The total market valuation of Snapdeal, Ola and e-commerce leader Flipkart is reported to be worth $15 billion. Their founders, all in their 20s and 30s, have emerged as new poster boys of the Indian tech industry replacing leaders of Infosys, Wipro and TCS from the front pages of business dailies. This change is not just symbolic, but indicates transformative — and disruptive — trends in the Indian software and technology sector during the past five years. Vivek Wadhwa, a fellow at Rock Center for Corporate Governance at Stanford University, was recently quoted in Economic Times: "India will see a technology boom over the next 5 years that will make the US dotcom boom look lame."
The appetite of investors from all over the world appears ferocious as they pumped in $2.36 billion in Indian firms during the first quarter of 2015 — significant considering that raising funds for any software-driven business was nearly impossible in India not long ago. Just two government-funded venture capital companies operated in the technology space in the 1990s and they would act as traditional bankers insisting on collateral for every rupee advanced. Most early entrepreneurial ventures in software services, like Infosys and HCL, were founded with family savings and borrowings from friends.
Funding advantage apart, the startups of today are benefiting from similar advantages as traditional software firms have in the past. They access the same talent pool that was long the favorite hunting ground of major software firms — Indian Institutes of Technology (IITs), Indian Institutes of Management (IIMs) and other topnotch engineering schools like the Birla Institute of Technology and Science. Most founders of the new tech companies, like the leaders of the traditional software and services industry, are products of these schools. The available talent pool is expanding. Now India has 16 IITs with a total intake of about 10,000 students every year (five more IITs are in the pipeline) and 13 IIMs with annual intake of 3300 (six more IIMs are under development) compared to just five IITs and four IIMs in 1990. Several IITs have established incubation centers and also offer courses in entrepreneurship. More IIT graduates are opting out of campus placements, trying entrepreneurship or working for tech startups rather than established brands in the software business.
The high penetration of mobile phones is one of the several factors driving the change in the tech industry landscape. The number of wireless phone subscribers in India at the end of March was 969.89 million, of which over 862 million were categorized as "active users." There are nearly 100 million broadband subscribers, most accessing the internet from digital devices like smart phones. There is increased willingness to engage in online activities such as booking railway and air tickets, conducting banking transactions, or purchasing apparel, digital products and groceries. Payment gateways, supply chains and logistic infrastructure are in place, facilitating the e-commerce boom. The government has begun offering online service for passports, income tax returns, transfer of cash benefits to the poor, house tax payments, registration of property and more. The federal government has an ambitious plan to roll out broadband services to all the villages in five years. Social networking platforms like Facebook, Twitter and YouTube are used for political advocacy. All these drivers fuel demand for new applications and services over mobile phones, and technology firms cater to this surge.
If the first phase of India's technology industry development was driven by export of software and services, the current boom is largely led by domestic demand. Software services companies that made India a formidable player in the outsourcing business in the 1990s and 2000s are waking up to new market realities. Industry leaders realize that factors like the availability of large technical workforce, skills to handle IT projects overseas and cost advantages are not going to sustain high profit levels for long. Technology trends like mobility, cloud computing, social networking, analytics, artificial intelligence, SaaS (software as a service), the internet of things are fast changing the dynamics of the outsourcing market.
The business of software services continues to be human capital intensive, but fewer recruits and mid-level managers are required as repetitive processes are increasingly automated. Many big software firms are taking corrective steps to remain competitive. Companies like Wipro and Infosys have set apart funds for scouting innovation — either inhouse or through acquisition of startups in India and abroad. So far, innovation and product development have been weak points of India's risk-averse software industry. Now a software products business — as distinct from services and projects-driven work — is taking shape. A dedicated platform — Indian Software Product Industry Roundtable, or iSpirt — is busy nurturing software product ideas and entrepreneurs.
Capitalizing on early investments in science and engineering development, India showed the world a new way of doing business despite bottlenecks of poor physical infrastructure and low domestic demand. Now the country is at the cusp of another change, riding on deep penetration of digital devices and robust unmet demand for digital services. New products and applications developed in India could well show the way to companies on serving digitally poor all over the world in the years to come.