OPDreport

Report prepared by: Aditya Ganguli, Vice President, Business Development, PhoenixLogin Solutions Pvt.
Ltd
0.1List of Figures..............................................................................................................................................3 0.2List of Tables...............................................................................................................................................3
1Executive Summary.........................................................................................................................1
1.1Market Overview..........................................................................................................................................1
1.1.1Market Size and Growth..................................................................................................................................................................1 1.1.2Key Highlights.................................................................................................................................................................................. 1 1.1.3Competitive Landscape...................................................................................................................................................................2
2Market Overview ............................................................................................................................ 3

2.1Market Description.......................................................................................................................................3
2.1.1OPD: Definition................................................................................................................................................................................ 3 2.1.2Types of Software Products............................................................................................................................................................3
2.2Market Size and Segmentation....................................................................................................................4

1.2.1Overall Market Size and Growth...................................................................................................................................................... 4 2.2.2Market Segmentation......................................................................................................................................................................5
2.3Analysis of Software Product Development Value Chain............................................................................5

1.3.1Key Components of the Value Chain being Outsourced ...............................................................................................................5 2.3.2Market Segmentation by Components of Value Chain...................................................................................................................6 2.3.3Analysis of the Stages of the Value Chain Being Outsourced........................................................................................................7 2.3.4Different Models of Outsourcing...................................................................................................................................................... 9
2.4Drivers and Inhibitors.................................................................................................................................10

1.4.1Drivers ........................................................................................................................................................................................... 10 2.4.2Inhibitors........................................................................................................................................................................................11
2.5Key Trends .............................................................................................................................................. 12

1.5.1Growing Popularity of Third-Party Service Providers vis--vis Captive Centres..........................................................................12 2.5.2Companies Outsourcing Product Development increasingly Adopting a Hybrid Model...............................................................13 2.5.3Companies are Outsourcing Product Development Work to Multiple Service Providers............................................................ 13 2.5.4Emergence of Specialised Third-Party Testing Players...............................................................................................................13 2.5.5Bay Area Generates Maximum Demand for Outsourcing Product Development Activities ........................................................14
2.6Key Parameters Determining the Supplier Choice....................................................................................14
3Demand Generated by Indian Captives ......................................................................................16

3.1Indian Captives Subcontracting Work.......................................................................................................16
2.1.1Share in the Overall Market........................................................................................................................................................... 16 3.1.2Key Stages of the Value Chain being Subcontracted...................................................................................................................16 3.1.3Key Reasons for Subcontracting................................................................................................................................................... 16 3.1.4Players Subcontracting to Third-Parties........................................................................................................................................ 16
4Supply Side Analysis ................................................................................................................... 18

4.1Competitive Landscape.............................................................................................................................18
4.1.1Aztecsoft Emerges as the Market Leader with respect to Stability and Profitability....................................................................18 4.1.2Persistent Emerges as the Most Credible Brand in the Market....................................................................................................18 4.1.3Persistent Focuses on the Complete Spectrum of Services........................................................................................................19
Report prepared by: Aditya Ganguli, Vice President, Business Development, PhoenixLogin Solutions Pvt. Ltd
4.2Player Profiles............................................................................................................................................20
3.2.1Aditi Technologies ........................................................................................................................................................................20 4.2.2Aztecsoft........................................................................................................................................................................................ 24 4.2.3Symphony Services ...................................................................................................................................................................... 27 4.2.4Persistent Systems ....................................................................................................................................................................... 30 4.2.5Aspire Systems.............................................................................................................................................................................. 34
5Conclusions................................................................................................................................... 37
5.0.1India is fast emerging as the most preferred OPD destination.....................................................................................................37 5.0.2Software product developing companies are increasingly outsourcing high-end work to third-party service providers .............37 5.0.3OPD: The remedy for the pain points of software product development companies...................................................................37 5.0.4Intense competition amongst Indian OPD vendors......................................................................................................................38
6Appendix ....................................................................................................................................... 39
1.1.1Outsourcing: Software Product Development vs. Customised Application Development...........................................................39 6.0.2Software Product Development Value Chain................................................................................................................................39 6.0.3Methodology for Competitive Positioning of Key OPD Vendors...................................................................................................40
0.1
List of Figures
Figure 1:OPD Market in North America and India (2005-10)......................................................... 1 Figure 2:IT Industry Landscape....................................................................................................... 4 Figure 3:OPD Demand Generated in North America (2005-10).....................................................5 Figure 4:OPD Market in India and Contribution of North America in the Total Market (200510)........................................................................................................................................................6 Figure 5:Market Segmentation: Captives vs. Third-Party Service Providers (2005-10)............. 6 Figure 6:Processes within Each Stage of the Value Chain and their Outsourcing Extent........7 Figure 7:Market Segmentation by Components of Value Chain (2005)....................................... 8 Figure 8:Evolution of Outsourced Product Development Models............................................. 11 Figure 9:Analysis of Outsourced Product Development Models............................................... 11 Figure 10:Impact Assessment of Key Drivers on Market Growth.............................................. 14 Figure 11:Impact Assessment of Key Inhibitors on Market Growth.......................................... 14 Figure 12:Impact Assessment of Key Parameters Determining the Choice of a Third-Party Supplier............................................................................................................................................ 17 Figure 13:OPD Market Structure: Subcontracting....................................................................... 19 Figure 14:Stages of the Product Development Value Chain Subcontracted............................ 19 Figure 15:Competitive Landscape: Stability vs. Profitability......................................................21 Figure 16:Competitive Landscape: Credibility vs. Expertise......................................................22 Figure 17:Gradation in Service Offerings..................................................................................... 22 Figure 18: Aditi Technologies: Revenue Split by Geography..................................................... 24 Figure 19: Aditi Technologies: Revenue Split by Pricing Structure ..........................................24 Figure 20:Aditi Technologies: Revenue Split by Size of Clients................................................ 24 Figure 21:Aditi Technologies: Revenue Split by Top Clients..................................................... 24 Figure 22:Aztecsoft: Revenue (2002-06)....................................................................................... 28 Figure 23:Aztecsoft: Revenue Split by Location ......................................................................... 29 Figure 24:Aztecsoft: Revenue Split by Geography...................................................................... 29 Figure 25:Aztecsoft: Revenue Split by Top Clients .................................................................... 29 Figure 26:Persistent Systems: Revenue (2002-06)...................................................................... 35 Figure 27:Persistent Systems: Revenue Split by Size of Clients............................................... 36 Figure 28:Persistent Systems: Distribution of Client Base by Geography............................... 36 Figure 29:Aspire Systems: Revenue (2003-06).............................................................................40 Figure 30:Aspire Systems: Revenue Split by Geography........................................................... 41 Figure 31:Pain Points of Software Product Development Companies...................................... 43 Figure 32:Relative Rating of OPD Vendors on Different Parameters.........................................44 Figure 33:Stages of the Product Development Value Chain.......................................................46 Figure 34:Methodology for Competitive Positioning of Key OPD Vendors.............................. 47
0.2
List of Tables
Table 1:Analysis of Key Stages of Product Development Value Chain that are Outsourced....2 Table 2:Relative Positioning of OPD Vendors................................................................................ 3 Table 3:Key Reasons and Concerns Impacting Outsourcing of Each Stage Of The Value Chain................................................................................................................................................... 9 Table 4:Captives Outsourcing to Third-Parties............................................................................ 20 Table 5:Aditi Technologies: Company Overview ........................................................................ 23 Table 6:Aditi Technologies: Key Clients....................................................................................... 25
Table 7:Aditi Technologies: SWOT Analysis ............................................................................... 26 Table 8:Aztecsoft: Company Overview ........................................................................................ 28 Table 9:Aztecsoft: Key Clients....................................................................................................... 30 Table 10:Aztecsoft: SWOT Analysis ............................................................................................. 31 Table 11:Symphony Services: Company Overview .................................................................... 32 Table 12:Symphony Services: Key Clients................................................................................... 33 Table 13:Symphony Services: SWOT Analysis ........................................................................... 33 Table 14:Persistent Systems: Company Overview ..................................................................... 35 Table 15:Persistent Systems: Key Clients.................................................................................... 36 Table 16:Persistent Systems: SWOT Analysis ............................................................................ 38 Table 17:Aspire Systems: Company Overview ........................................................................... 40 Table 18:Aspire Systems: SWOT Analysis .................................................................................. 42 Table 19:Contrast between Software Product Development and Software Application Development.................................................................................................................................... 46
Outsourced Product Development An overview

