Why don’t Indian software services companies develop products? Companies like TCS, Infosys and Wipro may be very profitable, but why is there no Indian equivalent of Microsoft, Google or Oracle? Such questions have dogged the Indian software services industry for many years (Krishnan and Prabhu, 2003).
What services do these Indian companies offer? One service is developing new software systems for clients, starting from a set of requirements and a choice of platform: a programming language, an operating system and a database system. However, most of their business (perhaps 70-80 per cent) comes from upgrading and supporting large operational software systems, removing software bugs as they appear and adding features to meet new requirements. A major function of software services companies is to reduce the inherent risk of developing and maintaining software systems for its clients.
There are excellent reasons for software services companies to do R&D:
First, large software systems are extremely complex and hard to manage with just manual programming effort. A variety of software tools can be used to automate functions.
However, the platforms on which software systems run can differ in numerous major or minor ways and the analysis tools must be available for use on any required platform. Such tools are not available in the market and developing new tools can take years. R&D has been used in some software companies in India to find ways of producing such tools automatically and making them available in time for use in time-bound projects. The goal is always to speed up software construction, reduce cost and remove defects.
Second, with many software service companies offering what may seem to be similar services, a company has a major advantage if it can offer a unique differentiator. The main distinction between companies is often just the skills and experience of their staff; these can be augmented by a wide set of software tools. Use of such tools results in both improving the quality of the final software and reducing the development time
Finally, corporate Information Officers (CIOs) of clients provide computing services to other divisions in the company; their focus is on improving quality and reliability, and reducing cost. They deal with problems as they arise and rarely have time to look beyond this; IT outsourcing has been a boon to them.
Service companies, by contrast, can use their own R&D to identify future trends. This can give them the means of solving anticipated problems before these impact a client’s business, perhaps also adding new capabilities to increase competitiveness.
Important as these R&D directions are, they are far removed from what a software product company does. Software services companies differ from software product companies in everything from size, marketing, sales and customer support to R&D and strategy.
Services and products are not usually offered within one company. It would no more suit TCS or Wipro to masquerade as a product company than it would Microsoft to pose as a services company; Hewlett Packard is a rare exception. What are often referred to as ‘products’ from Indian companies are in fact branded offerings for financial services, like TCS’s BaNCS and Infosys’s Finacle: almost-ready software systems that can be configured and customised to a client’s requirements in a fraction of the time it would take to develop, say, a full banking or insurance system.
As a rule, software products have been developed by small, agile companies. The idea behind PowerPoint originated with a small company called Forethought; Word and Excel were created by Microsoft in the early 1980s when it was a small company. Product development is typically funded by venture capital companies, which filter out 90 per cent of new products that will fail to survive the risky route to market success and guide the remaining 10 per cent to an eventual IPO and sale.
Though services companies and product companies belong to different business species, R&D can provide a link from one to the other. Tools developed by a services company must be robust and effective if they are to be used by project teams.
Such tools will inevitably have a much wider market (not just among other service companies) if they are spun off and managed in an independent company. Done with care, this need not deprive the creating company of its advantages and can help to realize the full value of the innovation in the tools.
That is a route no Indian services company has yet ventured to take.
(Dr. Mathai Joseph is a computer scientist and a consultant, and was earlier a senior research scientist at TIFR, Mumbai)