
End User Interface
Customer Service Portal
Cicero
Nexus
IIT, Bombay
Analytics
Common Integration Gateway
Focus area • Solutions in emergent and disruptive technologies • Risk mitigation in deploying futuristic solutions • Simplification in an increasingly complex technical environment
Model COIN™ is led by TCS Innovation Labs and includes academic institutions, start-ups, venture funds, strategic alliance partners, multilateral organizations and key clients. This helps COIN™ bring forth true synergies and provide an ecosystem-like perspective to innovation
Solution platforms • Flypp for Mobile is a white-labeled mobile application marketplace. It enables mobile operators, device manufacturers, retail brands, media companies, advertisers and enterprises to engage their consumers by delivering experiences across numerous mobile devices, platforms and operating systems
• Flypp for Brands empowers advertisers, media companies, brands and enterprises to engage consumers and provide new experiences through branded applications and retailing zones
Source: Zinnov analysis
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Disruptive technologies and increasing IT adoption levels have boosted the products market
• Cloud computing • Mobility solutions • Sustainability • Social networking
Emergence of Disruptive and Innovative Technologies
Key Drivers for Software Product companies
Huge “Native to IT” Population Base
• Number of engineering graduates passing out in India is growing at more than 20% • Over 80 million active internet users in India presently
Availability of VC funding and expansion of seed funds
• Many marquee VC firms such as Sequoia Capital, Helion Venture Partners and Nexus Capital India have dedicated India funds to fund seed stage companies. Ventureast, an Indian VC firm has a dedicated fund, BYST growth fund, for SMBs • Global MNCs such as Citrix have started incubators and seed funds to attract product startups Source: Zinnov analysis
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Improved infrastructure, availability of capital and talent have acted as key enablers Better connectivity & computing infrastructure
Favorable government policies
SaaS / Cloud computing
Key Enablers
Availability of skilled talent
Ability to raise funds
Industry support
• Improving connectivity across the country, specifically in tier 2 and tier 3 cities, and higher access to computing is growing the consumer base for homegrown product software and services • National Broadband Policy aims to substantially increase the reach of broadband and double the existing speeds • Steps to ease procedural aspects of setting up a business
• Disruptive web technologies in mobile and cloud computing are providing Indian startups a level playing field
• The number of skilled computer science, information systems and design engineering graduates is on the rise • Indian success stories such has increased confidence levels of global VCs to invest in Indian product startups • The evolution of the Angel networks is helping seed stage startups • Industry veterans and leaders are increasingly willing to invest time, mentor and champion the cause of startups in their chosen area • Industry-Startup-Academia collaboration is on the rise
Source: Zinnov analysis
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Thriving startup landscape- ~1100 startups in the last 5 years Indian Software Product Startup Landscape Total
3
313
315
23 14
30 12
3
173
188
228
2
22 7
221
4
117
76
2007
26 7 112 4
8
9
91
9 89
2008
5 71
2009
64 67
2010
Business and Productivity Software
Client / Desktop,System softwares and Tools
Digital
Semiconductor
Server / Infrastructure Software and Storage
Others
2
21
2011 (YTD)
Among all startups set up in past five years, digital (which includes ecommerce, mobile and internet) and business and productivity software segments account for 56% and 28% respectively 13-Nov-11 Source: Zinnov analysis
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Startups focusing on localized, India specific solutions Key Startup Focus Areas Mass Visibility Solutions
Startups focusing on mass visibility solutions are leveraging IT as a backbone to make services available to the customers in an effective and sustainable way
Education
Education startups are leveraging IT in developing digital contents for students, provide distant learning, virtual classroom and other related services
SMB Niche Applications
Mobile Applications for Reach
E-commerce
Startups focusing on serving the large SMB market are leveraging cloud and web based technologies to widen their customer reach Large number of startups are mushrooming on mobile delivery platform. These startups are enabled by a robust IT infrastructure at the back end E-commerce is on a rise and startups in this space are dependent on IT to reach out to the customers effectively. And the backend infrastructure is required to be highly scalable and elastic
Source: Zinnov analysis
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Startup activities around mobility The Opportunity • Any Solutions that provides a valuable service to broad based customer segments and monetization is through acting as a direct lead generation engine for SMBs/Enterprises • Example areas: • Foursquare for India with direct monetization model (revu.in) • Earlier successes: • Job sites with feet on the street to sign customers (Naukri), Travel sites with feet on the street to signup hotels
Mass Advertising and localized Search
Listing Director SMB’s/ Enterprises/ Individuals Register with Just Dial and list services by location Call to 69999999 Trainer and articulate executives to guide you.
