The KSeeker

In Search of Knowledge…

Offshore Product Development – Insights from an Idea that didnt take off!

Posted by Girish Krishnan on August 5, 2006

Here’s a great idea to make money. I can point you to an untapped market opportunity staring at the face of everyone in the Indian IT industry.

  • According to Business World, Global Software Product market is about $180bn.India has been able to capture only a meagre 0.2 per cent of this market
  • According to Nasscom estimates, Offshore Product Development is expected to grow to around $7bn business by 2008-10 from existing $1bn business.Export of software products, including development services, accounted for $710 million FY 2004, up from $560 million in FY 2003

What’s happening to the rest of the OPD market?  Can’t they also be offshored?

If they can be, why is no one talking about that?

So much for generating enthusiasm, but let me try to bring in some more perspective to the space we are looking to play at.

OPD is divided into three parts— the start-up, mature and sunset segments.

  • The start-up market is the entry-level phase where the company plans and develops the product.
  • A mature market is one where a product is already in existence; Developers just need to add features or services to it.
  • A sunset market is where an older version needs to be upgraded and new versions need to be added.

Even within the miniscule part of the business outsourced, most of the work comes in the sunset/mature markets. The numbers indicate that startups rarely outsource!

Any trend gets modified or re-defined with the dynamics in the demand and/or supply sides of it. How did India become a successful outsourcing destination? – In simple terms that was the result of the unique services we offered, the “process” benefits we figured out and the prevalent cost arbitrage.

Given all these advantages along with the maturity and confidence that the IT industry has achieved over the years, India can certainly look to play a major role in the OPD market. Some purists argue that these are different ball games altogether, but Professionals in the IT services industry go through a lot of projects that demand similar traits as those required in the creation of a product. Implementations of business solutions for big enterprises require a great deal of planning, deep technical knowledge and execution competence.

Indian IT companies are very strong in all the aforementioned areas and much of the experience is transferable to the product development space also. I can concur with the notion that may be the absence of a good enough outsourcing model is the main reason why OPD has not taken off, but to ignore this area as not being a potential source of business value creation would be a big mistake.

The marketing teams of these IT companies could easily target the VCs and members of startups with a solid value proposition affecting the NPV of the project. Possible questions from the startup ISVs could be on these grounds.

  • Isn’t the risk associated with offshore development higher?
  • Aren’t the skills in packaged software lesser out there in India?
  • Doesn’t Silicon valley still provide the best software designers and ideas people?
  • Aren’t the overhead costs for managing a global team considerable for a small startup?

I am sure that satisfactory answers can be given to all these questions and the role that the Indian IT companies should play needs to be that of a trusted outsourcing advisor/partner evaluating the project.

The key to doing effective sales pitch would depend on the material collected on the points mentioned below

  • Demonstration of how we can positively affect the NPV
    The Idea of streamlining development using processes is a definite value add in haphazard product dev environments
  • Lots of reports in Public Domain which says outsourcing helps ISVs
  • Show metrics – like risk reduction, Higher ROI, faster Time to market, Cost savings, Higher model sustainability
  • Full guarantee towards code protection – project the software ecosystem, BOT models

Help the guy whom you are making the proposal to justify himself in front of the higher levels of management by providing him with quantifiable metrics!

When I thought through the implementation part of this story, I figured out that there are some serious challenges for this Idea to succeed. These assignments indicate a higher degree of risk implying more fire fighting periods in the project life cycle than what is seen in other kinds of projects. This is obviously the main reason why the Indian big five are not jumping into the OPD bandwagon – there are already a lot of comparatively risk free projects to be taken up but OPD may very well prove to be the differentiator in the long run. Other reasons why companies are not too keen in taking up OPD work are

  • They would need to survive in a very high pressure environment
  • should be prepared to work in situations of tight cost control
  • They need to be clear about the methodologies themselves and should be able to clearly demonstrate the benefit to the clients.
  • Growth of the account is directly linked to the success of the products which increases the project risk
  • Limited visibility on the future of these companies.
  • Talent Hunt – Lack of product experienced people who can fit into Middle management
  • Legal norms/environment in India

In the near future, the most effective way to gather business in the OPD space would be through new (/modified) business models like BOT which gives companies the flexibility in exerting different levels of control over the off-shored pieces of the project.

Ping me if you are interested and I can give you more gyaan 🙂
 

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4 Responses to “Offshore Product Development – Insights from an Idea that didnt take off!”

  1. Karthik said

    I suggest you write such things in multiple posts. I’m unable to read through such intensive long posts.

  2. hmmm – point taken. Stuff actually comes in a flow when i type my thoughts in and I dont want to put a hold on that. I will try to relax on the content quantity as you said and split the focus into multiple threads.

  3. & isnt the fact that Product companies who are doing good .. ones like Google, Adobe, MS, Amazon, Cisco, etc already have high margins & less pressure on costs. & Everyone has a captive in India.. so why should these real product companies outsource to an IT serv/OPD company? Its the laggards in the market who have pressures on margins who resort to outsourcing of some parts of their prod dev.. & anyways… prod mgmt.. the critical function .. has to remain inside the parent co. I think its more of maintainence/enhancements of older versions which could be candidates for outsourcing.. New dev has not yet reached all the parent company offices in India .. let alone vendors..

    wot say..

  4. You are right – all these companies u’ve mentioned enjoy high margins and have been very successful in the market. The companies feeling cost pressure are the ones which are more likely to outsource, and startups defntly would prefer to do that if they are given a congenial environment. Regarding the Dev work reaching OPDs, i know for sure that it is happening in a small scale – we need to project our competencies better and tailor our processes to improve on this front.

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