Outsourcing non-core activities to gain economic advantage has become an essential component of any successful business strategy. However, as an industry matures, what constitutes its core activity undergoes change. For instance, manufacturing was once considered the core competence of many established industries, from automobiles to footwear. Today, organizations have realized that manufacturing does not enable them to differentiate themselves in the market place, and therefore, manufacturing is widely outsourced. Similarly, software product development is considered as a core competence of Independent Software Vendors (ISV) today. However, the global competitive market is gradually changing the core expertise of ISVs from product development to product management. While the mindset that product development is not the core competence of product companies goes against currently established norms, it is becoming a trend that is followed by many successful product companies. Introduction What is Outsourced Product Development? Outsourced Product Development, as the name implies, is the outsourcing of specific activities or all activities related to the development and maintenance of a product. OPD enables product companies to tap the product-building expertise and global talent pools available with OPD providers. While outsourcing product development may seem conceptually similar to outsourcing the development of software applications, there are significant differences. These differences are primarily in the areas of skill-sets, standards and execution expertise required for product development. Detailing the differences between product and applications development is a topic that requires an independent discussion, but we will attempt here, to put in perspective, the primary differentiators. Why Outsource Product Development? Outsourced Product Development - An Overview 5 The major differentiating factors of OPD can be classified into: An application is custom-built" for a single organization or set of users, but a product is "generic" and is built to cater to the demands of a wide variety of users. However, each user needs to be able to use the product in a way that suits him/her. Hence, a product must be customizable, scalable, robust, well architected, and must have a solid framework on which one can build new features. In the generic IT services business, it is enough if the functionality requirements of the application are met. This is not the case when building products. A software product goes through several versions and several languages and as a result, many versions co-exist. If under-the-hood engineering of the product is not strong, maintenance of the product could turn out to be a nightmare. Building a "well-engineered" product requires a higher level of skills than what it takes to build an application. Typically, customers for application development look at and test the screens of the application to know whether it works. Whereas, product customers look into the code base to see how it meets the attributes of scalability, robustness, customizability and architecture adherence. Hence, the engineers working on product development need to have a much higher level of skills when compared to application developers. In an applications scenario, good documentation, proper configuration
management, strict adherence to the design, architecture and coding standards are important, but not mandatory. In software product development, this discipline is "mission-critical", to say the least. How else can a software product be packaged differently to address different needs of the market or scale between a 10-user installation and a 10,000-user installation? Due to the significant differences outlined above, outsourcing product development is not the same as outsourcing the development of software applications and both require different approaches. A. Technology related B. People related C. Process related With the software market becoming more competitive and mature, product companies are under immense pressure to periodically release new versions in the market. In a global competitive market, ISV's effort to achieve better time-to market is challenged by: How to begin outsourcing product development? Outsourced Product Development Shorter product life cycles Technological obsolescence Rapid advances in design and engineering technologies, and Increasing design and engineering complexity. Moreover, product development is an intensive activity that requires a lot of attention. If top management's attention is spent on the in-depth details of product development, then market analysis and marketing activities that directly impact the success of the company will not get top priority. In the long run, this will affect the profitability of the company. If a product company is able to crash its product roadmap and release new versions earlier than planned, it could gain significantly in terms of market share and revenues. However, budgets for product development are fixed and resources are finite. So, the only way ISVs can crash their product roadmap and release newer versions faster is to outsource product development activities to an OPD provider. By outsourcing product development, companies are able to: Acquire expertise Build additional resources Minimize development costs Crash product roadmaps, and above all Boost bottom lines by focusing on new competencies. Product development is still viewed as a core competence of ISVs and any effort at outsourcing this activity is likely to face some resistance. Moreover, questions relating to IP security are at the heart of any outsourcing decisions. Consequently, a step-by-step approach is the best-recommended course of action to begin outsourcing product development. There are many activities involved in a typical product lifecycle, including product
development, product reengineering and migration, product maintenance, product implementation, and product testing. A product company can outsource one or more of these activities to start with or it can outsource the entire gamut of activities related to a particular product. Larger product companies can begin with outsourcing just one or two of these activities. Once they feel confident with the delivery capabilities of their OPD partner, they could expand the relationship further. Startup companies, on the other hand, will be more open to outsourcing all the above activities, so that they can focus their energies on defining and marketing the product, as opposed to building an engineering team. Outsourced Product Development - An Overview OPD EMERGING MODELS Full fledged Development Co-Development Modular Development Peripheral Development Emerging Models of Product Development Peripheral Development: In this model, ISVs outsource certain activities of the product lifecycle, such as testing, documentation or product implementation, but not the core development activity itself. This helps ISVs gain comfort with the OPD provider's capabilities and also educates the provider on the specialized domain knowledge related to the product. One key advantage of this model is that the source code of the product does not have to be shared to begin working together. Modular Development: In this model, ISVs outsource the development of bits and pieces of the product, which are primarily considered non-core. Product integration skills to put together these modules become a key aspect for both the ISV and the OPD provider. Co-Development: This is a model where the ISV's and the OPD provider's team work in a coordinated manner to develop the product. The OPD provider's team is considered an extension of the ISV's team and has all the rights and privileges to work on the code base. Full Fledged Development: The OPD provider takes complete responsibility for one or more of the ISV's products. This helps the ISV focus on ideating nextgeneration products. Understanding OPD OPD, an Emerging Industry Outsourcing has made significant inroads into the corporate world since the early 90's.It is now an essential component of any strategic initiatives of a business and, on occasion, has been the major factor in companies gaining a competitive edge in the global market. There is near unanimity of opinion that outsourcing a 'non core' function saves enormous cost. But, as an industry matures, what constitutes its core business undergoes changes. For instance, manufacturing activities were once considered the core competence of many established industries from automobile to footwear. However, as manufacturing is not enabling companies to differentiate themselves in the market place, it is now widely outsourced. And the so called 'secondary' or
'support' functions like design, customer-relations and marketing, call for greater importance and internal expertise. Outsourcing is changing the way an industry runs its business. This is all the more true in the software industry where fundamental business models are challenged in such a powerful way that the industry has to be constantly innovative with regard to design, customer relations, marketing. Clearly, Independent Software Vendors (ISVs) can no longer afford to treat product development as their core business. The high rate of mergers and acquisitions and commercial failures of software product companies only indicate that it takes more than just development strengths to survive. Facing severe competition, many software companies pay enormous attention to market analysis, planning, launching and marketing of products, while completely outsourcing the entire product development and maintenance processes including architectural design, coding, testing and version management. The Evolution Outsourcing capabilities have grown from strength to strength and the industry has come of age. The emergence of global delivery models with onshore, offshore or near-shore facilities to effectively leverage Product Development on demand Cutting edge infrastructure Skilled product engineers Flexible team size Technology Updation & training global talent across time zones and the creation of business continuity infrastructure are powerful indicators of outsourcing maturing as a business. ISVs wanting to exploit cost advantages and access to talent can pursue several business models. Among them, Outsourced Product Development (OPD) is unique in the sense that an external entity is establishing the necessary product development infrastructure and team for the client organization. The OPD market is booming with an increase in global ISV's revenues pegged at US$180 billion with an R&D budget of around US$ 45 billion. Difference between OPD and Offshoring OPD is not 'software application development' in another name. It represents a huge change in the way codes and concepts are outsourced. The skill set, commitment, standard, execution, analysis, and expertise relating to OPD are significantly different from that of outsourced vendors of software applications. Skill Requirements While offshoring applications development is primarily about 'what to build?' what concerns OPD is the how to? part of it, which is extremely complex. It needs: (A) Higher architecture skills (b) More under-the-hood engineering
(c)Speed with perfection (d) Process excellence things that are considered just as 'nice-to-haves' in offshoring. In the generic IT services business, it is enough if the functionality requirements of software are met. This is not at all the case in building products. A software product lives several versions and flavors in many cases, several languages with several customizations. As things go along, several versions would start to coexist, with different customized pieces in different installations coming together. If under-the-hood engineering is not strong, maintenance of a software product will turn out to be a nightmare. Obviously, product engineers are a different breed of software developers. They need to have a shift of focus from the syntax to the underlying logic, while following the code level quality and architecture standards strictly. 4 US $ 180bn revenues US $ 45bn R & D spend US $ 4.5bn R & D outsourced
Outsourced Product Development

