Beyond Windows

Till just three years ago, D. Senthil Kumar of DSP Knitting used to haggle on the phone for orders, and battle with bulky ledgers for tracking raw materials, inventory and staff—when he wasn’t travelling long distances for meetings. Based in the nowin-distress Tirupur textiles hub in Tamil Nadu, DSP Knitting was earning around Rs 7 crore a year. Life began changing in 2006, after a meeting organised by the government at his industry cluster.

Microsoft’s people offered an array of solutions. After the first set of computers, for bookkeeping, came Microsoft’s Project Vikas, developed by its local partners. More applications specific to the cluster were developed. So DSP Knitting was soon using the portal set up under Project Vikas to hunt for cheap raw materials, look for buyers and even to hire talent or tap finance.

Scores of companies, all firsttime computer users like DSP, are today using the Net-based applications, including one that calculates the exact amount of cloth required to fill an order. And when senior managers have to travel, they can log into their ERP system from remote locations to keep abreast of orders. The result: savings of lakhs of rupees. As Kumar says: “Microsoft’s partners were able to build solutions to solve problems intrinsic to the textile industry.”

What Kumar does not realise is that Microsoft also benefits by helping entrepreneurs like him. Says Craig Mundie, Microsoft’s Head of Strategy and Research and its India Sponsor:“Back in 1990, we approached the market in a different way with our traditional products. We have now developed different products or business models to suit the Indian market (See interview on page 74).”

 

Thrust areas of Microsoft’s new India strategy. Strategy: Consider new business models besides software and licensing. Action: SMEs already have the option of using hosted Microsoft applications instead of installing them. Mulling pay-per-use revenue model. Strategy: Focus on growing the market rather than fighting for a share of existing one. Action: Project Vikas, created to provide low-cost IT solutions to 10 industry clusters. Strategy: Move from an almost urban-only approach to a much deeper penetration. Action: Has expanded from 10 cities to nearly 30 cities and eventually plans to be in top 300 towns. Strategy: Draw up specific target for e-governance technology, where government spend is expected to be around Rs 23,000 crore. Action: Has a business unit focussed on this market; around 300 e-governance platforms run on MS. Strategy: Make the consumer market profitable with updated MSN, Xbox and Windows Mobile. Action: Improve the customer buying experience for PCs and expand 6,000-store retail backbone.

New Storyboard
Welcome to Microsoft India, circa 2009. If its Founder Bill Gates is a firm believer in C.K. Prahalad’s theory of a fortune at the Bottom of the Pyramid, Microsoft India is discovering exactly that— driven as much by conviction as by circumstances.

It has come a long way since 1990, when it opened a modest office in Delhi to sell its disk operating system and Windows 3.0. Poor PC penetration, pricey software, limited access to IT and low Internet connectivity hobbled its initial steps. So, along the way, it had to modify Gates’ initial ambition of putting a PC atop every desk, trek to small towns, and befriend the small and medium enterprises (SMEs) that form Indian industry’s backbone.

One of Microsoft’s biggest challenges has been the consumer market. “The consumer market is a huge untapped opportunity for Microsoft... 65 per cent of India’s GDP is from private consumption, but we make virtually no money from this market,” says Venkatesan.

Growth has been stunted: in 2007-08, Microsoft India’s revenues from its marketing business were around Rs 3,263 crore, and are expected to hit Rs 3,800 crore this year. Its China’s revenues are almost double. India revenues are tiny for Microsoft (global revenues $16.6 billion or Rs 83,000 crore for its second quarter this fiscal), but with its global top line growing at just 2 per cent, Microsoft has been focussing more on emerging markets.

Since 2003, Microsoft India’s headcount has grown over 10-fold, from below 450 to over 5,000 this year. All the same, India, from being just another market, has, along with China—where Microsoft opened in 1992—become a growth driver and “a key strategic market,” according to Mundie.

The biggest hurdle in making inroads into the consumer market isn’t the popularity of the product, but piracy. According to estimates from NASSCOM-BSA, the piracy rate in India has come down marginally from 74 per cent four years ago to 69 per cent this year. (IT dealers say piracy of popular Microsoft products could be as much as 85-90 per cent.)

“Piracy is the one challenge that keeps me awake at night,” says Rajan Anandan, the former Dell India Head who moved to Microsoft India as Managing Director in September last year. Microsoft’s efforts—from security keys to destruction of pirated software—to foil piracy, have been thwarted by the high cost of original software and the flourishing grey market. It is now betting on the user-experience of its low-cost starter and basic editions. “The rate of piracy will change only when there is increased respect for intellectual property,” says Venkatesan.

