[Reader-list] Microsoft's view on India

[geert lovink]

http://www.alwayson-network.com/comments.php?id=15024_0_38_0_C

Is India at the Tipping Point?

The move India must make—from renting IQ to creating its own IP, and 
servicing clients overseas to leveraging technology to improve its own 
large-scale societal problems.

Dan'l Lewin [Microsoft] | POSTED: 05.17.06 @03:39

Mention India and most people think of outsourcing or offshoring. But 
it is much more than that today. In sector after sector, from business 
processes and models to technology, Indian entrepreneurs and companies 
are delivering breakthroughs in cost-performance. And it's not just 
about labor cost arbitrage anymore; it is about disruptive innovation 
in technology and business models. Examples include the ability to 
develop drugs and vaccines at one-tenth the cost; the world's lowest 
rates for mobile phone calls; and offshore product development 
companies, or OPDs, creating not just features but whole products for 
their clients at about one-third the cost.

  Ravi Venkatesan, chairman of Microsoft India, said with his 
characteristic clarity:

  "There is no doubt that the Indian IT industry has put India on the 
world map. It has created wealth and jobs on a scale we couldn't even 
imagine a decade ago. It has given us the self-confidence to dream of 
India as a developed nation and to see ourselves as a knowledge 
society—and our population as an asset, not a liability."

  Ravi made this comment at the Microsoft Innovation Summit I just 
returned from in Bangalore, India's silicon hub. He went on to talk 
about how the country needs to make the transition to Indian IT 2.0, 
with IT 1.0 reaching its limit. India must move from renting IQ to 
creating its own intellectual property, and move from serving clients 
overseas to thinking about how it will leverage technology to improve 
its own large-scale societal problems. India must go beyond labor 
arbitrage to creating a real, sustainable innovation-based economy. It 
must move from innovation from India to innovating for India.

  Will India become the third-largest economy in the world (behind the 
United States and China), as the now famous Goldman Sachs report 
predicts? Will it happen within 25 years, according to Keystone India? 
I personally believe that entrepreneurs and investors have some 
extraordinary opportunities in India today, because the key elements 
for an innovation ecosystem are gradually falling into place. India is 
at a tipping point, but make no mistake, challenges remain.

India—Almost Always On, or Off?

  As any India traveler knows, to get to the technology parks you share 
pockmarked roads with sacred cows, horse-drawn carts, and motorized 
rickshaws, along with vans and modern cars that congest roadways. Power 
outages are taken for granted during meetings. The real infrastructure 
woes in India, however, are about airports, educational systems, 
Internet penetration, job creation, and GDP dependence on services. 
India says it is addressing the problem, but the numbers tell a 
different story. India spends just $35 billion a year on infrastructure 
(with its population of more than 1 billion, about 230 million less 
than China); whereas China spends $260 billion annually. It's also 
alarming that IT investment in India is only 3.5% of total capital 
investment. The flip side of that underinvestment points to a huge 
opportunity for Indian entrepreneurs—and there are many positive signs 
underway.

  In fact, when I visited India in late April, I was surprised how much 
progress had been made since I was there 18 months ago. For one thing, 
India now has a large and growing middle class, nearly 300 million 
strong, surpassing the size of the entire U.S. population. It also 
boasts a huge installed base of mobile phones and 30 percent CAGR in 
everything from PCs, cars, and credit cards to appliances. India 
certainly does not want for growth: GDP increased 8.2% last year with 
7% is expected this year.

India Bound—Going Where the Talent Is

  There are also huge numbers of Fortune 500 and Global 1000 companies 
setting up development centers in India—both small companies and mega 
ones such as Microsoft, Intel, and IBM. Large retailers like Wal-Mart 
are desperately trying to get a foothold in the market. Despite 
reservations about power and manpower in India, several large German 
companies are investing in the country, specifically BMW (600 million 
euro) Bosch (500 million euro), and Siemens (600 million euro) over the 
next few years.

  What's the draw? A huge pool of talent, and talent to be. More than 
half of the population is under the age of 25, making India the 
youngest labor force in the world. And of that middle class I 
mentioned, many are highly educated. India and China, the new global 
tech powerhouses, are fueled by 900,000 engineering graduates of all 
types each year, more than triple the number of U.S. grads.

  Despite these advances, there are still 750 million largely rural 
poor. We know that huge numbers of Indians will not participate in 
India's growth without access to information. Last year, through 
Project Shiksa, we made a commitment to provide every Indian with 
access to a connected computer by 2010 through a rural kiosk model that 
we are now piloting. Our goal is to set up PC kiosks in at least 
200,000 villages. To reach people their native language, we started, 
Project Bhasha—making Windows and Office interfaces available in 14 
local Indian languages.

  We're learning about how to approach this emerging market, but believe 
that ideas will be monetized only when an economically viable ecosystem 
is in place. And that requires capital.