The Concept
TIMES are changing for software companies, especially the way they go about building their product portfolio. Increasing cost pressures, changing market dynamics and the need to shorten the time-to-market cycle are some factors forcing many software companies to `share' their intellectual property (IP) with their vendors for outsourcing their product development. This has given rise to a new wave of outsourcing called offshore product development (OPD), wherein software companies are outsourcing chunks of their product development functions to specialist partners and are making greater efforts towards marketing and branding their products. The new breed of product development vendors that have emerged in the past few years have also gone a long way in reinforcing the faith of these software companies that their IP, core to their business, will be protected at any cost. "This is just the beginning of a new era of software product development," says an industry observer. Players in this space feel that offshore product development will be the `next big wave of opportunity' for the Indian IT industry. Though currently India has very few software products in the market to claim as its own, the IT Industry here could probably take comfort from the fact that several specialist firms are slowly beginning to play a critical role in the new product releases, in the middleware and back-end infrastructure and applications of global firms. Companies that are hooked to the offshore product development concept and getting their new releases done out from India range from the `biggies' of the software world to the latest next-generation start-ups. "An estimated 400-500 releases a year of various software products are happening from India," says Gowri Shankar Subramanian, CEO of Aspire Systems. Prominent global software firms leveraging the model include Siebel, Autodesk, BMC Software, Hyperion and Mimosa Systems, among others. However, high customer-confidentiality clauses prevent the vendors from disclosing their clientele. The new breed of offshore product development service providers include Symphony Services, Aztec, Aspire Systems, and Persistent Systems. Several big IT services providers such as TCS, Wipro Technologies, Infosys Technologies and HCL Technologies operate in this space but have restricted their exposure as part of their de-risking strategy. However, it's the smaller offshore product development service specialists that have been more vocal in talking and creating awareness about this concept that has gained momentum over the past three years.
Key drivers
In the nineties, India attracted the interest of global product giants such as Microsoft, Oracle, SAP and Cisco, among others, who set up their captive research and development bases in the country mainly to leverage the talent. Subsequently a host of other software firms also set up their captive bases here. The technology meltdown at the beginning of this decade did create a dire situation for software firms, when the prices of both products and services dropped in the backdrop of a slowdown in demand. Moreover, these firms were forced to grapple with increased competition even as the cost of developing newer products grew. "This is forcing a lot of product companies to keep their development expenses under control by outsourcing," says Ajay Kela, president of Symphony Services. Plus, the market dynamics are changing pretty quickly, wherein companies are forced to cut short their time-to-market cycle, which drives them to look at outsourcing. "Three years ago, it was a challenge to tell the software companies `we can work with you in creating the next-generation products'," says Kela. However, things have changed dramatically. Software companies, which were hesitant earlier to give up the `Crown Jewels', that is their R&D, to partners, fearing that will lose control, are no longer plagued by insecurity. This is primarily because of the assurances that the offshore product development vendors are offering them, he says. "We are convincing the software firms to shift their engineering offshore and focus primarily on the market and on building their brand," Kela says. Venture capitalists are also seen, to some extent, driving the offshore product development concept. VCs, while funding ventures are, of late, insisting that the start-up has the development back-end in countries like India. "Though the early stage VCs are seen missing in action in India, the fact that the country has already proved that high-end software products could be built up here adds up to our advantage," says Kela, adding it is only a matter of time before the early stage VCs land up here. Says V. Govindrajan, chief technology officer of Aztec, "What we are developing for software firms is their core IP as opposed to, say, GM, P&G or Ford, where generally companies work with the IT division. That is only an enabler of their core business. They do not have as much reluctance in outsourcing that." "Typically," Govindrajan says, "enterprise outsourcing is ahead of this kind of R&D outsourcing. A software company has to give up its IP. In view of all this, product outsourcing took some more time to come into the mainstream compared to the enterprise level. We have been doing this with selected companies." Software product development will go the same way as that of hardware manufacturing, when companies like IBM, among others, started outsourcing a few decades ago, paving the way for the emergence of contract manufacturing giants such as Flextronics. "We believe a similar transition will happen eventually in the development world wherein software product companies will limit themselves to defining the specifications and focus on branding and marketing," Subramanian says.The next five years will see India emerging as a hub for building products, declares Kela, adding offshore product development firms are seeing good momentum in business. "The entire eco-system is being created here."
Emerging trends
While the large software vendors are running their captive product development operations in India successfully, the `small captives' are finding it difficult to manage their scale and operations here and keeping their team motivated, says Anand Deshpande, managing director of the Pune-based Persistent Systems Pvt Ltd. "Many a medium and small captive is seen battling issues such as manmanagement and attrition, among others," says Deshpande, adding "somewhere, their focus on developing products did start going awry, which forced several of them to look to specialist outsourced software product developers for help." A captive R&D unit, in order to have an impact on the company's profit and loss account, will need to reach a certain scale. For small and medium enterprises (SMEs), a captive centre of about 100 people will hardly have any impact, says Kela.
"If they fail to reach a critical mass, they fail." The inability to scale up has seen many companies wind up their development operations and outsource to the specialist. "We have seen a few of the technology start-ups winding up their operations and outsource," says Govindrajan of Aztec. This is where offshore product development firms build up parallel operations to captives and subsequently take over their operations. Symphony and Aztec seem to have done this but are hesitant to talk about their clients, citing non-disclosure agreements. "We haven't taken over any assets of such captive firms," says Deshpande, adding he expects this trend to start happening soon, over the next 1215 months. Mimosa Systems Inc, a provider of data management solutions that unify archiving, data protection and disaster recovery, has been a client of Symphony. "We partnered with Symphony Services `from day one' because they provided us with product development expertise and rapid access to a large pool of highly qualified engineers. Speed and scalability are critical for us, so setting up a captive didn't make sense. We also wanted to minimise any distraction from our primary business objective bringing a quality product to market quickly and cost-effectively," says T.M. Ravi, CEO, Mimosa Systems. "Working with Symphony, we have been able to achieve the productivity benefits of a follow-the-sun model which was key to bringing our first product to market within 15-16 months," Ravi says.
Challenges
The key challenges for offshore product development firms include finding the right talent with a background in building products even while gearing up to provide the entire lifecycle of product development solutions. Companies have been adding capabilities in a bid to emerge full product lifecycle providers. Aztec's acquisition of Disha Technologies, a testing firm, last year was a step in that direction. "There is a shortage of product development engineers at the middle level," says Persistent's Deshpande. Though the less experienced engineers are being groomed and trained as an ongoing exercise, these companies feel it could take some time before they attain maturity. As a result, Persistent has been eyeing Indian engineers relocating from the US, especially with product development experience, says Deshpande. Protecting the vendors' IP is certainly an issue that these companies face. Vendors will not outsource until they are sure that their IP will be protected and they will get the right kind of talent, offshore model, says Govindrajan, adding offshore product development firms are taking adequate measures to protect the Ips.
Threats
For high-value software product development services, today India is by far the premier choice for outsourcing. "We don't see this changing in the near-term planning horizon. But we do anticipate global demand for these services will continue to grow and consistent with globalisation patterns, this demand will be met by providers in multiple low-cost locations," says Kela. Offshore product development vendors see threats emerging from China and other destinations such as Vietnam, Russia and Canada. "China, the pre-eminent offshore manufacturing location, is well-positioned for the future," says Kela. Today, China is several years behind India in the maturity of its software industry and lacks English-speaking skills and the management talent necessary to effectively manage complex offshore development tasks. However, the large labour force and a concerted effort by the Chinese Government to jump-start their software industry, indicates that China could be another significant destination for software development in the future, says Kela.
Impact of global consolidation
Oracle recently announced that it was acquiring CRM vendor Siebel. This sort of a consolidation could impact the offshore product development vendors. Says Kela "We fully expect to see more consolidation in the commercial software
industry and this is driven by global competition. What this means for us is that we will continue to evolve our product development, service and support offerings and engagement models to better serve the complex needs and relationships that make up the ecosystems around some of the master brands in the market." "We have the product development lifecycle expertise and service and support skills to assist both the players with great scale who determine much of the solution stack and act as `distributors', as well as the smaller, more focused, vertical and domain players. In both cases, the critical need is to increase global reach and scale while reducing R&D spend and speeding up time to market. We can be very effective partners here," says Kela. "The same global competitive forces that favour scale for ISVs (independent software vendors) today apply to offshore software product development providers tomorrow. So we do expect to see some level of consolidation here as well," Kela says.
Size of the pie
According to a Nasscom report, up until the year 2003, Indian software product development companies had been able to capture a meagre 0.2 per cent of the $180-billion global software product market. Nasscom also predicts that the Indian product development market is estimated to grow to $8-11 billion by 2008 as global sourcing will no longer be an optional strategy for the product companies by 2007-08. As offshore outsourcing gets accepted as a key strategy to stay competitive in the globalised economy, the production cycle for technology-centred products will require global resources and global delivery, says the report.
1
1.1
1.1.1
Market Overview
Market Size and Growth
The global OPD market size was around USD 9 billion in 2005. North America (primarily the US) accounts for around 65 percent of this market, i.e., USD 5.9 billion. A significant share of this demand is offshored to India. The India market, which has grown from USD 300 million in 2001 to around USD 3 billion in 2006, is expected to reach around USD 15 billion by 2010. Figure 1 shows the growth in the North American OPD demand, as well as the Indian (supply-side) OPD market.
Figure 1:
30 Market Size (USD Billion)
OPD Market in North America and India (2005-10)
CAGR = 35%
20 19.4
26.2
CAGR = 35-40%
10 5.9 0 3.0 2005 7.9 4.2 2006 5.9 2007 10.7
14.4 11.1 15.0
8.2 2008
2009
2010
Demand for OPD in North America
OPD Market in India (Supply)

