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IT cos tap new service lines to push growth

Traditional IT services such as application, maintenance and development can no longer drive IT growth in India. Faced with the prospects of growth platueing in well penetrated AMD services, the homegrown companies have begun to realise the need to focus on new service lines if they have to continue growing at 30% and above.

Companies are now gearing up to provide new services such as infrastructure management, package implementation, systems integration, business process outsourcing and IT consulting. These services account for 65% of global IT spending. The volume market share of Indian companies in these services is within the 1-6% range.

S Gopalakrishnan, COO, Infosys, said: “When a service starts to get adopted and commoditised, the premiums become lesser and therefore there is a need to tap new services.” This phenomenon has become even more visible today, with companies preparing to tap global markets in different services for higher premiums and margins.

According to the CLSA report, companies such as Infosys and Wipro are well positioned to tap new service lines. Infosys seems to have made some timely investments in the new services lines that are likely to be large contributors to their growth.

The results are already being seen, with the share of package implementation services and testing in revenues gradually increasing. The majority, however, still remains with the AMD segment. The report estimates that upto 33-50% of growth is likely to come from new services in the next couple of years.

BPO and ITES and Infrastructure management clearly seem to be the key focus areas. Together, they account for a whopping $ 250 bn in the global market, compared to just $30 bn in application, development and maintenance. In BPO and ITES, while India already has a market share of 6%, there is tremendous potential for growth considering the large global market size.

So far, Wipro seems to lead in this segment in terms of scale, although more than 80% is focussed on call centres. The company is, however, looking for a transformation to non voice services. So far, the AMD segment has been the key growth driver where the Indian IT bigwigs have garnered a global market share of more than 20% through their low cost advantage.

Not surprisingly, this sector also accounts for more than half of the revenues of the Indian IT majors. New and relatively untapped IT services seems to be the new mantra for Indian IT majors today, especially as global behemoths expand their activities in India, diminishing the cost advantage that the homegrown companies have traditionally thrived upon.

Techno fever and the Timeline

Contrary to popular belief, we science fiction writers don’t attempt to predict the future. By extrapolating on current trends to envision a range of futuristic scenarios, we try to prevent undesirable futures. Indeed, making specific predictions about the future of technology at a time of rapid change is foolhardy, if not outright hazardous. Even when we know the limits of the possible, it is difficult to guess exactly when these developments might take place. Technological developments have a habit of overtaking even the most optimistic estimates — and negative predictions can be very hard to live down. For example, when I proposed the idea of the geostationary communications satellite 60 years ago (in Wireless World, October 1945), I imagined it would be achieved within a few decades. In reality, it took only two. And when I wrote a short story called Dial F for Frankenstein in 1962, I had no idea that it would one day inspire British scientist Tim Berners-Lee to invent the World Wide Web (in 1990). The story revolved around a scenario where all the telephones in the world were connected to each other — with results that now seem obvious in hindsight. As a life-long optimist, I have always believed that the best is yet to come. So the next 25 years, I am sure, will be more amazing than the last. As a species, we are ‘hard-wired’ to explore our environment and our imagination. We should never underestimate the capacity of our own ingenuity to take us by surprise. New technologies offer new avenues of exploration. I had never imagined that I could enjoy the world’s greatest composers while sitting on my favourite beach — until someone in the Sony Corporation came up with the Walkman. Technology’s progress has already had a profound impact on business and commerce, and this will accelerate in the coming years. For much of history, trade involved moving atoms (physical goods) from one place to another. Things changed very little from prehistoric times — when Ugh the caveman bartered a piece of mammoth steak for a nicely chipped flint knife – until a few decades ago. Advances in communications technology then enabled us to move electrons (information) at the speed of light to anywhere on the planet — and beyond. But this is only a beginning — we can imagine even more fantastic possibilities in the longer term. Two things that particularly interest me are teleportation and replication. Both are, of course, old favourites of science fiction writers, and it’s high time that technology caught up with our imagination. I was therefore encouraged to read of recent experiments in Europe that have succeeded in transferring matter from one place to another through a beam of wave particles. Of course, we humans are complex yet delicate beings, so it would be some years before we can say: ‘Beam me up, Scotty!’. Meanwhile, there already are impressive 3-D holographic projection systems that enable a person to be in two places at once (well, at least appear to be!). In the post 9/11 world, with airports beginning to resemble fortresses, this would appeal to business and political leaders who frequently need to address meetings in different cities and countries. A couple of years ago, I used this technology to join, live from Colombo, a gala ceremony held in my honour in Los Angeles. Those who at the other end reported that it was almost like the real thing... Far more revolutionary, when it happens, would the ability to just copy any item to produce exact, authentic replicas. In my Profiles of the Future (1962), I described such a ‘Replicator’ – one that can make copies of hard objects just as a photocopier today produces two dimensional copies. If this seems astonishing, think of a hi-fi stereo set that reproduces a Beethoven climax as easily as the twang of a tuning fork. These too would have seemed magic only a century or so ago. The advent of the Replicator would eventually mean the end of all factories, and perhaps all transportation of raw materials and farming. The entire structure of industry and commerce, as it is now organised, would cease to exist. Every family would be able to produce all that is needed on the spot — as, indeed, was done through most of human history. The present era of machine mass-production would then be seen as a brief interregnum between two longer periods of self-sufficiency, and the only valuable item of exchange would be the matrices — or recordings, which had to be inserted into the Replicator to control its output. Will replication technology arrive soon enough to save our world from increasing conflicts for basic resources and energy? Can it help improve the lives of millions of people living in poverty and depravation? Might we see some early models of Replicators being rolled out by 2025? I won’t hazard any guesses on the timeline — except to say that the future has a habit of arriving sooner than we expect.

