TALK CLOUD COMPUTING, and Salesforce.com, Google Docs, and Microsoft Azure come to mind. And any move by Infosys, Tata Consultancy Services (TCS), or Wipro makes headlines. Away from all the big-name buzz, about 100 Indian startups are silently carving their place in the cloud.
Small is the catchword for these companies, most of which are self-funded. They make do with 100 employees on average, their annual revenues are under Rs 50 crore, and the cost of their products can be as low as Rs 5 per user. Still, they are profitable. These companies may be taking baby steps, but they’re doing something the bigger IT companies aren’t: developing products to which they own intellectual property rights. While Chennai accounts for almost a third of cloud startups, the rest are located in Bangalore, Pune, Hyderabad and Delhi.
Cloud computing refers to the online delivery of IT services and applications, which can be accessed anywhere, any time using an Internet-connected device. Cloud companies deliver services faster and cheaper, which drives up their profitability and significantly lowers the cost for the customer. “The winners will be the companies that offer services which are not only distinct but also appeal to a large number of customers,” says James Staten, principal analyst at Forrester Research.
These startups are targeting the 35 million potential customers in small and medium businesses (SMB) in India. Count in the other BRIC nations, plus South Korea and South Africa, and this base crosses 100 million. “We’re seeing Software as a Service [SaaS]-enabled tools increasingly become an alternative to traditional on-premises software. This offers opportunities for smaller companies to cater to the underserved SMB market,” says Agatha Poon, research manager at the advisory Tier1 Research.
SMBs have traditionally shied away from investing in expensive hardware and software. Moreover, the solutions provided by business application companies often do not suit their needs. For a large software company, the overhead cost involved in customising their products for a particular geography or for companies with a small user base is huge.
“SMBs are starved for India-centric tech solutions. The cloud environment has made these possible, and that’s fuelling the growth of cloud computing companies,” says Narasimhan Kishore Mandyam, CEO of ImpelCRM, which offers online customer relations management (CRM) products.
Adoption of cloud in India is in the nascent stages. Zinnov, a management consultancy, in a March 2011 report on cloud computing in key emerging markets, states that spending on this technology by India was around $110 million (Rs 488.7 crore) in 2010. “This will increase as companies go for such technology, and the government rolls out cloud-based projects like the unique identification programme, Aadhaar,” says Karthik Ananth, director, Zinnov.
But it’s not just about realising market potential. Cloud infrastructure companies such as Google, Microsoft, and Amazon have reduced the cost of hosting and delivering IT products. Now, a tech entrepreneur need not have to worry about raising funds for delivery infrastructure such as servers or data centres (which can cost up to $5 billion), or maintaining a sales team, or investing in brand building. If they have a product to sell, Google or Amazon can provide them a platform to deliver it to the customer. Online advertising such as Google Adwords takes them to their target audience. Most sales are closed online or over the phone. The customer decides how many users will access the application, logs on to the website, and downloads it according to a pay-per-use or pay-per-user plan.
Services companies such as TCS, Infosys, Wipro, and L&T Infotech are partnering with the smaller players to gain a faster entry into the cloud computing space. “The big IT companies are tuned to deliver excellent services, but there are huge gaps in their portfolio for cloud-based products,” says Ananth. “It’s difficult for them to immediately change their DNA and start developing such products. So they are joining hands with the small, nimble, companies for faster access to the market.”
The secret of the smaller companies’ success lies in the innovative processes they use to design and develop applications faster. Companies such as Wolf Frameworks and Kallos Solutions spent their initial years doing research, trying to shorten the development cycle and cut delivery costs. “We worked for four years to eliminate the labour-intensive process of writing code. Now 90% of it has been automated, shortening the development cycle by 50%,” says George Vettath, CEO and managing director, Kallos Solutions.
The big IT companies are increasingly realising that SMBs cannot be ignored. The National Association of Software and Services Companies (Nasscom) sees a partnership model emerging because the biggies look for cost advantages. The smaller companies can either go for the niche market that wants customised solutions at competitive prices, or become part of cloud computing by partnering the big players. “Everyone wants to be ready for the cloud business. But the smaller players have a better understanding of the SMB market. Their products will lead to more collaboration in the industry,” says Sangeeta Gupta, vice president, Nasscom.
Companies such as Kallos, Vembu, Zoho, Asteor, and Innoviz have managed to catch the first wave of cloud adoption. In the one that will follow, success will depend on investment and partnerships in the implementation of e-governance initiative.