Source: Primary Research
1.1.2
1.1.2.1
Key Highlights
Shorter time-to-market is the most influential factor driving the growth of the market
By outsourcing their OPD requirements to service providers specialising in this field, companies are able to accelerate the time-to-market of their products, which has a strong influence in the competitive positioning of the product companies. Also, the ability of the service providers to quickly ramp-up the team size in order to meet the peak load requirements of the companies helps drive the market for outsourcing.
1.1.2.2 OPD market in India is expected to swing in favour of third-party service providers
Captive centres of product companies, which currently account for around 70 percent of the Indian OPD market, are expected to become increasingly less important. The share of third-party suppliers will rise from around 30 percent in 2005 to around 80 percent in 2010. Other key trends with respect to the third-party suppliers are: Product companies are increasingly looking for partnering with third-party service providers for value-added and expert services, which go beyond the code generation, testing and product engineering services. As the OPD market becomes more competitive, the ISVs are looking for players with domain expertise and experience to ensure that they understand the functional aspect of the requirements as well. There is a pronounced gradation in the nature of services outsourced to third-party suppliers (from processised coding and testing activities to design and architecture and end-to-end product development services) as the level of confidence of the product companies in the West increases. There is an increased incidence of North American start-ups and emerging ISVs outsourcing to Indian OPD companies, primarily because it allows their core team (which is essentially small) to concentrate on marketing the product.
1.1.2.3 Development and testing are the most commonly outsourced stages of the product development value chain
Though Design & Architecture is the high-value segment of the market, it has a relatively lower share in the Indian OPD market. Development and testing form the bulk of the market, primarily because they can be easily processised and replicated. Table 1 discusses the specific pros and cons for each of these stages.
Table 1:
Analysis of Key Stages of Product Development Value Chain that are Outsourced
DEVELOPMENT & TESTING SUPPORT
DESIGN & ARCHITECTURE
Share: ~15% High-value segment Pros ISVs can focus more on strategy formulation and marketing of the product.
Share: ~70% Development: Medium-value Testing: Low-value Common set of standards and platforms have helped standardise the processes A third-party unbiased view while testing may improve the overall product quality; also, there is an emergence of service providers providing dedicated testing services. Relatively lower skill sets can also be utilised, which are easily and cheaply available.
Share: ~15% Support: Low-value
Support work does not necessitate sharing of sensitive information. Outsourcing can enable the product companies to achieve cost savings of up to 40-60 percent
Cons Higher stakes involved, as the success of the entire project depends on this IP concerns are much more critical than the later stages Larger ISVs may have inhouse expertise in product design and architecture. Lack of specialised product engineers with relevant experience
Availability of experts in some of the new technology areas is an issue, though not as critical as for designing and architecture.
Certain processes, such as upgrades, require the provider to have a thorough understanding of the objective and functionality of the product
Source:
Evalueserve Analysis
1.1.2.4
Ability of the OPD vendors to provide scalability and technology expertise are the key criteria determining the choice of a supplier
An OPD suppliers flexibility in quickly scaling up and down the offshore team is an important factor for the product companies. Also, their expertise in the specific technology and industry vertical play a significant role in determining the choice of the supplier. Due to the competitive and relatively less mature nature of the market, price holds less weightage than the other parameters.
1.1.2.5 Subcontracting part of OPD operations by captive centres to third-party players is not a prominent trend
Subcontracting by the captives constitutes less than two percent of the overall Indian OPD market and is not expected to grow much in the future. Typically, the activities subcontracted include non-core peripheral work, such as testing, code maintenance, etc.; this is primarily due to the need of the captives to ramp up their capacity quickly to reduce the time-to-market.
1.1.3
1.1.3.1
Competitive Landscape
Persistent and Symphony are the market leaders
Symphony is the market leader, in terms of revenue, as well as stability (which takes into account the companys past performance, its dependence on top clients and revenue segmentation by geography. Aspire System, being a relatively new player, lags behind the others on most of these parameters.
Table 2: Relative Positioning of OPD Vendors
STABILITY PROFITABILITY CREDIBILITY EXPERTISE
Symphony Aztecsoft Persistent Aspire Aditi
Aditi Symphony Aztecsoft Persistent Aspire
Persistent Aztecsoft Aditi Symphony Aspire