Addicted to Mobile Phones

A mobile phone can be just as addictive as a cigarette. This is what mobile operators are counting on as they fall over each other to offer products with ‘lifetime validity’. Experience, according to leading operators, proves that anybody who has a mobile phone in his hand, will sooner or later, start using it for making outgoing calls.

While the lifetime validity schemes being offered by mobile operators may be a bonanza for customers, it is felt that the same may not be true in the case of telcos. Industry observers pointed out that telcos will end up mopping up a whole lot of ‘marginal’ customers who are likely to use the cellphone only for incoming calls. These schemes are likely to result in a greater drain on scarce resources like spectrum and capacity while resulting in only a one-time revenue for the telco, they said. However, telcos do not think of these products as a losing proposition. “It’s part of our affordability strategy. We believe there is a huge strata of society that will opt for this scheme, like senior citizens. Moreover, if you receive calls, you will definitely make calls as well,” said Manoj Kohli, president, mobility, Bharti Tele-Ventures. According to operators, this is a way of ‘seeding’ the market. Such schemes are aimed at widening the subscriber base and bringing in the peripheral customers. For instance, this type of scheme is likely to appeal to the ‘thelawalla’, the fellow who spreads his wares on the road each morning to sell knick knacks or clothes or vegetables and fruits. “Over a period of time, besides calls, subscribers will also use the mobile for value-added services, net surfing and a range of revenue-generating applications,” said Idea Cellular VP (marketing) Pradeep Shrivastava.

Operators may be counting on usage going up in the long-term, but going by the experience of BSNL & MTNL, this may take a while. After all, a large segment of the customer base of the two PSUs has been happy restricting their outgoing calls to the number of free calls (about 150 or so earlier and now about 60 calls) provided by the two telcos, thus incurring only the monthly rental. “The PSU telcos were subsidising the rural and low income subscribers, but at least they earned a monthly rental. Some of the current lifetime validity schemes are likely to show a one time revenue only,” said industry observers.

While these schemes are expected to further lower the average revenue per user (ARPU), but operators point out that they will receive termination charges of 30 paise per minute for every incoming call. Whatever the merits of the scheme, the fact is that operators had little choice but to introduce these schemes. Since Tata Teleservices, which started this trend, was offering a much longer validity product than the usual one-month period, they perforce had to offer something on the same lines. In order to catch the eye of the fickle subscribers and to possibly do a one up on the rivals, the operators had to offer something more than just a couple of years. Lifetime validity sounds good, doesn’t it? But do these products, that have really caught the imagination of subscribers, really offer lifetime validity? Customers planning to buy these products for their drivers or their residences or for their village homes where there isn’t much need to make outgoing calls, are wary that they may have a catch.

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