OK, so I gave InformationWeek’s Paul McDougall coverage yesterday for his article about small-scale offshoring. But I’m going to give him even more coverage today, because he’s written a thoroughly insightful article about the prospects of Indian companies joining the ranks of the Microsofts and Oracles of the world — in developing and selling software they’ve created for external sale. All I can say is “Hear! Hear!”
“India’s Next Step,” in the August 8, 2005 issue, tells the stories of Indian entrepreneurs who are taking what they’ve learned by providing IT services to US and European clients and developing their own solutions for the markets they’ve served.
For example, Polaris Software Lad Ltd., in Chennai, has supported Citibank’s global operations for a couple of decades. In 2003 Citibank aggregated its Indian technology operations into a subsidiary, Orbitek, and sold a portion of that to Polaris. That granted Polaris the right to take the IP to outside customers.
Whereas I’ve expressed skepticism about Indian companies’ abilities to become a truly strategic transformation partners within the client companies they serve, I do believe they could give Silicon Valley, Redmond and other US high tech centers a run for their licensing dollars — which is all to the good to me.
I’ll tell you why: It’s going to hit pricing and reduce it.
Let me give you a small example. I’ve been shopping for a Webinar service. I’ve checked pricing on about eight companies, from Webex on down. I’ve had conversations with reps from about four companies. And I don’t understand why all the bids I’m getting are coming at about the same rate — $1,500 to $1,800. Where’s the blasted competition? Where’s the company that’ll provide that same service — maybe without all the bells and whistles — for half or even two-thirds of that? (Probably the bigger players have swooped in and bought the low-priced competitors to ax them from the market and preserve their price points.)
And that, no doubt, is what will happen to new, coming stars in the Indian software market too. Their bigger brethren will swoop in and gobble them up, to preserve price points. But still the pricing erosion will happen, slowly and steadily, and those honkin’ software margins will topple.