Source:
Persistent Symphony Aztecsoft Aditi Aspire

2 Market Overview
2.1 Market Description
The IT software and services industry has witnessed the successful implementation of the outsourcing concept. The success and maturity of this concept has encouraged the emergence of the Outsourced Product Development (OPD) industry. The OPD industry, though currently in its initial stages, has grown at a phenomenal rate over the last four years, and is expected to continue to grow rapidly in the coming years. The IT industry can be broadly segmented into three categories, viz., hardware, software and services, as depicted in Figure 2. Software primarily comprises ready to be deployed off-the shelf products and customisable products (which allow some customisation at the users end). In the past, IT outsourcing, until a few years back, primarily included IT services and customised application development. However, in the last four years off-theshelf product development domain has made significant improvements.
Figure 2:
IT Industry Landscape
IT Industry
Hardware
Software
Outsourced Services/Processes
Services
Systems & Peripherals Networks & Servers Storage Systems
Off-the-shelf Products Customisable Products Outsourced Product Development
Infrastructure Management Managed Services/App. Development System Integration Consulting

Source: Evalueserve Analysis
2.1.1
OPD: Definition
Outsourcing of various components of software product development life cycle, such as requirement collection and analysis, product design and architecture, code generation, testing, support services (such as customisation and maintenance) and expert services spanning across the product lifecycle by the product company to other service providers (captives and/or third-party suppliers) can be defined as OPD. The OPD market essentially comprises the following: Offshoring product development activities (some or all components of the product development cycle) to captive centres Outsourcing product development activities (some or all components of the product development cycle) to third-party service providers This report particularly focusses on the demand generated for OPD services in North America. In addition, special interest is given to the part of this demand that is outsourced to India.
2.1.2
Types of Software Products
Software products, which are generally outsourced, can be categorised as follows: Consumer software: Includes products for individual usage, such as MS Office, software games and software for personal financial planning (NaviPlan, MoneyTree).
Enterprise software: Includes software suites for enterprises of varying sizes for critical functions, such as resource planning (SAP & PeopleSoft), customer relationship management, supply chain management (i2, Manugistics), financial management (Tally & i-Flex), etc. Embedded software: Includes software products used in hardware devices, such as medical and electronic devices.
2.2
1.2.1
2.2.1.1
Market Size and Segmentation