Reasoning • 47 Million SMB’s in India all whom struggle with customer acquisition • SMB’s are willing to pay Rs.8000-Rs.15000 for listing solutions and hence these make the direct channel viable, • These solutions are cheaper and more effective than hiring a sales resource for a number of Micro Enterprises
Listing Sent to Mobile
Success Driven by 3500 feet on street who educate the traders on the need to be listed and how marketing at mass scale is absolutely essential to grow your business.
Source: Zinnov analysis
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Startup activities around Education The Opportunity • Solutions that enable education enterprises to scale rapidly and efficiently. • Solutions that enable collaboration between all constituents interested in welfare of student- i.e. parents, teachers, administrators, etc. • Example Areas: • Teacher-Teacher Collaboration Solutions across schools, and with in schools with branches • Student Data Management Solutions • Learning Management Solutions • Knowledge Based Intelligence Systems Reasoning
• India has the highest addressable population in the world seeking education • Current total enrollment in education institutions is 273 Million and there are potentially 327 Million more enrollments because of the RTE • Parents want to be involved in the up bringing of their children. • Increased disposable income is being spent on education
Student Management solution delivered using a human interface
Services Offered Attendance Reporting
Report Cards
School Event Updates
PTA Intimations
Bus Schedule Updates
Other Alerts
Value Proposition The firm will deploy a resource onsite at the school who will collect required data, and feed it into the system. This helps ease adoption and change management pains
Business Model Charge the parent per pupil for the information that is being provided because of usage of the system.
Source: Zinnov analysis
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Startup activities around SMBs The Opportunity • Solutions that address niche vertical and horizontal needs of SMB’s are likely to succeed as these solutions address pain points • Example Areas: • Collections Management Solution • Retail POS Solutions for Mom & Pop Stores • Pharma software for batch tracking • Litigation Management Software for lawyers
Reasoning • 47 million SMB’s in India • They are spread across multiple verticals and follow unique business processes. • They want solutions that address their niche pain points and are willing to pay a premium for such solutions • The SMB spend on software and services -USD 2.1 Billion in 2010
Solutions focused on BFSI Vertical with niche focus on Micro Finance
Services Offered Micro Finance Platform
Micro Insurance Platform
Litigation Software
Insurance Software
Value Proposition Niche Vertical focused solutions that address a specific customer pain point and is required by SMB’s to scale their business
Business Model Support technology platform with strong set of business services that will allows the firm to remain continually engaged with the client.
Source: Zinnov analysis
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Startup activities around mobility The Opportunity • Any solutions that enable large industry verticals looking to scale to reach a broader set of customers and provide their services on mobile devices present a significant opportunity in India • Example Areas: • Retail Campaign Management Solution • Virtual Insurance Solutions • Vaccination Tracker
Reasoning • 520 Million mobile phone subscribers in India • Industries such as BFSI, Retail, & Healthcare are looking to grow rapidly by providing services to those outside their current service net. • Given the cost of sale and cost of reach, these firms will look to leverage mobile devices to provide their services to customers and scale. • The services would have to be customized to the mobile form factor and delivered
Financial Inclusion – Through mobile banking •The EKO customer walks up to any of the retail outlets licensed to operate as an authorized "Customer Service Point" (CSP) in the area •For these customers, their banker is none other than the friendly neighborhood "kirana store” •Plan is to set-up 500,000 such licensed outlets within the next two years •Eko has developed a low-cost banking platform called "SimpliBank" which ensures real-time transactions •SimpliBank is a stripped down version of a core banking platform with limited functionalities (reducing cost to the consumer) •Eko customers type the bank’s short code, then an asterisk, then the mobile number of the person you are paying, then an asterisk, then the amount, then another asterisk •Account holders get booklets with pages of 11-digit codes. Seven digits of it are random numbers, with four randomly placed black marks, where the person enters his or her PIN
Source: Zinnov analysis
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Startup activities around e-Commerce The Opportunity For Products & Services that do not require touch and feel • Examples: Medicine purchase, Earlier successes: Flipkart – Books/Movies/Music Services that allows better user experience and integrated work flow of online services • Examples: Consolidated Bill payments, Government services customized for a customer profile
Reasoning • Advent of social media will drive peer information gathering online, and hence easier adoption of such solutions e.g. Insurance, etc.
