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COLOURBOX9732315

[Published on Yourstory.com]

India’s enterprise software industry has been slowly bubbling since the 1980s but has generally failed to deliver a large number of high impact, high value companies.  We do have some companies that everybody talks about – iFlex, Tally, Zoho – but these are far and few between. I believe that we are seeing a new scalable wave of enterprise software companies coming out of India and there is a potential to deliver several high impact companies over the next decade.  Here at Lightspeed Venture Partners, leveraging our global strength in enterprise technologies, we see opportunities to partner with companies that are cloud-native and have cracked a global market – examples of current active categories in India are CRM, analytics/big data, marketing automation and infrastructure.

India’s enterprise software industry has to be looked at separately from the outsourcing/BPO firms like Genpact, Cognizant, Tata Consulting Services and Infosys.  Starting in the 1980s and early 1990s, this services industry is now mature and at scale.

Separate from the outsourcing/BPO industry, India’s enterprise software industry (or “products” as it is called by many here in India) has evolved from the 1980s to now in what I think can be divided into four waves, coinciding somewhat with three trends: 1) enterprise software moving from desktop to client-server to cloud; 2) evolution of Indian industry post 1991 liberalization; and 3) increased experience of Indians at successful US product companies.

Picture1

WAVE 1

Tally-

 

 

 

The first wave of software products came along in the late 1980s/early 1990s – the focus was desktop products for business accounting.  Companies in this wave include Tally Solutions (still the undisputed leader in SME accounting software in India), Instaplan, Muneemji and Easy Accounting.

WAVE 2

Infosys-finacleramco

5I-flex_Solutions_logo.svg

G  _institute_Newgen Logo

 

 

 

 

This generation of software products emerged in the 1990s as projects within outsourcing firms or from internal services arms of larger corporates. Infosys launched Finacle. Ramco Systems launched its ERP. And Citibank launched CITIL which became i-Flex.  Other notable companies included 3i Infotech, Cranes Software, Kale Consultants, Newgen Software, Polaris Financial Technologies, Srishti Software and Subex.

I remember attending CEBIT in Hanover in 1989 when many of these Indian software and consulting companies were first introduced to Europe.

The late 1990s saw a wavelet of ASP (application service provider) startups in India, most of which got crushed after the dotcom bust.

WAVE 3

eka-nexus-funding-147 zycus-logo

Manthan-Systems-Logo

talisma logo

 

 

 

 

 

The 2000s saw on-premise India-first companies such as Drishti-Soft, Eka Software, EmploywiseiCreate Software, iVizManthan Systems, Quick Heal TechnologiesTalisma (for which I did some initial product management work while at Aditi Technologies) and Zycus get started.  This was the era of 8-10% GDP growth in India which lasted till about 2010.  Many of these companies had a direct sales model. After India, they generally expanded into the global South (Africa, Middle East, SE Asia, Latin America) where they found similar customer requirements and little competition from Western software companies.  Bootstrapped in their earlier years, some of these companies grew over several years and have broken through to $25 million+ in annual revenue.  Key verticals have traditionally been BFSI (banking, financial services and insurance), telecom, retail/FMCG (fast-moving consumer goods aka CPG in the US) and outsourcing/BPO.

Having been around for over a decade, some of these companies generally face the challenge of migrating to the cloud, upgrading user experience to modern Web 2.0 levels, and expanding addressable markets beyond the global South to the US and Europe.  We have seen some of these companies get venture funded, typically at much later stages in their go-to-market relative to US-based software companies.  Several of these companies have received funding in the past couple of years, ostensibly to “go international” and “go cloud,” not an easy task, especially when done together.

WAVE 4

Starting in around 2010, a new wave of cloud-native companies were launched, perhaps following the slowdown in India’s economy and the growth/acceptance of SaaS as a delivery model and as a sales model in the US.  These companies have grown and now could power beyond the $10M/year revenue glass ceiling.  The reason for the scale potential being higher for this cloud-native wave is the cracking of efficient online sales channels to reach markets globally.

