Playing against 5 Aces December 6, 2007
Posted by bernardlunn in Globalization, India, start-ups.add a comment
NOTE: THIS WAS WRITTEN IN 1997
I wrote this article 10 years ago, having spent a lot of time in India at that time. I have written the “10 years later perspective” and posted that to Read Write Web.
American software companies dominate the competitive landscape. Americans have no genetic advantage over Indians, a fact that is proven again and again by Indian immigrants to America. No, the advantage is environmental not genetic. America is a much, much easier environment within which to create great software companies. American companies start life with 5 major advantages – their 5 Aces:
1. A large domestic market
2. Access to intellectual capital
3. Reliable, low cost telecommunications
4. A culture that rewards innovation and risk taking
5. A well developed venture capital industry
If you were playing poker, that would be like having 5 Aces. Yes, I know you cannot have 5 Aces but, American companies have so many advantages that it almost seems like cheating. Stacked up against all those Aces, India has only one good card to play, an abundant supply of well-trained software engineers at reasonable rates. Sorry guys, America has the better hand.
So should Indian companies give up the dream of creating killer apps and just stick to Y2K and other low value work? Well let’s look at some of those Aces in more detail first:
A large domestic market.
America has a vast domestic market that serves as an ideal springboard for global ambitions. Unfortunately India’s domestic market does not serve the same purpose.
There are many brave companies creating software products for the Indian market. They are the unsung heroes of the business. Usually they have tiny revenues and therefore they never appear in the usual roll call of Indian software champions. Yet what they are doing is far harder than shipping a bunch of engineers off to USA, which is still the primary activity of TCS, Infosys et al
Let’s face it, India is a tough market. Indian buyers assume that foreign products must be better. In fact Indian software gets much more respect internationally than it receives at home. The local vendor typically only gets a look in at the low end of the market, where price is the main consideration. For example, a lot of Indian companies are going after the “low end ERP market” because the giants such as SAP are not interested in this segment, at least yet. Will any of these domestic companies make it into the big time before SAP and other global players decide that the low-end market is worth tapping? This is a tough game that has been called “picking up peanuts in front of a steamroller”.
This lack of respect works both ways. The big Indian software companies contrast the wealth of opportunities in USA and Europe with the slim pickings in the domestic market. They naturally put their best people on international projects, treating the domestic market as a training ground at best. This is a vicious circle. Indian industry, which is facing its own struggle to become world class, is not keen to be treated as second best.
Access to intellectual capital
Intellectual capital is the reason why a healthy domestic market is so important. Intellectual capital is much more important than revenues. You can have a world class software company that has no revenues from India. You cannot have a world class company without world class intellectual capital.
Intellectual Capital usually comes from customers. Think about how most new software products get built. The process usually starts with a visionary customer who wants to make a major impact on their business by using new technology. Looking around the market they see no off-the-shelf product that meets their visionary demands. So they tie up with some bright software guys. The visionary customer is more concerned with innovation than size and understands that innovation usually comes from small companies with no vested stake in the old way of doing things. So small, innovative software companies get their first break.
Look at virtually any software company and this is the pattern you will see. Bill Gates, received his first break through a contract from IBM to deliver DOS. Other giants such as SAP and BAAN follow a similar pattern.
When people in India talk about intellectual capital and the Indian software industry, they tend to focus on technology. They point out that most technological innovations come from the USA and that this puts India at a major disadvantage. In fact, this is only a minor issue. The latest version of Visual Basic or whatever is available in India at much the same time as it is launched in America. Through the Internet you can research all the latest technologies and download what you need.
No, the intellectual capital gap relates to industry. You need customers that are innovators and world leaders in the area of Supply Chain Management or Derivatives Trading or Electronic Commerce and these are hard to find in India.
There is one industry where India has innovators and world leaders (or nearly) and that is software. Maybe that visionary customer is in your own back yard. There is a huge population of software engineers in India that is always looking for innovative ways of doing their job more productively. Maybe the Indian “killer app” will be a new software productivity tool?
