Tata Consultancy Services is running controlled experiments on how to open up Ignio, its artificial intelligence platform, to third party developers including rivals to build applications on, as India’s largest IT services firm attempts to establish a software brand.
The plan for Ignio, launched commercially three years ago, looks a lot like General Electric’s strategy around its internet-of-things platform Predix. Companies can use applications built by other IT services firms on the Predix platform. But TCS is working on Ignio’s business model, sales and branding strategy to differentiate it from its traditional services model.
"Right now, it is a stage where we are doing controlled experiments on how to open it up to everybody. Who can build on it? It is friends and family right now. We will open it up, but we have to learn how to crawl before we start running," said Harrick Vin, global head of Digitate. Digitate is the unit that houses Ignio.
Ignio helps clients cut operational costs by automating repetitive tasks -- IT operations, batch processing and running business software systems such as SAP. Ignio is sold as a standalone product with additional services through a separate unit called Digitate. It pulled in over $31 million in revenue in FY18, and is expected to touch $100 million in in two years.
Ignio’s 86% of the revenue comes from product, the rest from services. About two-thirds of Ignio’s deal pipeline is product-led sales.
"It is all licence based. There’s no gainshare model. At the end of the day, we want to get a fair price for our product. If there is an opportunity to explore other avenues, we will not shy from that," said Akhilesh Tripathi, Chief Commercial Officer, Digitate.
Revenue per employee at Digitate is $62,000, higher than the around $55,000 at TCS as a whole, a number that will continue to rise as software product companies do not need to add headcount to grow revenue. Ignio is the first product it launched in 2015, more are in the pipeline.
"Going back to my toddler analogy, we are learning. It is an exploratory territory and all options are on the table. We are learning products, business models, financial models… all kinds of things. Some are are easier to talk about but tougher to measure like outcome-based pricing," said Vin.
The company is working to ensure the Ignio brand is a standalone -- with a separate website that has minimal TCS branding.
"One of their challenges is that the TCS brand is in the minds of the customers seen as a great services company, and not a great software firm. Hence, the software companies with strong software brands are gaining in the all-important branding race," said Peter Bendor Samuel, CEO, Everest Research. “The (Ignio) product is good but the marketing and brand positioning is not at the same level.”
He said that Ignio was one of the best solutions amongst software services companies, but would need a lot more work if it needed to be compared with standalone products.
Software product companies have to spend big money in branding their products, an investment they recoup after years. Analysts say that the market may not be willing to bear the costs of branding a software product at a time when IT services margins are already under pressure.
“To brand as a product, you have to spend millions to create that brand over years. And it would hit margins. It would be a question of whether they were willing to take that hit and for what benefit. A standalone product strategy would be hard to explain. This is a more cost-effective way. Use the services to sell the product. We have to see what they will do,” an analyst with a Mumbai-based brokerage said.
While Indian IT services companies such as Infosys have built products such as banking software Finacle, but majority of their revenues still come from providing services. Accenture is also selling its automation platform MyWizard as a product in some cases, but no IT company has articulated a plan to operate a software company that would count rivals as potential partners.
In 2011, Accenture acquired insurance software solutions company Duck Creek. The company sold a majority stake in the company to private equity company Apax Partners in 2016, a move analysts attributed to the challenges of an IT services firm growing a software product
TCS said it’s still too early to consider the valuation of the Ignio platform, and experts say the valuation would vary depending on whether the company kept it in-house or considered spinning it out into a standalone business.
“Its value under the TCS stock is fairly limited as it is under the much larger services revenue and hence would have a modest-to-zero impact on the overall TCS evaluation. If it is spun out as a separate firm with its own stock, then the picture will change. Arguably then it should be valued as a software company,” Everest’s Peter Bendor-Samuel said.
“Under this scenario, its value would be hard to assess without understanding its earnings and making assumptions about the market share it is likely to capture over time. However, I would expect a PE company to pay between a 3 and 10 times multiple of revenue.”
The plan for Ignio, launched commercially three years ago, looks a lot like General Electric’s strategy around its internet-of-things platform Predix. Companies can use applications built by other IT services firms on the Predix platform. But TCS is working on Ignio’s business model, sales and branding strategy to differentiate it from its traditional services model.
"Right now, it is a stage where we are doing controlled experiments on how to open it up to everybody. Who can build on it? It is friends and family right now. We will open it up, but we have to learn how to crawl before we start running," said Harrick Vin, global head of Digitate. Digitate is the unit that houses Ignio.
Ignio helps clients cut operational costs by automating repetitive tasks -- IT operations, batch processing and running business software systems such as SAP. Ignio is sold as a standalone product with additional services through a separate unit called Digitate. It pulled in over $31 million in revenue in FY18, and is expected to touch $100 million in in two years.
Ignio’s 86% of the revenue comes from product, the rest from services. About two-thirds of Ignio’s deal pipeline is product-led sales.
"It is all licence based. There’s no gainshare model. At the end of the day, we want to get a fair price for our product. If there is an opportunity to explore other avenues, we will not shy from that," said Akhilesh Tripathi, Chief Commercial Officer, Digitate.
Revenue per employee at Digitate is $62,000, higher than the around $55,000 at TCS as a whole, a number that will continue to rise as software product companies do not need to add headcount to grow revenue. Ignio is the first product it launched in 2015, more are in the pipeline.
"Going back to my toddler analogy, we are learning. It is an exploratory territory and all options are on the table. We are learning products, business models, financial models… all kinds of things. Some are are easier to talk about but tougher to measure like outcome-based pricing," said Vin.
The company is working to ensure the Ignio brand is a standalone -- with a separate website that has minimal TCS branding.
"One of their challenges is that the TCS brand is in the minds of the customers seen as a great services company, and not a great software firm. Hence, the software companies with strong software brands are gaining in the all-important branding race," said Peter Bendor Samuel, CEO, Everest Research. “The (Ignio) product is good but the marketing and brand positioning is not at the same level.”
He said that Ignio was one of the best solutions amongst software services companies, but would need a lot more work if it needed to be compared with standalone products.
Software product companies have to spend big money in branding their products, an investment they recoup after years. Analysts say that the market may not be willing to bear the costs of branding a software product at a time when IT services margins are already under pressure.
“To brand as a product, you have to spend millions to create that brand over years. And it would hit margins. It would be a question of whether they were willing to take that hit and for what benefit. A standalone product strategy would be hard to explain. This is a more cost-effective way. Use the services to sell the product. We have to see what they will do,” an analyst with a Mumbai-based brokerage said.
While Indian IT services companies such as Infosys have built products such as banking software Finacle, but majority of their revenues still come from providing services. Accenture is also selling its automation platform MyWizard as a product in some cases, but no IT company has articulated a plan to operate a software company that would count rivals as potential partners.
In 2011, Accenture acquired insurance software solutions company Duck Creek. The company sold a majority stake in the company to private equity company Apax Partners in 2016, a move analysts attributed to the challenges of an IT services firm growing a software product
TCS said it’s still too early to consider the valuation of the Ignio platform, and experts say the valuation would vary depending on whether the company kept it in-house or considered spinning it out into a standalone business.
“Its value under the TCS stock is fairly limited as it is under the much larger services revenue and hence would have a modest-to-zero impact on the overall TCS evaluation. If it is spun out as a separate firm with its own stock, then the picture will change. Arguably then it should be valued as a software company,” Everest’s Peter Bendor-Samuel said.
“Under this scenario, its value would be hard to assess without understanding its earnings and making assumptions about the market share it is likely to capture over time. However, I would expect a PE company to pay between a 3 and 10 times multiple of revenue.”
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