Why this decade? Because there is an increased willingness of companies around the world to search for and buy software products online.  There is now a large pool of founders who have worked at global enterprise product companies (e.g. Indian offshore development centers or in Silicon Valley itself with companies like SAP, Oracle, Google, Microsoft, Adobe) and have experience in product management, marketing and sales.  And finally, there has been a dramatic reduction in the capital required to bootstrap enterprise software companies.  Everybody uses AWS and software from other startups to get started. It’s quite meta.

Wave 4 companies have the opportunity to break through the barriers that previously relegated Indian enterprise software companies to selling to the global South. We have seen Atlassian (Australia), Zendesk (Denmark) and Outbrain (Israel) do this move to Western or global markets.  Zoho is an Indian company that is rumored to be at $100 million per year revenue scale – they have been part of many of the waves I have described.

This cloud-native wave, I believe, can be divided into two dimensions. One dimension is the platform/tools companies versus workflow automation (applications) companies. The other dimension is India-first companies versus the global-first companies.  We see opportunities in all four quadrants, each having its own challenges.  We are interested in looking at companies in all these segments, with a bias toward companies which have reached some scale ($1M ARR) and are going after large addressable markets with aggressive sales & marketing execution.

Applications Markets: Enterprise (retail, banking, telecom, BPO, ecommerce)
Examples: CapillaryPeel Works, Wooqer, Sapience
Categories: Employee productivity, verticalized
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Markets: SMB/mid-market
Examples: Framebench, Freshdesk, Kayako, MindTickle, Unmetric, Zoho
Categories: Mature SaaS segments eg CRM, SMM, horizontal
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Platforms/ Tools Markets: IT dept, developers, SMB, media
Examples: Exotel, Knowlarity, Germinait
Categories: Telecom infra, app dev tools
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Markets: IT dept, developers
Examples: Browserstack, FusionCharts, Little Eye, Mobstac, Webengage, Wingify
Categories: app dev tools, marketing automation, security
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Model: License+AMC, direct sales, resellers Subscription, telesales, online sales (SEO/SEM,content mktg)
India-first Global-first

 [Please note this is not a comprehensive list of companies nor a view on which companies we admire or not]

Global-first companies coming out of India have started to crack or have cracked the online sales model, using SEO, SEM, content marketing and telesales.  They are typically going after mature segments where buyers are typing keywords into Google at a high rate. This online selling model results in an SMB and mid-market customer base.  In many cases, founders may have to move to the US to pursue direct enterprise sales.  It’s worth noting that scale markets are not necessarily all in the US – companies could get built with a general global diffusion of customers, perhaps with help from resellers.

I see India-first companies typically going after newer high-growth companies in India (e.g. ecommerce, retail) and startups.  Some go after Indian arms of multinationals (MNCs).  This is a reasonable early adopter market to cut a product’s teeth on, but has limited ability to scale.  Of the newer crop of India-first companies, very few go after large enterprises in India – there are exceptions like Peelworks and Wooqer.  The model here generally is SaaS as a delivery model but not SaaS as a sales model (ie direct sales, not self-service).  Many software companies are essentially verticalized.

We continue to see a few high-ticket, high touch direct sales enterprise software companies which are global-first, including companies like Cloudbyte, Druva, Indix, Sirion Labs and Vaultize. Many of these start out with teams in both Silicon Valley and India or transplant themselves to the Valley over time.  I think this will continue to happen but we will not see the explosion here that we are seeing in the number of companies utilizing low touch online sales models.  I see several high-impact companies coming out of these direct sales enterprise software startups as well.

I think this dichotomy between India-first and global-first companies is interesting and makes India a distinctly different type of investment geography, different from Israel (which has very small domestic market where tech companies move to the US very quickly), different from China (which mostly has domestic market focused startups and very little enterprise software) and different from the US (which is primarily domestic-focused in $500B enterprise tech industry in the early years of most startups). In terms of investor and founder interest, the pendulum may also swing back and forth between these two models as the Indian economy grows, sometimes at high speed, sometimes at a snails pace.