Online Taxation Services- Ease of use, low touch, reasonable pricing
Services Offered Tax Returns
Business Accounting
Setting up Business
Tax Laws
PAN Card
Digital Signatures
Value Proposition Have productized a service that is traditionally something where the business is not standardized
Business Model Subscription schemes for individuals, corporate tie-ups, for revenue generation. Tie up with ex- accountants and IT professional and accounting firms for service delivery
Source: Zinnov analysis
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The enabling ecosystem for startups is getting ready for a big story Financial Ecosystem
Investment community in India comprises of VCs, Angel Investors who are actively investing in sectors like cleantech, e-commerce, education, healthcare and infrastructure
VCs
Company
Sector
Amount ($Mn)
Investors
Angel Investors
Naaptol.com
Ecommerce
7
Canaan Partners
Seed Funds
Tyfone
Mobile VAS
5
Ojas Ventures, Others
Others
Xcel Telecom
Telecom
154
Q Investments
Technology Ecosystem
Many companies have startup focused programs to fuel innovation and create win-win for both sides Startups get access to resources like technology platforms, marketing resources etc Companies get to evangelize their products/platform and gain market share Assists software developers in writing and distributing applications for Intel AppUp
Microsoft’s BizSpark program help software startups succeed with right resources
Software
Access to current tools and platforms to design, develop, test & demonstrate software application
Support
A connection to over 2,000 BizSpark Network partners who can provide guidance and resources
Visibility
An opportunity to achieve global visibility to an audience of potential investors, clients, and partners
Development
Distribution
Software development support and application validation through access to technical information and updates Worldwide distribution channel to manage distribution of applications and application components in app stores
Source: Zinnov analysis
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Product startups are being funded across all major verticals VC Investments by Industry, 2010
VC Investments in India, 2005 – 2010 1200
180
14%
15% 3%
5%
144
900
125
10% 110*
94
120
2%
92
600
51% 876 44
60
Mobile BFSI Others
740
300 508
475
540*
Retail SW & IT
Healthcare Education
268 0
0
2005
2006
2007
Deal Value
2008
2009
2010
Number of Deals
• Majority of the VC investments in 2010 have been in the SW & IT segment • e-Commerce has emerged as the favorite theme followed by internet businesses • Mobile businesses, specially location based services were also well received by VCs
*Data to filled in for other stages Source: Startup landscape study by Zinnov, Indian venture capital association, Venture intelligence, TSJ Venture Intelligence India
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Government encouraging product startups through various schemes KITVEN - Karnataka Information Technology Venture Capital Fund
OBJECTIVE Develop competitive products and cutting-edge technology Manufacture and commercialize the product development PORTFOLIO Pawaa Software Pvt. Ltd.: IT security company Mitra Biotech Pvt. Ltd.: Biotechnology company Sloka Telecom Pvt. Ltd.: Radio access network solution provider
India Inclusive Innovation Fund
OBJECTIVE The Government of India aims to strength the innovation eco‐system, Invest in innovative enterprises engaged in providing solutions for the ‘bottom of the pyramid’ Mentoring entrepreneurs to build their enterprises STEPS TAKEN Set up a National Innovation Council (NInC) with the mandate to formulate a Roadmap for Innovations for 2010‐2020 with a focus on inclusive growth Structure of the Fund and its governance is now being designed
13-Nov-11 Source: Zinnov analysis
