Businessworld: Our Own Silicon Valley

GUEST COLUMN

Bangalore may become East’s silicon valley, thanks to rapid expansion in software ecosystems

AJAY KELA

16 Jan 2009

Historically, the software product industry has been dominated by Silicon Valley in the US. A few companies in Europe, too — such as SAP — have seen outstanding success. In comparison, the Indian software industry is nascent; and Indian companies, except for the odd few, are crawling babies. But the course of history is set for a remarkable change. One of the predictions I have is that Bangalore will emerge as the Silicon Valley of the East by 2015.

Dramatic as this may sound, the signs of evolution in the software product ecosystem are all around us. This is evident on two fronts. First, nascent software product companies are mushrooming in India. And second, established software product companies around the world are increasingly outsourcing their product development activities to India, thus changing the ecosystem.

There are four spokes in the ecosystem for software product development to flourish: entrepreneurs, software engineering talent, availability of capital, and access to markets. Recently, product services companies such as Symphony Services are also acting as catalysts to the software product ecosystem — a fact that is not only accelerating and strengthening the first two spokes but, also providing a framework for software product companies worldwide to raise productivity, accelerate time to market, increase quality, and provide the best talent through global access to such talent.

To begin with, it is entrepreneurship that is helping boot the ecosystem. With the Indian economy vibrant, Indians returning home from overseas are increasingly setting up their own companies in India. Add to it the fact that the new generation of Indians are more entrepreneurial by nature. Helping them along are organisations such as The Indus Entrepreneurs (TiE), the National Entrepreneurship Network (NEN) and Nasscom. We are reaching the tipping point and now have a robust entrepreneurial ecosystem forging this industry forward.

Entrepreneurs need software product engineering talent. The good news for them is that an army of engineers is rapidly being groomed. Traditionally, Indian IT industry has focused on building software for internal use. If a Bank of America wanted internal efficiency in its operations, it would specify the product functionally and turn to an Indian service provider to build the software product. Thirty years and a $40-billion industry have honed engineering skills yet this has been limited to catering to a small internal user-base. That was the first stepping stone. Post the dotcom bust of early 2000, software product companies that built commercial grade products used by millions of end-users have en masse moved their product development activities to India. Result? Driving down Outer Ring Road in Bangalore gives you the feel of Highway 101 in Silicon Valley. This is accelerating the development of the second spoke — building an army of software product engineers.

There is something else that has begun to lend Bangalore the flavour of Silicon Valley; many of the Valley’s venture capitalists are setting up shop here, some with $100-million funds focused on India. Intel Capital, Sequoia and NEA Indo-US Venture, among others, have now created India specific funds. Along with the capital, they too are sending their investment experts to mentor the entrepreneurs and guide their companies. This is yet another harbinger of things to come in the software product space in India.

Finally, access to markets is critical — and as far as India is concerned, this is the weakest spoke in the ecosystem. For Indian companies, US and European markets will continue to dominate in the short term. In a bid to reach these markets, Indian firms will offshore their sales and marketing functions, a model that is proving successful. In parallel, the Indian market is evolving — even today the retail and telecom space in this part of the world, along with China, Japan and Korea, are bringing vast opportunities for foreign software product companies.

It is evident that the software product ecosystem is expanding. Talent is scaling up thanks to software product offshoring; capital is available to the point where even high net-worth individuals are turning into investors, and markets in this region are maturing. Would it be risky to predict that by 2015 Bangalore will become the Silicon Valley of the East? You take a guess!