[With input from the team at iSPIRT and several of the companies mentioned above].

hotornot[Published in NextBigWhat on May 19, 2014]

This blog post illustrates how products have used comparison and choice based user interactions to successfully reinvent consumer experience on mobile. The underlying concept is titled ‘Hot’ or ‘Not’, derived from the original website created by James Hong. ‘Hot’ or ‘Not’ is now used by many products including an accidental creation from an entrepreneur we all know very well.

Remember Facemash? – Facebook’s predecessor that asked visitors to choose between pictures of students placed side by side and decide which one was ‘Hot’ or ‘Not’. Facemash may have been a product of Mark’s intoxication…a joke…an experiment if you will. But as I see it, it could very well be a great product concept that can wow the consumer and exponentially increase engagement, especially on smart-phone devices. To illustrate this thought, let’s look at a few examples.

Tinder

Tinder is a dating platform, which has used this concept and has been hugely successful. It lets you swipe ‘Liked’ or ‘Nope’ on images of women and men located close to you. So rather than answering a million questions on ‘Okcupid’ or ‘Match’ and relying on intelligent algorithms built by MIT/Stanford data scientists (who apparently understand dating), you just swipe on Tinder and get connected to people who have swiped ‘Liked’ for you as well. Simple, fun and it works!

What makes Tinder great and gives the application of ‘Hot’ or ‘Not’ credibility is the fact that it is absolutely frictionless. It connects people easily and instantly. Currently, Tinder gets 750 million swipes a day and makes more than 8 million matches. As compared to it, Okcupid, which is one of the most successful dating platforms, has 1 million daily users. Hence, far less matches when compared to Tinder.

Thumb.it

Thumb is an app that lets you get or give opinions in real time. From asking people about their travel destination choices, to product preferences all the way up to soliciting opinions on love lives, Thumb transcends a host of categories. It quickly became an addition and a community before it merged with Ypulse. Though Thumb was not as successful as Tinder, it does represent the kind of exponential engagement ‘Hot’ or ‘Not’ type products concepts can derive.

Thumb reminds me of a show called “kaun banega crorepati” – the Indian version of “Who wants to be a millionaire?”, where the contestant can use a life line called the “audience poll” if he/she is unsure of the answer. And there are plenty of such situations, which are frequent in nature, where we need advice and we would rely on wisdom of the crowds rather than make the decision ourselves. Hence, presumably Thumb’s success was because the ‘Hot’ or ‘Not’ type product concept was applied to a simple real life problem encountered by every man and woman almost on a daily basis!

We heart it

‘We heart it’ is an image based social network that has quickly grown to over 30 Million users serving 50 billion images per month.  Users ‘Heart’ images that they love and put these images in their collections that are shared with their friends and followers.

‘We heart it’ is incredibly simple, yet a very powerful way for people, especially teens to express themselves – their personalities, feelings, preferences, opinions through images. Images based networks have existed for long (remember Flickr?) but they never achieved the kind of scale ‘We heart it’ has done. Secret to their massive and instant success – a simple application of ‘Hot’ or ‘Not.

Fad or science?

It is easy to pass this as a quirky fad. However, the concept of ‘Hot’ or ‘Not’ has deep routed scientific reasoning. For those who are familiar with market research techniques, would know Conjoint analysis to be a bedrock of research studies. The simple form on conjoint analysis asked consumers to rate and review products just like a lot of platforms on the web today. This was disrupted when CBC or Choice based conjoint came along and proved to be a much better alternative. CBC asked consumers to choose between different product or service concepts and say whether it is ‘Hot’ or ‘Not’. It was argued by scholars that CBC works well because that’s how human psychology works. It is natural and intuitive to choose, it is unnatural and much more difficult to rate. Also, the variance or the error in the latter was higher. For the curious souls, you can read about CBC here  

‘Hot’ or ‘Not’ for Indian start-ups

Mobile is key to the growth of Indian start-ups. The mobile user is on the go, wants to be quick and fluid with his/her interactions with the device, does not like typing and is more visual. These aspects make it imperative for Indian start-ups to re-imagine their products for the mobile. Traditionally –

– Mobile products have been replications of web interfaces including the feature set and the sequencing of the user interactions

– The platform is not built around a single user input like a Pin, Thumb, Heart or Fancy. Instead, it is cluttered and asks users to do multiple things. For e.g. several buttons beneath an image asking the user to Comment, Like, Share and more.

