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Follow UsIn an exclusive interaction with Srinivas R and Saheer Karimbayil of CIOL, B Ramaswamy, president and managing director, Sonata Software, talks about these trends and the story of Sonata, which missed many buses but managed to reach the destination along with others who had caught the first bus itself.
Sonata will be celebrating 25th anniversary next year. If one looks at the company on the basis of its turnover and employees, it is way behind compared to some of the contemporaries. Why is it so?
I have to answer this question with facts from history. Initially Sonata was set up as a division of Indian Organic Chemicals Ltd (IOCL). The Sonata division of IOCL was spun off as an independent company namely, Sonata Software Ltd., in October 1984, for a consideration of Rs. 8.14 crore. Of this consideration, Rs. 1.75 crore was allotted as fully paid-up equity and Rs. 6.39 crore as debt, which has since been paid off.
As part of the growth strategy, the key strategic issue to be addressed in the long term was to attract and retain employees. With this in mind, it was felt imperative to offer substantive stock options for the employees. So we formed a Trust, namely, Sonata Software Limited Employees Welfare Trust. In fact, we were the first IT company to offer ESOPs. Through this Trust, we offered stock options to employees with a lock-in period of 5 years. In 1999, we decided to go for public, by which, promoters of Sonata could exit.
During this period, that is since the inception till mid 90s, we operated mainly in the product space with offerings in packaged software. Though we had more than 20 products, none but a few of them stayed for long in the business. At that time, no one thought about the body shopping (onsite-offsite services). Everyone including some of the big names like Wipro operated only in the product space.
Later on, when GE entered India, it was looking for some partnerships with Indian IT companies. Some of today’s well-known IT companies partnered with GE and moved on to the services space.
During the times followed, as market began to expand in scope, the industry started moving from the concept of stand-alone products to 'solutions', which included a combination of hardware, software and services.
Clients began insisting on comprehensive packages and they were demanding this to be delivered in very short time. This time constraints and the fact that none of the companies were looking at India as a product hub made us explore emerging opportunities in service space in India and that clicked. We also realized the high potential in trading solutions of biggies like SAP, Oracle and Microsoft. To address the market needs we partnered with Microsoft to offer enterprise-wide collaborative solutions.
Yes, it was a missed opportunity at that time as far as service is concerned. Having said that, we are not behind in services space. From the early 2000, we identified some partners like TUI, Microsoft, California Software and so on to address the emerging enterprise segment. We are not looking at large enterprises for this, we are targeting small and medium segment. This focus has resulted in a consistent performance in our numbers.
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How successful was the move to focus more on services?
It was not only Sonata but many of India's IT heavyweights that started their operation as product companies before totally moving to services turf. However, today, not many companies you can see in India have managed to register a 50 per cent CAGR growth rate for the last five years as we did.
During our early days, very less number of companies used IT to do business. But now things have changed as IT has taken center-stage with everything from core to tail being run on it.
Core part of the businesses in 50 per cent of the private sector companies are IT enabled. This means, a failure of the IT system could bring to halt the main operational part of the business. This trend represents a sea change in the industry.
And we utilized the opportunities very well. In the last five years, we grew from a 800 team to 2800 force. This speaks volumes of our performance.
Today, you have operations worldwide. When did you start focusing on international market?
During our early days the government sector, which is a big industry today, was almost non-existent. The time was not yet ripe for looking at domestic market to do services. In 1993, we expanded operation to international market.
Much before we went global, service market started picking up in India, when GE entered the country and signed some business deals with about 5 major companies including TCS, Wipro and HCL. Then companies like Microsoft began setting shops here, which increased the opportunities for body shopping for Indian companies.
Then market evolved into a next stage where there was lots of scope for services around implementation of products developed by big MNCs, and we realized the high potential in trading the solutions of big firms.
Many old companies could not make it to the international market in the early days. What do you think is the reason?
A major constraint that confined many within the geographies of India was lack of money supply to fund operation abroad. The moment an employee was issued a US visa, his salary was required to be raised from Indian standard to US standards and a small scale company during those days could not even think of such a move.
When did you go for IPO and why didn't you seek a VC funding at that time?
In 1993 we had formed an employee welfare trust and got funding from a bank. We had issued 58 per cent of the company shares to that Trust. They were fully paid-up shares. So we had to wait till 1999 to go for IPO.
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What makes you bet on travel space?
We are mainly targeting Europe for our travel business as for Europeans, travel is something they cannot live without. For people in that part of the earth, travel is like food. This love of Europeans for travel got us thinking and we started aggressive activities there in the segment. Most of our initiatives in travel space is in the form of tie-ups with airlines for offering solutions like cabin crew management and flight operation systems.
Being a consultancy for years, how do you think the industry will shape up in future?
Coming ahead is a time when CIOs will hesitate to spend huge money for big IT implementations. Maybe after a few years, companies will not even have an army of CIOs. The industry is moving towards an era where private cloud will rule the roost. People will start preferring pay-per-use or subscription model over huge IT implementations with upfront investment. This approach will also spare companies the trouble of having to spend hugely in keeping 'the lights on', or, in other words, save them annual maintenance cost.
What are the hurdles in adoption of pay-per-use model among Indian enterprises?
The concern about security is a serious hurdle. Nevertheless, I believe that there is no need to worry about security and these concerns have more to do with the mindsets of people than technology. Each organization goes through a lot of pain and ordeal when faced with the challenge of having to part with its core operation style and legacy infrastructure. This mental barrier has to be broken first.
You have been working on open source model as well. How do you see its future?
We are witnessing an increasing acceptability of open source tools. A few years down the line, ERP customers would stop insisting on a particular brand like SAP or Oracle as they would be purely looking at solutions that meet their requirements and suit their pocket, irrespective of their brand.
However, it is the vendor's call to decide whether they should develop an open source product and offer it or still stick on to branded products. The cost factor will play a big role in open source adoption in India.
How do you see the euro crisis affecting the industry?
Euro crisis may not affect the companies in short-term, but it will be pain full if you take it in medium-term. However, in the long-term, it could be a blessing in disguise for many IT companies as the industry would witness a spike in demand for outsourcing.