Reliable, low cost telecommunications
When Bill Gates was being wooed by the high and mighty in Delhi, he was often asked, “what should the Government do to ensure that India becomes the next software superpower?”
Rather than respond with a whole laundry list of initiatives, his answer was very succinct: “make the telephones work”.
Telephones are the single greatest tool used by the software industry. Telephones provide the means to reach your market, to transfer software to your customers and to access all that intellectual capital on the Internet.
Coming from Europe and America I took reliable, affordable telephones for granted. When I started calling on Indian companies I became all too familiar with a young lady telling me that “all lines on this route are busy. Please call back after some time”.
If you have always lived in India your reaction is probably a fatalistic “so what…that’s life…keep on trying”. Well I was selling rather than buying and so I did keep on trying. What if I was buying? What if my next calls were to companies in Israel and Russia where I got through the first time? Would I have persisted in trying to buy from India? Probably not.
A culture that rewards innovation and risk taking
There was a story in Fortune magasine recently where the big consulting firms, prestigious names like McKinsey, Anderson, Booz Allen, were complaining that they were having a hard time attracting the pick of the MBA crop. Why? Because the best and brightest wanted to work in tiny start-ups in Silicon Valley where they can make a difference.
I doubt that the consulting firms face the same problem in India. The best and brightest would flock to the status and safety of the big firms rather than face the uncertainty of a garage start-up. Without the best and brightest, Indian software will not hit the big time.
The difference is a culture in the USA that rewards innovation and risk taking. There are so many role models for the budding entrepreneur to emulate. Indeed high tech entrepreneurs in America receive almost as much attention as the Indian cricket team!
The role models are available in India and some of them, such as Shiv Nadar and Narayana Murthi, receive a lot of press attention. It is increasingly clear that software is one of the industries where India can become world class and this will help to attract the best and brightest.
America has a very healthy attitude to risk and failure. Start-ups are risky by nature. A lot will fail. Does a young engineer in America, leaving a failed start-up find doors closed and people and looking at him in a funny way? Not usually. Indeed most people would assume that the person has learnt some valuable lessons and will succeed next time. Magazines are full of people who tried numerous ventures before hitting on the successful formula.
A well developed venture capital industry
Venture Capitalists in Silicon Valley vie for the opportunity to tell their story to first year students at Stanford University. They hope that the bright kid with dreams will come to them first. Can you imagine this happening at an IIT?
Actually, yes I can imagine that! Venture Capitalists are thirsty for new ideas and don’t care where they come from. There is plenty of Venture Capital right here in India looking to invest in software ventures. OK, there are not as many as in the USA, but how many do you need? You only need one to fund your venture.
The talk about a lack of Venture Capital in India is misguided. Talk to some of the Venture Capital firms operating in India and you get a rather different story. “Indian software companies do not understand Venture Capital. We have plenty of money to invest. What we lack are good business plans promoted by credible and seasoned management teams.”
You need to understand the Venture Capitalists and talk to them in their language, but that is the subject of another article. If you have the right idea and the right management team, you will get funding.
So should you continue to play when your competitors have 5 Aces? Maybe it would be more sensible to stick to bodyshopping.
“Insanely great products”, as Steve Jobs calls them, are not created by sensible people. They are created by obsessed individuals, who forge ahead when everybody is telling them that they are crazy. There are entrepreneurs in India today who can turn those 5 Aces to their advantage and add the Indian advantage of abundant low cost talent.
There are great software companies that grew up outside of America. Look at SAP from Germany, BAAN from Holland, Business Objects from France and Checkpoint from Israel.