Other Schemes by Government Support for Entrepreneurial and Management Development of SMEs through Incubator: This scheme is sponsored by Ministry of Micro Small Medium Enterprises (MoMSME) Micro Venture Innovation Fund (MVIF): Supported by National Innovation Foundation (NIF) New Millennium Indian Technology Leadership Initiative (NMITLI): Sponsored by Council of Scientific & Industrial Research (CSIR) and provides grants (up to a few Crores) to Public Institutions and Soft Loan to Private Sector Companies Micro Technopreneurship Support: Supported by Department of Scientific & Industrial Research (DSIR) Small Business Innovation Business Research Initiative: Supported by Department of BioTechnology 25
Investors exits have only fuelled further entrepreneurship India has seen investors exit ventures through acquisitions as well as IPO offerings. The PE/VC industry witnessed 37 exits through M&A worth $1.67 billion and 15 exits through IPOs worth $1.64 billion in 2010
In India, M&A is the preferred route with studies showing investors exiting through IPOs in 34% of cases M&A exit examples
IPO exit examples
Target
Acquirer
Year of entry
Year of acquisition
VM Logix
Citrix
2004
2010
Dimdim
Salesforce.com
2006
2010
Yasu
SAP
1999
2007
Indiagames
Disney
2000
2011
Armedia
Broadcom
NA
1999
Athena
Broadcom
2001
2005
Pari Network
Cisco
NA
2011
Akorri networks
NetApp
NA
2010
Hy Trust
Cisco
2008
2011
Post-exit
• Alok Kejriwal, a serial entrepreneur has founded 3 companies Contest2win, Mobile2win (sold to Disney) and Games2win • Satish Madira, cofounder of Yasu and a serial entrepreneur, started Dealivore, a startup in the daily deals space • Vishal Gondal, founder of Indiagames, has started Blood and Sweat Venture Group to invest in seed startups
Company
Year
Investors
Persistent
2010
Norwest Venture Partners
MakeMyTrip.com
2010
SAIF Partners, Helion Venture Partners, and Sierra Ventures
Thinksoft Global
2009
EurIndia
Source: AVCJ research, Business Standard
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Primed for success- Projected billion $ mcap Indian product startups companies Category
E-tailing / Online Megastore
Mobile Advertising
ILLUSTRATIVE
Key Highlights •Went live in 2007 •11.5 M book titles, 8 M visits/month •1 M registered users, 28,000 items shipped/day •Raised $31 M in venture funding from Tiger Global, Accel Partners. Reported to raise $150 M soon •Founded in 2007 •World’s largest independent ad network •Serves 50.4 B impressions monthly •Funded by SoftBank, Kleiner Perkins Caufield & Byers, Sherpalo Ventures and Mumbai Angels
Data Visualization
•Inception in 2007 •Bootstrapped •18,000 customers. 3,75,000 users •Used by 80% of the Fortune 500
Enterprise Backup
•Founded in 2007 •750 customers in 26 countries. Backing up 300,000 laptops •Raised $17 M in venture funding from Sequoia Capital, Nexus Venture Partners and Indian Angel Network (IAN)
Source: Zinnov analysis
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Industry is set to experience accelerated growth in future
Technology development
Human Capital development
• The evolution of disruptive Internet and mobile technologies such as cloud infrastructure and delivery, HTML5 will usher in a new wave of cloud-ready startups to cater to the global audience • The availability of highly-skilled engineering talent, specifically in Computer Science, Information Systems and Design will aid the growth of product startups • The return of successful, skilled Indian immigrant talent from the US to India will help shape up the ecosystem and provide much needed leadership • The readiness of the Indian market will likely improve significantly due to improved Internet/Wireless connectivity (3G, LTE and Broadband)
Market development • Improvement in the ease of doing business, basic physical infrastructure development such as power will contribute significantly to spur startup growth
Economic conditions
• The per capita income in India is likely to double in five years. This will help drive consumption, specially in e-Commerce • The economic profile of businesses will improve significantly and help fuel the consumption of business software by businesses
Source: Zinnov analysis
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Thank You