Success with BOP requires breakthrough product architectures, process models and/or business models. Often it also requires building new market structures and value chains. All this can only happen with in-market incubation and constraint-based management. It’s not easy, but it can be done. As we have seen, telecom, PC, semiconductor and healthcare industries are doing it. So far the enterprise software industry is watching from the sidelines. Why is this the case?
Before answering why software industry is not embracing the BOP opportunities, it’s instructive to review again why this change is needed. The reason is straightforward. The current customer base is getting saturated. Not much more software can be stuffed down the throat of current customers.
The European wireless industry offers a great parallel. The industry had a great ride as when the penetration was going up. When that penetration peaked, the focus shifted to adding new services to increase wallet share. This is delivering only limited results. Meanwhile, a new class of mobile operators has emerged. These operators have a different business model (remember the previous discussion about Airtel versus Verizon Wireless) and a radically lower price-point (Airtel makes money selling 2c a minute voice calls) that enables them to go after the bottom-of-the-pyramid markets in emerging countries.
Depending on who you talk to, software industry has either already hit a brick wall is about to do so. It already has high penetration among large and small enterprises in the Western world with very modest penetration growth possibilities. What’s more, the US firms are already spending more than 46% of their capex budget on IT. This means that there is not much wallet share growth possible. In these circumstances the best option is to go after bottom-of-the-pyramid opportunities in emerging countries. In my SandHill.com article that kicked off this series, I point to four specific sectors that are ripe for action in India.
So the case for orbit change in the software industry is quite clear. Why is this change not happening?
One possibility is that the enterprise software industry is afflicted with the Detroit-disease of becoming accustomed to selling its large wares. And it just doesn’t see a need for change. This is certainly happening. In fact Nicolas Carr has a scathing post about this today. He writes:
“And yet the entire enterprise seems increasingly unreal. Watching the IT business today feels kind of like watching one of those Roadrunner cartoons when Wile E. Coyote would race off a cliff and manage to tread air for a few long seconds, his legs moving in a blur, his mind not quite registering the fact that the ground had disappeared from beneath him.”
Another possibility is that change efforts are being made but are being frustrated by legacy mindsets and inertia. Having being in Bell Labs before, I know how a history of success can become an enemy of change. Now there is no doubt that the software industry has been hugely successful in the last 30 years. But this success has been based on a technology-push mindset. What’s now needed is a customer-centric approach. As many have said, changing mindsets is even more difficult than changing business models.
So should one give up on the current software industry players doing an orbit change? Not yet. Although it’s in a denial stage right now, this will gradually give way to an acceptance of the new reality. Then people will start breaking out of their traditional mindsets to pursue the new possibilities. The optimist in me says that we are not too far away from this break-out phase.
When the change comes what will it look like?
It will start with the questioning of a core tenet of today: a new offering at one-twentieth the price of the current offering, made without sacrificing quality cannot be profitable. After all who thought that the discount-airlines will be more profitable than mainstream airlines? After all, the notion that bottom-of-the-pyramid customers can be profitable is counter-intuitive!
Besides questioning of the profitability tenet, one has to look out for three kinds of company activities to know if credible orbit change is in the works…
- Is there radical rethinking of the entire business happening — product architectures, process models, business models? Fine-tuning the existing business models will not work. We saw this kind of change happening in our Airtel, One Laptop Per Child and Ultra Low Cost Cellphone examples.
- Is there in-market incubation happening? Market research will not work. Customer immersion is essential as the users themselves may not articulate their needs. We saw this kind of change happening in our eChoupal example.
- Are new market structures and value chains being built? Build-it-and they’ll-come doesn’t work for bottom-of-the-pyramid markets. Having a viable latent market doesn’t imply that there is pent-up demand. Market structures have to be created where none existed before. New value chains are needed as well. We saw this play out in the failure of GramaTeller ATM and the success of eChoupal.
I am sure that there are some efforts that are being made today. Hopefully this blog will become a way to surface them so that they can be an inspiration to others.
In conclusion, it’s not easy, but it can be done.
After all, telecom industry, PC industry, semiconductor industry, healthcare industry and others are doing it.
This is call to action. It’s a call to people who can re-synthesize the solution stack using the lean IT services model, the virtualized data center, and SaaS to go after the bottom-of-the-pyramid opportunities. Many fortunes are still waiting to be made here.
Previous articles in this series:
Anatomy of New Growth in India
Another Reason to Not Ignore Emerging Markets
Can’t Escape In-Market Incubation Any Longer
Likely Lessons of OLPC
Taking Inspiration from ULCC
Thinking Beyond Product and Company Architecture
Building a New Value Chain
Later article in this series:
Growth Anatomy Series Roundup
My response here may not be relevant in the BOP context but I would like to share my frustration in dealing with the Indian IT service companies without naming them here. Almost 50% of the work we do in my organization is in - what we euphemistically call - partnership with them. So we would like to believe that they bring in competencies that we can leverage and build teams quickly to address time to market issues.
They see every opportunity as an n-body solution i.e. they give us n-bodies and we use them in whatever way we can and regularly pay their dues. This by itself would not be too bad if we had the same n-bodies for any length of time. But that is not to be because these n-bodies need job rotation and hence every 18 months or so some of them leave and in 3-4 years we have a completely new team!
Most of these companies are currently extremely profitable as their financial results show. Right now I am in the middle of discussions with several vendors (I refuse to call them partners here) to establish a Video Test Competency Center for my organization. All of them have come back to me with an n-body solution without addressing the basic needs or describing what kind of skillsets would be available with the team. This is despite several iterations and feedback sessions with each one of them. As a result I would like to believe they are in the Wile E. Coyote situation. So this is a business opportunity waiting to be exploited. These successful companies need to change their success mantra or they might just fade away pretty soon.
The point here is that BOP or not the success mantra for the IT services companies in India has to change pretty soon or companies like mine will start looking elsewhere for their partners. There is already talk of going to East Europe or Russia and in some cases there is even willingness to pay top dollar to acquire expertise which cannot be built quickly but is available!