These companies treat America as their home market. They raise capital in America, have most of their customers in America and bring in American management talent to help them to better understand this key market. In other words they make those 5 Aces work for them and not against them. You had better take those 5 Aces and make them your own and do it quickly, because American companies are taking the one Indian Ace, your talent. Most of the major US software companies are setting up 100% owned subsidiaries in India in order to tap Indian engineering talent. That Ace no longer belongs exclusively to Indian companies.
If you think that the situation looks tough from India, look at Israel. Israel is tiny compared to India and does not share India’s English language advantage. Yet Israel received over $800 million in high tech Venture Capital from the USA last year, more than any other country and far more than India.
So, yes it is possible to create killer apps outside America. It is possible to create them right here in India. Do you have the ideas and the drive to make this happen? Do you know where you want to go but lack a road map? The Dataquest “In search of India’s Killer App” series of articles will give you a road map.
In our next edition, Bernard Lunn will describe the financing options for entrepreneurs, helping you to have fruitful discussions with Venture Capitalists and Angel Investors.
Ease of Adoption/Scale of Impact Quadrant July 4, 2007
Posted by bernardlunn in Enterprise Web 2.0, start-ups.add a comment
For years I have had a crudely drawn quadrant on the wall next to my desk to remind me what to look for in a start-up:
On one axis – Impact
On the other axis – Ease of Adoption
This used to be a trade off. Before Windows, ease of adoption was unheard of. Microsoft got the adoption by riding on the PC manufacturers. Then Google barged right into the top right hand corner with massive impact and totally easy adoption. There was a view that ease of adoption without lock-in is inherently a weak and unsustainable position but the lack of traction of all the Google challengers seem to be proving that this is not the case.
Classic enterprise software was in the big impact/hard to adopt category. This was where there was a trade off. You could build something that fitted into another vendor’s ecosystem – easy adoption but limited impact – or you could work to create something that became an ecosystem by getting totally entrenched into major companies.
I believe those days are over. The new wave of Net Native Enterprise 2.0 software makes adoption much simpler and organic. There is much less need to (as Steve Jobs calls it) “crawl through the corporate orifice” to get adoption. You won’t get VC to fund a “storm the barricades” type of frontal assault with big sales and marketing budgets.
This will probably limit impact, unless there is a network effect, however I see fewer sustainable network effects leading to Windows type dominance in future. For example, WordPress and other blogging tools attempt this but I think it is a weak concept (much as I love WordPress) as no blogging tool will get dominance and nobody wants to limit their network to one arbitrary set of bloggers.
That is probably the reality of Enterprise 2.0. Despite the great efforts of marketing departments to drum up new paradigms, we are simply into a very long and sustained roll-out of Net native versions of what we have always had in the enterprise. This will lift the boats of every enterprise software player that plays well in that environment and enables some new niche players to emerge, but I doubt we will see anything of the scale of Oracle or SAP emerge.
Most of the Web 2.0 start-ups that I am seeing fall into the low impact/easy to adopt quadrant. I am sure that statement will raise a lot of hackles and I am not trying to offend. I have worked in many start-ups and I am very aware that any traction looks like massive impact for a start-up and should be shouted from the rooftops. I am certainly not trying to rain on any parade.
The barriers to entry are now so incredibly low – use Amazon S3/EC2 for infrastructure, mashup code and deploy online, use RentACoder to get cheap brains. Get it out into the Blogosphere and let the widgets propagate virally. So no problems on the ease of adoption front.
But big impact? Go outside the Web 2.0 Bubble (I am not referring to financial bubble more like “boy in the bubble”) and ask a random selection of ordinary people what recent innovations on the Net have made an impact on their lives? It is a bit sobering.
Usually massive impact means that the solution is solving some huge “pain point”. Personally I think the Web works pretty well. Sure there are some minor annoyances but not anything that I would spend any money to fix. I can see some Web 2.0 tools making life easier, but in small incremental ways, not really life changing ways – not like the PC, email and search.
