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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

16


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

Software Products Landscape in India  

India is entering the product era: •Over 2400 product firms generating revenues ~USD 2.0 Billion •The cost of setting up a product startup h...

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