Overall Market Size and Growth
North America
The massive growth and widespread adoption of offshore IT services has encouraged the growth of the OPD industry. The OPD market is currently relatively small in size, but growing at a rapid pace. The global market size of the OPD industry was worth around USD 9 billion in 20051. North America accounted for more than 65 percent of the global OPD market, amounting to around USD 5.9 billion in 2005. The North American market is expected to increase to USD 26.2 billion by 2010, at a staggering CAGR of approximately 30-40 percent2. This growth would be primarily driven by the need of the companies to expand their software product portfolio across various verticals while reducing research and development costs, lowering the time-to-market of the product to gain a competitive edge, and capturing a wider market through internationalisation and multiple platform support. Figure 3 illustrates the market size and growth rate of the OPD demand generated in North America during 200510.
Figure 3:
30
OPD Demand Generated in North America (2005-10)

26.2
Market Size (USD Billion)
20
CAGR = 35%
14.4
19.4
10
5.9
7.9
10.7
0 2005 2006 2007 2008 2009 2010
Source:
Primary Research
2.2.1.2
India
The OPD market in India grew from USD 300 million in 2001 to over USD 3 billion in 2005, reflecting a tenfold increase3. The initial spurt in growth was primarily due to the reputation of India as the most preferred offshore destination, which is attributed mainly to the availability of a huge pool of technical experts with good communication skills and lower costs. Later, the growth was driven by high quality of work delivered by the suppliers. It is estimated that the market would continue to grow at a healthy CAGR of 40-50 percent till 2008, reaching around USD 8.2 billion. As the market matures, its growth rate for 2009-10 is expected to stabilise in the range of 30-40 percent4. Figure 4 illustrates the size and growth rate of the OPD market in India, and also the contribution of North America to the total Indian OPD market during 2005-10.
Figure 4:
1 2
OPD Market in India and Contribution of North America in the Total Market (2005-10)
http://www.enterblog.com/200508220325.php, primary research Primary research 3 http://software-outsourcing.spaces.live.com/blog/cns!279E88EACFF2FFFB!287.entry 4 Primary research
18 Market Size (USD Billion) 15 12 9 6 3 0 0.9 2.10 2005 1.26 2.94 2006
CAGR = 35%
4.5
CAGR = 40%
2.47 1.76 4.12 2007 2008
3.33 10.50 7.78 5.76
2009
2010
Demand for OPD from North America
Demand for OPD from Other Regions

2.2.2
2.2.2.1
Market Segmentation
By Captives vs. Third-Party Service Providers
OPD services are provided by captive centres of product companies or third-party service providers. Currently, in India around 70 percent of the OPD work is carried out by captives in India. The remaining work is done by third-parties. However, with the third-party service providers providing efficient working relationships and IP protection measures, their share in the Indian OPD market is expected to increase significantly to around 80 percent by 2010.5 Additionally, an increase in the number of start-ups (independent software vendors) will drive the share of third-party service providers, as they provide a more costeffective and easy to set up alternative to these companies. For example, Pervasive Software Inc, the US-based data infrastructure software vendor was finding it difficult to manage its captive operations in India. As a result, Pervasive chose to shut down its captive operations in Bangalore and outsource product development work to third-party OPD provider Aztecsoft. Figure 5 illustrates the expected transition in the share of third-parties in the OPD industry.
Figure 5:
Market Segmentation: Captives vs. Third-Party Service Providers (2005-10)

20% 30%
70% 80%
Third-Party Service Providers
Captive Centers
Captive Centers
Source:
Hindu Business Line India, Primary Research
2.2.2.2
By Geography
The OPD market in India obtains approximately 70-75 percent of its business from the US6. Rest of the demand is generated primarily from the UK, followed by Japan.
2.3
1.3.1
Analysis of Software Product Development Value Chain

Key Components of the Value Chain being Outsourced
The value chain of software product development constitutes a series of stages. Each stage comprises a number of processes. Some of these processes are already being commonly outsourced to third-parties or captive centres, while others present a strong potential of being outsourced in the near future. However, some processes, particularly those in the early stages of the value chain, are unsuitable for outsourcing.
5 6
http://www.itbusinessedge.com/item/?ci=19498, Primary Research Primary research
Figure 6 depicts the processes involved in each stage of the product development value chain along with the extent to which they are outsourced. It also highlights the processes that are more commonly outsourced to captives, third-parties or to both.
Figure 6:
Processes within Each Stage of the Value Chain and their Outsourcing Extent
REQUIREMENT ANALYSIS
DEVELOPMENT
TESTING
SUPPORT
Concept Definition Concept Evaluation Requirements Collection Prototype Design Technology Evaluation Prototype Development
Software Architecture Feature Definition Project Planning
Requirement Management Project Management Product Development Product Maintenance Re-engineering and Migration
Unit/Interface Testing Component Testing Regression Testing Testing Automation Product Validation/Acceptance
Technical Support Customer Support Professional Services Documentation Services Performance Benchmarking
Not Suitable
High Potential
Commonly Outsourced/Offshored
Prototype Validation
Feature Definition Customer Support
To Third-Parties
2.3.2
Product companies prefer to retain higher-end and confidential services within the company. The companies consider certain activities, such as defining and analysing user requirements as well as design and architecture of the product, to be critical to their operations. Hence, prefer to carry them out internally.
http://www.sandhill.com/conferences/sw2006_materials/sw2006_Zinnov_rev3.pdf
To Capt ives
Prototype Design Prototype Development Software Architecture Project Planning Requirement Management Project Management Product Development Technology Evaluation Product Maintenance Re-engineering and Migration
Source:
Unit/Interface Testing Component Testing Regression Testing Testing Automation Product Validation/ Documentation Services Performance Benchmarking
Technical Support
Zinnov Report7, Primary Research, Evalueserve Analysis
Market Segmentation by Components of Value Chain
In 2005, development and testing services accounted for around 40-45 percent and 20-25 percent, respectively, of the Indian OPD market8. These services are expected to continue to account for the major share of the OPD market. However, these are relatively lower-value segments of the market (in terms of the average charge rates) than other components, such as product conceptualisation, design & architecture. However, with the comfort level and confidence of the product companies increasing, they are now increasingly outsourcing higher-end services. These include product design, architecture, and other expert services, such as reusability engineering, performance tuning and internationalisation services, spread across the product lifecycle. Design and architecture services constitutes around 15-20 percent of the total OPD market (from North America to India). This segment is not expected to increase significantly in the future. Figure 7 illustrates the share of the various components of software product development value chain typically outsourced by the product developing companies in North America.
Figure 7:
Market Segmentation by Components of Value Chain (2005)