This is where concepts like ‘Hot or ‘Not’ could help achieve a wow consumer experience and quick scale. – just like the examples illustrated in this post have done. Perhaps, soon we will see E-commerce sites moving to ‘choice’ from ‘browse’, Review/rating platforms giving up the age old 5 point rating system and new-age dating/marriage platforms innovating like Tinder.

If you think this article was ‘Hot’, feel free to write to me at maninder@lsvp.com and/or visit the Lightspeed blog to leave a comment…Or just ‘Digg’ it.

limeroadbookThis morning, LimeRoad announced $15M in new financing to further their mission of building a social discovery and buying platform in the lifestyle vertical.  This is a significant raise for a young company and provides additional validation of their differentiated approach to addressing the large and growing online buying opportunity in India. For those that aren’t familiar with the company, LimeRoad aggregates lifestyle products from a network of brands and stores and provides its community of users tools to create and curate lifestyle content as well as to easily discover and buy unique and delightful products.

Here are some brief thoughts on why we originally invested in Limeroad and have continued to support the company in subsequent financings:

  1. A truly exceptional team that refuses to take short-cuts and instead focuses on finding scalable, long-term solutions to difficult problems.  Suchi and Prashant have been deeply involved in architecting and building consumer products of significant scale at companies like Skype, eBay and Facebook and bring similar aspirations to LimeRoad, along with an understanding of what it takes.  Every time there is a choice between an ‘easy fix’ or finding a less obvious, long-term solution to a core challenge, they choose the latter, even though that inevitably means stepping into the unknown and facing a higher probability of (short-term) failure.  It takes guts to choose the path less traveled, but we believe that this path maximizes the likelihood of substantial value creation.
  2. An early and intense focus on achieving product market fit. Here are some charts on user growth, supply growth, community activity (scrapbook creation) and marketing expense. We like it when growth and engagement charts are up and to the right while marketing is flat.  It tells us that something is working without significant external stimulation (or discounting). (Footnote 1)
    limeroad
  3. A belief that differentiation will be increasingly driven by front-end experience.  Fast shipping, real-time visibility into inventory and responsive customer service are now table-stakes, not a strategy to differentiate.  Pricing-led ‘differentiation’ (heavy discounting) is a questionable long-term strategy and can become a dangerous addiction for management teams who ignore quality of growth.  Instead, we believe that visual and social experiences that enable discovery and delight (especially relevant in the lifestyle category) will define the next wave of market-leading online companies.
  4. Visual and social experiences are perfect for mobile.  We all know what’s happening on mobile but the question is which types of businesses will benefit more than others.  We believe that products that are inherently social and visual will benefit disproportionately from smartphone growth.  LimeRoad sits squarely in this category.
  5. A large profit pool. At the end of the day, valuable companies must all have attractive economic characteristics and the margin pool in the online lifestyle category is perhaps the most attractive in Indian online commerce.

There is a lot more work to be done – and problems to be solved – but the LimeRoad team has already disproved many accepted notions in the world of Indian e-commerce – for example that it is not possible to grow without offering heavy discounts or that Indian users aren’t savvy enough to embrace deeper social activities like scrapbooking, curating collections or sharing.  We expect them to disprove many more and wish them all the best in the next phase of their journey.

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Footnote 1: In order to preserve confidentiality of company data, absolute scale is not provided in the graphs above. Base scale is sufficiently large that the above data is a representative indication of product-market fit, in our opinion.

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