The reality is that the massive impact deals only come about every decade or so. I don’t believe the next one will be in IT and I say that as somebody who has made his career in IT. The massive impact ones have to be addressing real “pain”. There are plenty of pain points out there – disease and global warming come to mind – and the Web will have a massive impact on helping with these big problems by spreading knowledge. These are all about big science. Fix the problem and adoption ain’t your problem (a real cure for cancer won’t need a marketing budget).
Of course there is a ton of money to be made in media niches and office/Net productivity tools. YouTube is entertaining, like those best of home videos on cable, but changing the world? It is the breathless we are changing the world hype of a lot of Web 2.0 that is a bit old.
The one thing that stands out as big impact is social networking, whether for dates (younger crowd) or deals (mortgage payers). It fulfills as basic a need as email did. I suspect we are at the early stages of social networking and something new will emerge that makes it more sustainable. I do not buy the notion of the “social graph” as the new platform. I believe that Social Networks actually have a reverse scale effect. When there are too many people in one network it loses the whole point of a relationship, it just feels like a big anonymous place and we avoid it to look for more personal ways (online and offline) to build and maintain those relationships.
The Internet is The Platform and nobody controls that. Thats just fine with me.
The Internet Changes Everything. The Ease of Adoption/Impact quadrant is no longer applicable. Possibly Crossing The Chasm is out of date (I am still figuring that one out). In an open “services” Internet, the idea of a dominant platform is almost certainly dead.
Mahalo and other human-assisted search challengers to Google. June 25, 2007
Posted by bernardlunn in B2B Media, start-ups.1 comment so far
The New York Times article yesterday about Maholo and other search engines challenging Google by adding humans must have got a chuckle or at least a wry smile from “traditional” publishers. They have been doing “human-assisted search” for 100 years or so.
Yahoo is the best example of how to mix automation with human editors. Of course, given their current turmoil, the human-assisted search proponents are unlikely to hold them up as a poster boy. There are also plenty of very good examples of this within B2B Media, but these sound very unglamorous with names such as directories.
This really is old wine in new bottles. I also believe that the head-on assault on Google is fueled by a me-too approach by investors that will yield very low results.
When Google went public I, like many others, thought the switching costs were too low. I think we all underestimated the power of habit. I use Firefox and have a bunch of search engines in my toolbar, so it is totally simple to try alternatives. I do use alternatives to Google occasionally, mostly because I am interested in the subject. From this small sample, I think Ask may have a shot at being an alternative, but even when I use Ask I still use Google as well to make sure I have not missed anything.
The Google ascendancy is likely to be shorter than Microsoft’s, which was shorter than IBM’s. Shorter ascendancy seems to be one more consequence of Moore’s Law. That maybe interesting academically. However, from a business planning point of view, the way to make money in the next few years will be within the Google ecosystem. Thousands of companies did very well within the Microsoft ecosystem and I suspect that when the history is written there will be many times more from the Google ecosystem.
Research is still one of two killer apps of the Web (communication i.e. email to social networks) is the other. Search is not Research. It is only the start of (Re)search. Every $ earned by Microsoft leveraged many, many more $$$$$ for their ecosystem. Yes their $ at the head of the ecosystem was fantastically profitable and so is Google’s $ at the head of the new ecosystem, but once you get over that fact and learn to live with it there are tons of good opportunities.
Playing within the ecosystem in a niche market has its challenges. One has to be agile and constantly find new ways to add value. When Microsoft/Google says “we want to partner with you and we have no ambition to directly enter your market” you always have to add “at least not yet” at the end. This has been called “picking up peanuts in front of a steamroller” but in the early days of the ecosystem those peanuts are pretty big and the steamroller is still miles away and you can gauge the speed reasonable accurately.
There were very many Microsoft challengers that came and went and many had big funding, determined management and had lots of publicity. The David vs Goliath story is always popular because we all know that usually Goliath wins even while the romantic in us roots for David. A few high profile blow-outs then leave investors with the “don’t invest in a Microsoft/Google killer”.