15% 15%
25%
45% Design & Architecture Testing Developement Support

2.3.3
Analysis of the Stages of the Value Chain Being Outsourced
The decision regarding which part of the value chain should be outsourced, is guided by various factors, such as working relationship of the company with the OPD provider, confidence in the providers competence, IP and security concerns, availability of resources with the requisite skill-set, etc. Table 3 contains information on why specific stages of the value chain are outsourced more than the others.
Table 3:
SHARE
Key Reasons and Concerns Impacting Outsourcing of Each Stage Of The Value Chain
KEY FACTORS FAVOURING OUTSOURCING/OFFSHORING KEY CONCERNS
2.3.3.1
Report prepared by: Aditya Ganguli, Vice President, Business Development, PhoenixLogin Solutions Pvt. Ltd SHARE KEY FACTORS FAVOURING OUTSOURCING/OFFSHORING KEY CONCERNS
Not Significant (les s than 5%)
Certain service providers with expertise and experience in specific domains, such as telecom, embedded software, etc., may be able to understand the end-users requirements clearly and are suitable for at least some parts of this stage.
ISVs want to retain the creative control over the product and are not ready to share the concept of the product with an OPD provider. Risk involved is very high because if the service provider does not completely understand the product concept the entire project will get jeopardised. Majority of the products customer base may be in the same country (say the US); service providers in the offshore location may not be as well-acquainted with the end-user needs as the company itself.
2.3.3.2
15-20%
ISVs, especially start-ups, need to focus more on areas, such as strategy formulation and marketing of the product. Service providers are gaining the trust of ISVs by showcasing the expertise of their workforce in various technological areas.
Larger ISVs (medium and large-sized) based in North America have in-house expertise in product design and architecture. In the requirement analysis stage, the stakes involved in outsourcing design work to a third-party are high (though not as high as the former), as a bug introduced at the design stage costs significantly more than at the later (coding and testing) stages. IP concerns are critical at this stage (much more than the later stages). There is a lack of specialised product engineers with relevant experience, especially in new and emerging technologies, such as Web2.0, WiMax, etc.
2.3.3.3
DEVELOPMENT
40-45%
Common set of standards and platforms have helped standardise the processes associated with this stage, due to which they can be processised/replicated easily. Geographical proximity is not critical.
TESTING
Availability of experts in some of the new technology areas is an issue, though not as critical as for designing and architecture.
2.3.3.4
20-25%
A third-party unbiased view while testing may improve the overall product quality. As in development stage, the processes can be standardised and replicated easily, especially with the aid of standardised testing tools, such as Rational, Win Runner, etc. There is an emergence of service providers providing dedicated testing services. Relatively lower skill sets can also be utilised, which are easily and cheaply available.
SUPPORT
2.3.3.5
Report prepared by: Aditya Ganguli, Vice President, Business Development, PhoenixLogin Solutions Pvt. Ltd SHARE KEY FACTORS FAVOURING OUTSOURCING/OFFSHORING KEY CONCERNS
15-20%
Support work does not necessitate sharing of sensitive information. Product companies spend up to 50 percent of their programming efforts on support and maintenance services, and can achieve around 40-60 percent cost-savings in this sphere.
Certain processes, such as upgrades, require the provider to have a thorough understanding of the objective and functionality of the product.
2.3.4
Different Models of Outsourcing
Depending on the nature and amount of the work outsourced, various outsourcing models are emerging which are as follows9: Peripheral development: In this model, only few peripheral/non-critical activities, such as testing, documentation, etc., are outsourced, while the critical ones, such as development, are not outsourced. This model is usually practiced by companies outsourcing to certain service providers for the first time in order to reach a certain comfort level with the service providers. These companies may be apprehensive about sharing the source code with the provider. Modular development: In this model, the companies outsource the development of some of the non-critical modules of the product. The key requirement of this model is the integration of various modules of the product that demands good collaboration between the company and the OPD provider. Usually companies adopt this model after they acquaint themselves with the practice of outsourcing, but are still reluctant to share sensitive information. The companies would be working with slightly bigger teams than in the Peripheral Development Model. Co-development: In this model, the company outsourcing product development and the OPD provider work in close collaboration as an extension of the formers team. This would include offshoring more complex work involving sharing of some sensitive information, such as the base code. Usually, companies adopt this model when they are confident of the providers capabilities and share a good working relationship with them in the past. Full-fledged development: In this model, the service provider is given the entire responsibility for the development of the product. The product is then developed end-to end and handled independently by them. This model is usually adopted by start-ups so that they can scale-up their operations quickly and can focus on the commercial aspect of the product, such as strategy formulation and marketing of the product. Figure 8 depicts the gradual evolution in the nature of work outsourced by large, SMEs and start-up firms, with the maturity of the service relationship in the different outsourcing models. W o r k o f I n c r e a s i n g
9
Figure 8:
Outsourced Product Development - An Overview, Aspire Systems
C o m p l e x i t y
Evolution of Outsourced Product Development Models
Full-fledged Development CoDevelopment
Modular Development Peripheral Development
Growing Maturity of Service Relationship
Increasing Control given to Service Provider
Report prepared by: Aditya Ganguli, Vice President, Business Development, PhoenixLogin Solutions Pvt. Ltd Source: Evalueserve Analysis
The suitability of an outsourcing model depends on the size of the product developing company and also on whether a company outsources to its captive centre or to a third-party service provider. The same has been discussed in Figure 9.
Figure 9:
Analysis of Outsourced Product Development Models Peripheral Development Modular Development Co-Development Full-Fledged Development
Description
Non-core activities from different stages of the value chain are outsourced
Select product modules are outsourced
Joint product development by ISV and OPD provider
Independent end-toend product development
Large Companies
Captives subcontracting specific (Revenue > USD non-core parts to thirdparties 1,000 Million)
Offshored to captives, which is economically justified due to the scale of operations
Medium-to-Small Companies (Revenue USD 100-1,000 Million) Start-ups (Revenue < USD 100 Million)
Ranges from Peripheral to Co-development model, depending on the maturity of the relationship between the product company and the OPD provider Outsourced to third-parties, as the primary concern is to minimise costs with short timeto-market, while they focus on marketing the product
2.4
1.4.1
Drivers and Inhibitors

