Software product companies ride risky roller-coasters

Last week, Facebook was in the news for buying out as many as 750 patents from IBM. The purpose, they say, was to counter Yahoo in a war over intellectual property. That triggered in me a chain of thoughts on the whole business of Indian IT.

India's software service industry is a great muse for economic nationalists who believe that IT services, being based on low-cost wage labour is on shaky ground and that the industry must "move up the value chain" as the management jargon goes, in order to make "products."

It is easy to give such advice, but wise to remember that companies risk their money in investment. Which means they have to be prepared for unseen eventualities. Asked once about the software product option, I recall Wipro chairman Azim Premji that he respects the product business as a separate stream but is happy to be in services.

Infosys, on the other hand, has always spoken of "branded services"- and likes to see itself in the class of Accenture, although it has a fine product in Finacle, which helps banking services.

The Facebook-Yahoo suit should sensitise us to both the risks and opportunities in the product business. Product companies have a long gestation period in developing a product and then have to spend on marketing and promotion. On top of that, they should be prepared for patent wars.

Cisco, Intel and Philips are among companies that have developed products right here in India, and have also been encouraging their Indian staff to file patents - though the patents are owned by the company. India has produced fine product companies such as iflex, that was later acquired for nearly one billion dollars by Oracle. 

In essence, India does not lack the talent to create products, but it is important to realise that services give easy, visible cash flows - something Indian firms that had humble origins obviously value more than national pride.

I dedicate this column to armchair critics who like to pillory India's IT service industry, without realising that it is a war out there, and those who spend the money should know better than those who give out free advice.


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