How IT companies betting big on product business
Indian IT services companies are increasingly betting on the product and platform (P&P) side of business
Indian IT services companies are increasingly betting on the product and platform (P&P) side of business. This move, which has started some years back, is now getting a massive boost from all software companies. During this pandemic period, the world has seen increased use of digital interfaces like apps through which many day-to-day activities are being performed now. Such an app-heavy environment is a sign that enterprises across the globe are moving to cloud-based SaaS platforms. This productization of IT services is prompting Indian IT firms to increase their investment in product and platform business.
Hearteningly, the top4 players- from market leader Tata Consultancy Services (TCS) to Infosys, HCL Technologies and Wipro - have not only pumped in millions of dollars in building up capacities, some have even grown them as separate units over these years. For instance, TCS has carved out a new unit called 'Digitate', which is a pure-play software products company with its own human resource (HR) rules and different pay scales since 2017. 'Digitate' houses TCS' artificial intelligence-powered product brand 'Ignio'. According to the company, over 95 per cent of deal wins in the last one year have been cloud-based, SaaS-based platforms. While TCS' Cognix won six large deals, Quartz blockchain had two new wins and one go-live, TCS HOBS suite of products for communication service providers had four new wins and six go-lives and TCS Mastercraft suite had 22 new wins in Q2FY22, said brokerage firm Prabhudhas Lilladher in a note. Similarly, its banking platform BaNCS has helped the company to win many deals in the BFSI space. Reports suggest that the P&P side of business of TCS is now worth $3 billion, comprising 12-15 per cent of its total revenues.
Not only TCS, but Infosys, HCL Technologies & Wipro are also betting big on P&P business. Infosys has clubbed most of its product business under its subsidiary 'EdgeVerve'. The Bengaluru-headquartered firm's core banking platform Finacle puts the company in a good stead on the BFSI vertical. Though the valuation of this subsidiary is not in public domain, experts peg it at more than $1 billion. HCL Technologies has heavily invested in the P&P side of business over the years. It acquired select IP products from IBM for $1.8 billion in 2018, making it one of the biggest investments by any Indian IT firms ever in this space. It has also set up a new business unit called HCL Software, bringing all the IBM intellectual property (IP) partnerships and acquisitions under the division. Though the P&P business softened during the second quarter of this fiscal, this is likely to pick up in coming quarters. Wipro is also betting big on this side of business as the company witnesses revival in its growth graph in recent quarters.
As our interactions with digital interfaces grow, platform-based solutions on subscription model seem to be the future. However, many global giants have faced issues in managing both service and product side of businesses under one roof.
Many have carved out different companies for managing the product side of business. It will be interesting to see how Indian IT firms manage both businesses under roof in coming years without overlap and cannibalisation.