Lack of Capital? Why Seeding the Market is So Important

  Similar to most other regions of the world, investment capital fuels 
growth. After meeting with VCs there, I see India becoming a strong 
destination for them, especially those with investments in the 
Internet, consumer, and mobile/telephony areas. Norwest's Promod Haque 
thinks that once penetration of broadband and wireless increases, the 
Indian market will mimic China. I met with Westbridge Capital Partners, 
India's largest venture capital fund with approximately $350 million 
under management, which has now joined forces with Sequoia Capital to 
become Sequoia Capital India. Other VCs doing some interesting deals 
include Draper Fisher Jurvetson, KPCB, Battery Ventures, and Artiman 
Ventures. In addition, InvestusCap and Seedfund are about to invest 
their funds in early-stage companies, a boon for Indian startups. And 
Norwest Venture Partners just raised a $650-milllion fund, with the 
primary focus on investment-worthy companies in India.

  Clearly, Indian startups are maturing—most focusing on serving the 
local Indian market, not cross-border relationships. While the largest 
scale they have reached is about $20 million, it's an encouraging sign. 
It's also interesting to note that many Indians from the Valley are 
returning to India to set up their startup companies as well as to 
leverage the engineering/labor-cost advantages. While many startups we 
talked with have big ideas, they will need coaching to pitch ideas for 
funding and must be willing to accept possible failure, a normal part 
of the entrepreneurial culture. Deal-flow quality is improving, but 
more has to be done before any substantial investments will be made 
early in startups. Some VCs still won't go to India simply because the 
exit strategies are unclear and infrastructure unpredictable.

  For those VCs who do want to leverage the India advantage, OPDs play a 
crucial role.

Why Is Off-Shore Product Development So Disruptive?

  What's capturing the market's attention about OPDs in India? First, 
software is built to quality standard CMMI three or better—making it 
much higher than U.S. companies have built to in the past. Second, 
production costs are from 30 to 50% lower than the U.S. equivalent. And 
third, time-to-market for new software is 40 to 50% faster than it was 
just five years ago.

  Until now, India has been considered a cost-arbitrage nation where 
only low-end services were performed. OPDs are changing this notion in 
a big way by building "whole software products" out of India. This 
means that India's talent is targeting things higher up the value chain 
and developing IP-centric skills. This in turn lays the foundation for 
future product and service creation. I believe that OPDs are the 
breeding ground of future software entrepreneurs and will impact the 
local software ecosystem. They are working closely with global VCs who 
want to leverage the India advantage for their startups. There are many 
instances where once a startup in the U.S. gets funded, the development 
work for the products is quickly outsourced to an OPD.

  Interesting OPDs include Symphony Systems, NESS India, Persistent, and 
Aditi Technologies. Ness, for example, has established 30 labs where 
R&D and product development are being done for many of the world's top 
software companies such as Business Objects and Chordiant. Aditi helped 
a startup build a successful online retail music product and a Fortune 
100 company create home and entertainment software. Persistent Systems, 
a world class OPD company based in Pune—growing some 60% a 
year—received a $13.8 million investment last year from Norwest.

Microsoft's Involvement in the Ecosystems—from Bangalore to New Delhi 
to Mumbai

  We believe that innovation and intellectual property are the areas 
that will unleash the next wave of growth for India, and Microsoft is 
committed to fostering an ecosystem that will help fuel this growth. 
 From our Microsoft India headquarters in New Delhi, to our development 
center in Hyderabad, to the most recent Microsoft Executive Summit with 
more than 253 CIOs from Indian enterprises in attendance in Mumbai, a 
lot is happening.

  At our "India Is Innovation" Summit in Bangalore—a continuation of the 
strategy set in place with the launch of the Microsoft Innovation 
Centers during Bill Gates's visit in December 2005, we met with more 
than 150 Indian companies, as well as venture capitalists, incubators, 
academia, and analysts. We talked with entrepreneurs about how they 
could be a part of the global product opportunity, and talked with 
venture capitalists and academic incubators about their role in 
catalyzing the local software economy. The summit also included a 
Microsoft startup showcase, where companies pitched their ideas to a 
panel of VCs. Startups that showcased interesting technologies include 
SQA Technologies, Pacsoft, Infozech, TutorVista, Pine Labs, e-Caliber, 
and CoOptions. TutorVista (a Sequoia investment), for example, 
leverages Internet technology and global resources to make personalized 
education affordable to students globally. It was started by Indians 
(serial entrepreneurs) from Silicon Valley.

  We also launched an innovation book with 27 case studies of successful 
products developed by Indian startups over the last few years. Some of 
featured products include InSite 2005 from Aurigo Software, Wasp3D from 
Beehive Systems (for the global broadcast industry), Whizible EPM from 
Compulink, Skelta Workflow Accelerator from Skelta Software and OAT 
Systems, a complete RFID framework solution.

  What all of this points to is this: India is transforming itself in a 
fundamental way with all the elements of the innovation ecosystem 
coming together. Disruptive innovation is taking hold in India. It's no 
longer a question of if, just when and how fast. At Microsoft, we 
passionately believe in India's potential and are investing in the 
right direction to make this a reality.

  For more, go to http://www.MicrosoftStartupZone.com