Then, there is the challenge from open source software based on Linux, with firms like Red Hat making significant inroads. Governments are opting for open source. Their spending on e-governance initiatives could add up to Rs 23,000 crore over the next few years. “We see strong growth and interest in our solutions from the government, manufacturing and small business sectors,” says Venkatesh Hariharan, Director, Corporate Affairs, Red Hat, India. Consumer Overhaul
So, what has Microsoft India done so far to change with the market, instead of waiting for the market to change? First, it ditched its initial focus on the creamy layer in the metropolises. This had excluded 80 per cent of the population. Even those who could afford Windows or Office hesitated: less than a decade ago some versions were priced at around Rs 10,000, while pirated versions could be bought for a tenth of this.

Venkatesan says part of the problem is that “the retail experience while buying a PC in India is horrible”. In contrast, China’s PC sales have been much faster, because of rapid broadband proliferation. In China, he adds, PC sales add up to around 35 million a year. India’s figure: 7.5 million. But half the PC sales in China are to individual consumers, against a third in India. Also, China has 100 million broadband connections against just 5 million in India.

Jaspreet Bindra, who heads the retail, entertainment and devices business, is expanding into large format outlets. “Microsoft is present in around 6,000 stores in India and we want to expand our presence,” he says. But industry watchers point to the turmoil in retail and say Microsoft’s growth may slow down. Bindra is also eyeing other markets— like the $100-million console gaming market, where he aims to get ahead of rivals Sony and Nintendo. “We are a leader (in India) in a small market… we need to focus on gaming and convert more people first into casual and then hardcore gamers,” says Bindra. “We think the Xbox is much more than a gaming console: it’s a music system and movie player all-in-one.”

 

Next Gen Computing Microsoft Research looks into how technology could look decades in the future. Run by Richard ‘Rick’ Rashid, a former computer science professor at Carnegie Mellon University, it focusses on: Emerging markets and research partners: Works with labs at top universities globally and teams in emerging markets. This year, Microsoft Research and University of Washington showed off cluster computing to analyse images from the Large Synoptic Survey Telescope and analysis of biological sequences. Also on display: Microsoft Research work on supporting education to a full classroom using a single PC and a solution to monitor delivery of tuberculosis medication using an electronic pillbox. Hardware devices and mobile computing: So, everyone’s been talking of saving power and the environment, now Microsoft researchers want to prove it’s possible. A demo called low power processors in data centres used processors that provided 50 per cent of the processing power with as little as 5 per cent of power used. Other displays included Second Light, which uses a liquid crystal diffuser to provide two types of surfaces to users. One acts like a regular multi-touch screen, but toggling a switch allows you to literally levitate the image on the screen into midair. Search, Interaction and collaboration: Location-based services may be the next hot thing on the Internet and Microsoft is already showing off its next evolution, GeoLife 2.0. A location-based social network, it combines two of the hottest trends on the Internet and provides each person’s location histories to help people make friends online. This also provides for much more targeted advertising for companies looking to use the Internet. UI, Graphics and Media: Projects such as Family Archive look to take the very old-world task of filing pictures and sentimental gifts into boxes and transferring it online. The project provides a multi-touch based 3D interface to not only box your favourite pictures and put them away in a “basement” but also take pictures of your favourite toys, convert them into 3D format and store them, too.

 

Out of the Window
“India’s PC penetration is 36/1,000, compared with the global average of 68/1,000 and 108/1,000 in a country like China,” says Diptarup Chakraborti, Principal Research Analyst at technology research firm Gartner. “Microsoft clearly had to look beyond this market in the long-term.” Of the 8 million SMEs, just 1.7 million have computers and only 300,000 are networked. Much of the action is happening in the hinterland, with companies as well as individuals being potential targets.

“We (Indians) don’t use much technology beyond the cellphone; that is a huge opportunity and challenge as well,” Anandan says.

Industry veterans such as Bharat Goenka, Founder of Tally Solutions, the accounting software maker, say Microsoft is underinvested. “Microsoft has been talking of mining the India market for some time,” he says, adding, “but their entire sales team is 30 people, which is completely inadequate for the Indian market’s potential.” He reckons Microsoft needs at least 3-5 people per state.

But Microsoft India is no longer focussed on product sales and licence fees. It is pushing new business models based on monthly and peruse business, while leaning on its army of “partners” to devise specific solutions. Microsoft has over 6,000 registered partners, including 4,000 billing partners across 273 cities, backed by distributors whose mandate is market development.

However, Goenka says that while the organised hardware distribution system has large firms, software distributors are smaller and less organised. “Many distributors are in small towns and cities, with little access to technical support.

None of the MNCs has managed to put together an effective system to support these small players,” he says. Unlike its arch rival Google’s web-centric strategy, Microsoft offers the option of a hosted solution or software conventionally installed on site. Microsoft’s partners focus on infrastructure and networking solutions, among others, and develop solutions based on its platforms and technologies.

The key to all this is the Microsoft India Development Centre in Hyderabad and Microsoft Research in Bangalore. The development centre began with 20 people; today it has 1,500 people working on 20 different areas.

The research team is working on solutions such as a split-screen user interface, project translation software and multi-point technology (See Next Gen Computing). Perhaps Microsoft’s biggest bet is on software as a service (SaaS) and cloud computing (See Live in the Cloud, page 76). Unlike Google, Microsoft has been relatively reluctant to take its businesses online.

