Ecommerce, mobile, and other consumer-facing startups have been hogging the limelight in India. And that’s understandable because the size of the Indian consumer market gives B2C (business-to-consumer) companies rapid scaling up potential, which is what attracts venture capitalists. Recently, Japanese giant SoftBank ploughed US$627 million into ecommerce startup Snapdeal. Months ago, Flipkart netted an astounding US$1 billion in funding, the biggest round in India so far. Taxi app Ola, classifieds site Quikr, and other consumer internet services have been drawing the attention of investors.
Largely away from the limelight, however, there’s a growing band of Indian companies making software products for global markets. Some of them have attracted smart money too. In June this year, Freshdesk became the first Indian startup to be backed by Google Capital with US$31 million in funding. On the same day, Bangalore-based Vizury bagged US$16 million to expand the clientele for its ad retargeting software product. Recently, Japanese VC Global Brain joined Telstra Ventures, Sequoia Capital, and Canaan Partners to pump in US$19 million into another adtech company AdNear. But there are many other such companies which are bootstrapped and little known.
The business model of software product companies is fundamentally different from that of software services. A software product is built once and sold to hundreds or even thousands of customers in roughly the same form. Services on the other hand are developed and deployed differently for each customer. To use an analogy, an IT services company is like a tailor who provides you with a bespoke jacket. A software product, on the other hand, is like a readymade jacket.
Now iSPIRT (Indian Software Product Industry Roundtable), a non-profit thinktank, has come out with an index of India’s top 30 B2B (business-to-business) software product companies.
See: Top 30 Indian B2B software product companies with total market cap over $6 billion
“It is true that a lot of the venture capital dollars have been flowing towards consumer-facing opportunities, be it ecommerce, mobile applications, consumer financial services, and derivatives of those, like payment gateways, logistics, and so on,” says Dev Khare, managing director in India of US-based VC firm Lightspeed Venture Partners (LSVP), who has been volunteering with iSPIRT.
“India is a very consumer-driven economy, so that is where the growth is. What we have highlighted in this report and index is that there is a lot of growth happening in the software product sector as well, and we think, going forward, there will be increasing amounts of investment that will go into this sector,” he explains to Tech in Asia.
Khare says about two-thirds of all investments by LSVP in the US go into software product companies. “We think it will increasingly happen in India as well. It is already happening. There is a steady investment flow into software product companies now and there will be more over time, as these companies grow up and show they can be world leaders. Some of them are already the best in their category in the world.”
Third wave of IT in India
The total market value of the top 30 software product companies – estimated at US$6.2 billion – is larger than what most observers of the Indian market would have expected. Khare calls this the third wave of IT entrepreneurship in India.
The first wave was created by the IT services industry, now worth over US$200 billion dollars in terms of market cap. This catapulted Bangalore onto the world stage. TCS, Infosys, and Wipro were the pioneers.
“After that, in the second wave, we have the domestic internet services industry which includes ecommerce and mobile. Here the first big star was MakeMyTrip. Recently there have been eye-popping but anecdotal market cap numbers for companies like Flipkart, OlaCabs, etc.,” Khare says.
ISPIRT believes that the software products industry has the potential to make India the second largest hub for such products after the US, and that’s a wave that has just started gaining momentum. According to Khare, there are already 200 to 300 companies in this space, taking advantage of the tech talent coming out of world class engineering colleges such as the IITs (Indian Institute of Technology) as well as the multinational tech companies in India and the big Indian IT services companies.
See: Why India must fix its obsession with software services and pivot to products
This post Flipkart, Snapdeal, and Ola hog the limelight. But watch out for a new wave – software products made in India appeared first on Tech in Asia.
Flipkart, Snapdeal, and Ola hog the limelight. But watch out for a new wave – software products made in India
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