During any major technology transition, the market opens up for a brief period and a gold rush ensues. Today, CIOs’ interest in cloud computing has pushed IT companies into a new “cloud rush.”
Now, every vendor in any part of the value chain – be it operating systems, middleware, business applications, storage, or networking – has a point of view on cloud computing and a marketing or business plan to back it up.
However, a look across the field of today’s cloud players shows few solid leaders have emerged. In fact, it is possible that India’s significant IT expertise, coupled with its massive domestic market, may position the nation to become the birthplace of many future cloud leaders.
All IT vendors are now cloud vendors
Many of today’s major IT companies have aggressively invested in cloud strategy and have completed massive acquisitions to back it up. These moves have also resulted in long term partners starting to compete with each other and vice versa. A few of the recent announcements by large companies are a strong proof of the same:
- Cisco’s entry into the server market to compete with HP directly
- In response, HP has acquired 3COM and now competes with Cisco
- Microsoft’s multi-billion dollar investments in cloud R&D
- Cisco/EMC/VMware partnership for cloud infrastructure
It is evident that for most of these companies there is no looking back. They are betting their entire companies on cloud. These changes will also impact the ISVs. If a few large IT companies start running the IT infrastructure for Fortune 500, then to whom should the ISVs sell their products. Will they be forced to sell mainly to the large IT companies? It remains to be seen.
No clear leaders – yet
It is interesting to note that during every major technology transformation, a few new leaders emerged. Only the companies who quickly realized the benefits of the new technology and made major bets on it were able to survive and grow. Companies such as Microsoft and IBM have made major changes to their R&D investments and business models to come out on top of each of these transformations (see graphic).
On the other hand, many of the companies that were unwilling to change or did not see the importance of the transformational technology have disappeared through bankruptcy or acquisition. Companies such as DEC, makers of UNIX workstations, disappeared with the onslaught of PCs. The same dynamic of leader births and deaths can be expected in the world of cloud transformations.
With each new technology, there have also been new companies that are created due to the transformation. Companies such as Dell came up during the PC Revolution, while companies such as Amazon, Google, and Yahoo came up during the Internet Revolution.
We have already seen billion-dollar companies such as VMware and Salesforce.com being created due to cloud-based technology and business models. This is just the beginning and we can expect to see many more companies come up in the next few years.
India’s companies enter the cloud
India was a silent spectator during the mainframe and PC revolutions. The country created a few local companies during those periods but none had major impact.
However, the Internet Revolution was different. Riding on the back of the global Internet infrastructure built during the dotcom era, Indian companies that had focused on sending consultants to work abroad realized that it was possible to do a large part of the work from the offices in India. These companies invented the global delivery model and the rest is history.
Infosys, for example, became a $5 billion company in the span of 10 years – this success not only proved a new business model but also forced existing IT consulting companies to follow suit.
The same vendor leadership could take place in the cloud. Cloud computing and its related business models will become a playing field leveler for Indian ISVs. There are no current market leaders in cloud; the sales and marketing models for cloud are still evolving. More companies are starting to use social media, online advertisement, and telesales more to reach to their customers. Most of these activities could be done out of India.
Today’s cloud startups from India
We are already starting to see signals of Indian startups competing globally. An interesting example is Zoho, an Indian company started with no funding and a small team in the US. The entire engineering organization is in Chennai. The company doesn’t hire from large technology companies – and large companies don’t hire from them, either. Zoho employs students from economically poor backgrounds and trains them in their own in-house university.
Zoho offers products that match those offered by larger vendors on a feature-by-feature basis and does it at a very low cost because of its extremely low operating costs. Today, Zoho has more than two million users and most of its customers are SMBs with between 40 and 200 employees.
Recently GE evaluated various cloud application providers and selected Zoho over many larger vendors (including Google) and deployed Zoho on over 400,000 desktops. This is a great example of how a small Indian company was able to win a contract from one of the largest companies in the world using the power of cloud. Additionally, it is well known that GE and other major companies, such as Citibank, played a critical role in building the business of Indian services companies. This might happen again with cloud-based ISVs.