Moving away from its traditional model of licence revenues, Microsoft now wants to distribute its products and tools as a service. “We want to consider selling our software on a per month or per user model to make it more accessible,” says Venkatesan.

In the consumer market, Microsoft is revamping its MSN Online portal, which has passed Yahoo to become the second-most popular website in India. Hemant Sachdev, Joint Managing Director, Consumer and Online, and a telecom veteran, says Internet in India is where the mobile services market was a decade ago. “(There is a) highly evolved user who is demanding more and a large mass of users who are yet to enter the the market,” he says.

Rishi Srivastava, Consumer and Online Marketing Officer, Microsoft, adds: “At Microsoft we will give you that entire experience, from your web start page, to e-mail, to blogs and to online storage.” While that might sound scary to some, it is the same strategy being followed by Google. Textiles to Teaching
It was Microsoft’s decision to focus on SMEs that took it to Tirupur (and thus, to Senthil Kumar) where battered garment exporters are seeking savings. At Tirupur and at nine other industry clusters, Microsoft has invested $125 million in Project Vikas with the National Manufacturing Competi-tiveness Council, to help SMEs increase their global competitiveness. India has around 380-400 clusters focussed on specific industries, covering 4,000 companies.

The company has recently partnered with Sify to impart digital literacy skills. Its Project Shiksha has since 2003 covered 335,000 teachers and Microsoft has committed another $20 million to expand it. Microsoft has also invested in Project Bhasha, an Office interface pack in 12 languages. For student developers and entrepreneurs, Microsoft has launched DreamSpark and BizSpark, providing them free software, solutions and tools. “Our vision is to build a large ecosystem of developers,” says Venkatesan.

Microsoft has also showed it is not shy about investing in other companies. Last year, it acquired an equity stake in Oxigen Services India, an IT-enabled distributor, and a few months ago, Microsoft Singapore bought a piece of Affle, a mobile media company. Educating teachers and providing solutions for small businesses helps build loyalty; Microsoft will need all this goodwill to compete against open-source. “They are our best brand ambassadors,” admits Venkatesan.

Microsoft can also expect homegrown and multinational competition in the SME market. Chennaibased Ramco Systems, for one, says its core market is small businesses and its solutions are significantly cheaper and easier to integrate than those of MNCs.

Anandan disagrees: “Our total cost of ownership is 30-50 per cent less and Microsoft solutions take half the time to deploy compared with our rivals. We already have 3,000 customers in the ERP/ CRM space, which is our fastest growing business in India.”

A representative of SAP, the German software giant, contests this: “The time for SAP’s implementation can be as low as 48 hours.” All said and done, Microsoft India has certainly changed its tack, and of late at an accelerating pace. “Craig (Mundie) believed in tapping the opportunity 10 or 20 years from now,” says Venkatesan. But the company will have to negotiate the slowdown just when it was looking to set the pace. With uncertainty writ large over the global economy, it may take some time to reach escape velocity.

 

“The first real computer for most people… is the phone” In a telephonic interview with BT’s Rahul Sachitanand, Craig Mundie, Microsoft’s Head of Strategy & Research and its senior-most executive to focus on emerging markets, outlines the company’s vision. How does Microsoft view India and the emerging markets? We see emerging economies as a long-term opportunity that started with our investment in China in 1998. Many of the lessons that I learnt from that office were transferred to our engagement in India, which we started six or seven years ago. How is Microsoft’s strategy for emerging markets different from that for the developed ones? Back in 1990, we approached the market in a different way with our traditional products. We have now developed different products or business models to suit the Indian market. Our development team also has substantial ties to the local market. How have the emerging and Indian markets changed since you first decided to focus on them? One, there is a much broader use of IT, with small companies especially using technology to drive productivity. Second, emerging markets have gone from being a relatively insignificant part of our revenue, to today having each of the BRIC nations growing the fastest. How challenging is it building the market from the ground up rather than fighting for a share of an existing market? India is at the stage where it needs to more aggressively use IT. Microsoft has worked on building an ecosystem of companies to provide that local ability to use IT. At Microsoft Research, Bangalore, we work on solutions focussed on computing in the rural environment. We’ve also worked with partners to marry cellphones and PCs for the agricultural community. The first real computer for most people… is the phone. Microsoft’s strategy has been centred around the PC… How has the mobile phone changed your plans? In many developing countries, the cellphone is the leading edge of the adoption of some form of computing in people’s personal or business lives. It gives them their first window on a daily personal basis into what could be achieved using a web services environment. Do you see Indian companies, especially SMEs, looking at your cloud-computing solutions? We do think that software delivered from the cloud will become a simple-to-manage and click-to-run model. In India, one of the biggest challenges to this is broadband deployment, which is still lagging. We will continue to provide software in a traditional environment, since it will increase the market size.

— Additional reporting by E. Kumar Sharma and Kushan Mitra