IT Services Company transforming into IT Product company – Dream is now Closer to Reality

IT Products have an exponential growth and profit potential. Strong software products earn margins upwards of 80%+, compared to 20%-30% for IT service companies. Margins can exceed 90% if India is the development center and world as the market. However, moving from services to software product requires a significant change in mindset.

• · A service is delivered based on custom specifications provided by the customer. A product is sold to millions of customers based on product requirements gathered, prioritized and implemented by the product company.
• · The use interface designs and functional specifications are no longer provided or approved by the customer, however, they need to be designed by the company based on its own understanding.
• · Creating a product requires in-depth understanding of the domain, competitive offerings, pricing environment, sales channels and support issues. In a services delivery environment, these are low priority or non-issues.
• · Since there is no fixed delivery timeline in a product development environment, it is easy to get lost in constant refining of the product. At the same time, it is important to undertake extensive beta testing program before the product is released.
• · Managing the expectations of customers is equally important. Version 1.0 seldom delivers everything customers want. There is always a plan for ver 2.0 and 3.0 even before the first version is released.
• · Product development requires upfront investment without any contract or customer. It is the biggest mental block service companies need to overcome. Losing short term profitability to build long term dominance in the category requires risk taking which only an entrepreneurial leader can take.

Today, several start-up companies and MNC companies are running their global product businesses from India. In fact, a product which makes less than $20million revenue is no longer viable in the US. Cost of development, sales and support of any software product can exceed $10mn in the US, which in India comes down to $3million.

There are several Indian companies who are attempting to move from services to products. The business reasons are obvious- High margins, customer lock-in, insurance against rupee appreciation and wage inflation. Engineering skills are available in plenty. Program management, product management, user interface design, documentation, installation and licensing technology and skills are also available as several product companies are now present in India.

Opportunity exists! Are you willing to bet your future on product development?