Those who resented IBM’s dominance welcomed Microsoft in the same way we now welcome Google as they give Microsoft a run for their money. Some day we will do the same when we see a genuine alternative to Google, but I suspect that is many years away when the current crop of challengers will be long gone.
Reflections of a WordPress newby on Enterprise 2.0 May 24, 2007
Posted by bernardlunn in Enterprise Web 2.0, start-ups.2 comments
As a newcomer to blogging – this is my second post – and somebody who is old enough to remember using a Telex machine to send a proposal, I needed to use something that was pretty intuitive. After about an hour working with WordPress I can say that WordPress is as good as it gets; it is as close to “free, perfect and now” as I have seen. I can see that there is tons of functionality that I have not yet used and I am motivated to experiment and learn more as my experience to date indicates that my frustration level will be low.
During 30 years in the software business, I have got used to the idea that software is mostly pretty bad – no, lets be frank very bad. Pre the PC I learnt that software was monumentally hard to develop, always (I mean always) over budget and and the green screen text stuff was for people in back offices and data centers only. My first hands-on experience was with a Mac (great) and then decades of frustrations with Windows. (Full Disclosure, I love how bad Windows is, as the support problems enable companies like iYogi – where I am a co-founder – to thrive).
WordPress is part of a new wave of software that looks like it may actually get it right. This looks like second generation Net native software. The first generation of Net native got the “wow” factor but rather the same way one goes wow when you see a dog walking on its hind legs (amazing that Rufus can do it, but he still does it very badly). The second generation takes Net native as a given and really focuses on usability. It has to be usable as adoption is based on thousands of individuals voting every minute with their mouse.
This is not how the Enterprise works. Somebody makes a decision and everybody has to use the clunky monstrosity. Of course people do still vote with their mouse but in destructive, passive aggressive ways that derail the project. These are the projects where the CFO at the post-mortem meeting asks “So are are you telling me that after 3 years and $x million we are facing a write-off decision? Can somebody tell me how we got here?”
I can see how systems like WordPress can avoid this by growing more organically. Add a few colleagues/partners as posters. Add some traditional semi-static pages. Add some social network, a bit of video and a podcast or two. Pretty soon I have a modern CMS, with minimal implementation costs and all on a pay as you go basis.
This is what the analysts are touting as Enterprise 2.0. At a 30,000 foot level it makes sense. History has a way of repeating itself and Web 1.0 went from individual to Enterprise and the big Enterprise Net roll-out is still in full swing. Does that mean WordPress type companies should hire some hot-shot sales guys to knock on CIO doors? As somebody who has knocked on a lot of CIO doors, I think not. The possibly vicious cycle goes like this:
- Get VC by writing a Business Plan with aggressive revenue projections
- Hire expensive sales guys who will promise whatever it takes to get that revenue target
- Build whatever clients want/demand without the time to design it right
- Clunky monstrosity here we come
This can end fine with a trade sale, everybody walks with some money vowing to do it right next time. Actually I think we have a lot of teams with precisely those scars who are determined to do it right this time.
The Net has not only changed the way we deliver software. More importantly it has changed the way people buy software. The enterprise gatekeepers have less power. The gatekeepers still have veto power but only if the software breaks the rules on privacy and security. It is not just start-ups buying this way, it is self-managed teams and departments. Try it free and use the credit card to buy a bit and expense it; the credit card vendors do a good job at expense tracking and those miles and other benefits are nice bonus.
Then at some level of usage, the corporate department may come in to give it the blessing and negotiate volume discounts. The trick is not letting those negotiations drive the featuritis that becomes spaghetti code (as in “we will buy 500 copies if you add xyz feature now”).
I am hopeful that this is a genuinely new era for software and that the teams who have enough experience with the old ways will stick to their design vision and keep it growing with Einstein’s famous phrase in mind:
“Everything should be made as simple as possible, but not one bit simpler.”