Many other Indian players are emerging in the cloud space. WOLF is another example. The company offers a browser-based, on-demand Platform-as-a-Service (PaaS) for rapidly designing and delivering database-driven, multi-tenant Software-as-a-Service (SaaS) applications. WOLF helpS both IT consulting companies and internal IT teams at large enterprises leverage the power of the cloud. The company is self-funded with only eight developers yet it already has more than 3,000 developers who use the platform and many solution-provider partners in seven countries.
OrangeScape is another interesting Indian company. It provides cloud middleware for developing portable SaaS applications across verticals. They have 50 employees working out of Chennai. Their five-year goal is to have 100,000-300,000 active accounts. It is the first Indian company to be listed as a top-10 PaaS player globally. OrangeScape has already signed up large companies as customers that include Unilever, AstraZeneca, Citibank, and many others.
These are just a few examples of India’s emerging cloud leaders – and there are a lot more of these companies working on truly innovative cloud products for the global market and have the potential to become as market leaders in the years to come.
India Can Create New Cloud Use Cases
The cloud has not just opened up opportunities for Indian ISVs but also for large services companies to drive non-linear growth. In terms of traditional opportunities, it has helped Indian services companies to get into areas such as SaaS enablement. Here, these companies work with both the global ISVs who are moving into SaaS as well as with enterprises who want to SaaS enable their traditional applications (see graphic.)
Cloud models have also helped strengthen the managed services competency of the Indian companies. Indian companies were traditionally good in remote infrastructure management and were not keen on buying out the datacenters of their customers. Large IT companies in India all have more than 100,000 engineers. It is scary to even think that they need to add another 100,000 engineers each to double their revenues.
This has resulted in these companies looking for non-linear revenue models. Cloud-based services provide perfect opportunity for these companies. Many Indian companies run the back office functions for their global customers. They will use the cloud model to get into platform-based services such as payroll services for example. In this model, each of the processes they support has the capability to scale without adding too many people. Many companies are already investing in platform BPO services. They are also starting to build their own cloud-based IP that their customers can use.
The global opportunity that has opened up for Indian companies is exciting. The next few years will be a great journey for all the companies and industry observers.
India’s domestic market potential
India’s potential as a domestic market is equally – if not more – exciting. The country’s IT spending technology growth in is one of the fastest in the world – 13.5 percent in 2010 compared to China’s 11.5 percent.
India is also the world’s fastest growing mobile market with over 20 million subscribers added every month. Mobile is going to be a key access device for cloud based products and services. The money companies invested for 3G services showcased the belief that large telecom providers have in data services in the Indian market. Over 500 million people are the middle class in India. The products and services consumed by India’s middle class is to that of other emerging markets. And most of India’s manufacturing output (about 45 percent) comes from SMBs in India.
These statistics suggest that Indian customers are the ideal target for cloud offerings. Indian SMBs, specifically, lack budgets, want business improvement, lack management bandwidth required to manage internal IT, and seek rapid growth in the next few years.
In the consumer realm, India has a legacy of jumping technology curves. Precedents exist in the telecom sector and now DTH is also witnessing a similar transformation. We anticipate that Indians will show similar behavior in the cloud.
Well-positioned for cloud leadership
There is no doubt that cloud is opening up new windows of opportunities for Indian companies, from a global as well as domestic opportunity standpoint. Having realized the immense opportunities, it will be imperative for Indian companies to come together and enable collaborative innovation to address both India and global market needs.
The ecosystem of ISVs, platform providers, system integrators, and end users is also starting to evolve. With increased focus and evangelism about cloud-related opportunities the ecosystem, India should be incubating the next generation of entrepreneurs who can create the next Salesforce.com or VMware from India.
The key focus should now be on developing the ecosystem. This effort should include developing the talent for cloud development, connecting startup ISVs with large system integrators, enabling startups in the cloud marketplaces, and finally, influencing government policies to make them more cloud friendly.
A collaborative cloud ecosystem combined with its expertise at exporting business models will provide India the right mix to leverage the immense opportunities created by the cloud in the near future – and it will be exciting for all of us to be a part of that rapid growth journey.
Pari Natarajan is CEO and Praveen Bhadada is consulting manager at Zinnov.
To receive a full copy of Zinnov’s whitepaper, “Cloud – The Way Forward,” email Praveen at Praveen@zinnov.com.