Drivers
Product development companies are increasingly considering the option of outsourcing/offshoring software product development work to specialists or captives, to focus on their core business, as well as to introduce high quality products to market quickly and cost-effectively. The following section discusses the key factors driving the growth of the OPD market:
2.4.1.1 Outsourcing/offshoring product development accelerates time-to-market of the software product
Time-to-market is one of the most critical factors that affect the competitive position of product companies. In order to survive the stiff competition, companies need to launch their products earlier than their competitors and while the technology is still widely accepted. By outsourcing their OPD requirements to service providers specialising in this field, these companies can achieve significantly shorter time-to-market, as it relieves them from the responsibility of recruiting and training more professionals and building the necessary infrastructure. Outsourcing immediately equips these companies with more resources and increased productivity.
2.4.1.2 Outsourcing enables companies to achieve scalability and flexibility
Product companies may need to scale-up their operations quickly to cater to the increased demand for their products. Recruiting and training professionals can be a time-consuming option at that point of time. By partnering with service providers, these companies can gain rapid access to a large pool of qualified workforce. It also provides an effective means to manage their peak load and cyclic variations in the demand for personnel and resources. Also, it provides them with the flexibility of managing the proportion of resources working on different types of activities as per their requirements.
2.4.1.3
Outsourcing/offshoring of product development work helps companies achieve significant cost savings
The overall cost of making a software product in the low-cost destinations can be up to 50-60 percent lower10. Lower labour and infrastructure costs are prompting the players to leverage this opportunity. The cost of employing around 40 people in the product development domain in India is around the same as that for employing 10 people in the US11.
2.4.1.4 Emerging start-ups are outsourcing end-to-end development of their products
The increasing role of Internet in todays business activities and focus on usage of new technologies are acting as a catalyst in the emergence of start-ups (independent software vendors). These start-ups primarily focus on emerging technologies, such as Web 2.0 Services, Software as a Service (SAAS), Search, WiMAX, Wireless and Telecom, Convergence and Bluetooth. However, these start-ups lack financial strength to set up a dedicated operations unit. As a result, they prefer to outsource product development work to low-cost destinations, such as India. Apart from this, the outsourcing partner provides the required non-core services to these start-ups, allowing them to focus on other commercial aspects.
2.4.1.5 Quality of service rendered by the service providers is leading to increased client confidence
The service providers have established credibility in the global market, based on their prior experience in similar domains. Increasing trend towards standards and certifications is also helping their cause to assure the customers of high quality service. With more and more service providers opting for certifications (such as CMM, ISO 9001, BS7799, etc.), the comfort level of the product companies has increased.
2.4.1.6 Advances in technology are facilitating distributed project management
Technological advances in recent years have also contributed to the increasing demand for OPD. There has been an emergence of common standards that facilitate the use of standardised third-party components. The development of portable architectures has helped in migration of software across various platforms. Modular approach for implementing software, along with development of new tools, facilitates distributed project management and allows global competency centres to operate smoothly.
2.4.2
Inhibitors
The OPD market in India is expected to show strong growth in the future, but there are certain factors that can inhibit the growth of this market. The key inhibitors are as follows:
2.4.2.1 Companies outsourcing software product development are concerned about the protection of Intellectual Property (IP)
One of the most prominent factors inhibiting the growth of the OPD market is the exposure of sensitive data to another country. For high-end work, such as design and development of software, source code of the software has to be shared with the service provider. Strategic information about the product may also be required to be shared by the parent company. The companies outsourcing their work fear misuse of information and violation of IP rights by the service provider, which can be detrimental to their business and reputation. These concerns are even more pronounced when work is being outsourced to destinations where IP policies and regulations are not in place. Though these concerns are being addressed by the service providers, by replicating the standards which are in place in the advanced countries, there is some way to go. Certification programs, such as ISO 9001, BS7799, etc., as well as strict Service Level Agreements (SLAs) are being increasingly adopted by service providers to ensure outsourcing companies of the quality of service.
2.4.2.2 Offshore destinations, such as India, lack experts in emerging technologies
Though resource availability in low-cost destinations is not an issue, OPD requires specialised skill-sets in the domain of product development. It is not just related to the availability of engineers, but specifically productoriented engineers who possess the right skill-sets for developing new and innovative products. India still lacks people with sufficient know-how in emerging technologies, such as Web 2.0, WiMax, etc. The current pool of skilled product engineers in India is around 80,000 personnel, as opposed to an estimated demand of around 2,80,000 product engineers by 200812. The lack of availability of this skill-set may act as a constraint in the growth of OPD market. Service providers, however, are providing specific trainings (3-6 month long training sessions) related to various aspects of product development to match the demand.
http://itoutsourcingindia.com/offshore/ http://www.indiafirstfoundation.org/ARCHIVES/news/05/november/b&e_m.htm 12 http://www.wdi.umich.edu/Blog/index.php?q=node/28

10 11
2.4.2.3
Cultural difference and geographical distance between the company and service provider act as a barrier
Linguistic and cultural differences between North American companies and service providers may also act as a constraint to the effective collaboration between the two teams. The differences in time-zones may also create issues in synchronisation of tasks where teams in different geographies need to work together. However, these factors are not very critical and do not significantly curtail the growth of the market. Figures 10 and 11 assess the impact of key drivers and inhibitors on the growth of the OPD market in India.
Figure 10:
Impact Assessment of Key Drivers on Market Growth
Figure 11:
Impact Assessment of Key Inhibitors on Market Growth
High
Medium
Low
Short Term (less than 2 years)
Medium Term (2-4 years)
Long Term (over 4 years)
Low Shorter time-to-market Production scalability and flexibility Low er development cost Emergence of start-ups Increasing confidence in the service provider Technological advancement facilitating distributed project mgt. Short Term (less Medium Term (2-4 Long Term (over 4 than 2 years) years) years) Intellectual property rights and security concerns Low availability of experts in emerging technology areas Cultural difference and geographical distance
Medium
High
Source:
Evalueserve analysis
2.5
1.5.1
Key Trends
Growing Popularity of Third-Party Service Providers vis--vis Captive Centres
Product companies are now increasingly turning towards third-party service providers for fulfilling their outsourcing needs. During the initial years of the emergence of the OPD industry, the practice was limited to large companies, such as Intel, IBM, Philips, etc., setting up their own captive centres. Currently, however, with the emergence of smaller independent software vendors, the trend is changing. Firms are beginning to increasingly outsource their work to third-party specialists instead of opening up their own captive centres, primarily due to the fact that these can be up to 40 percent cheaper, depending on the scale of operations13. The investment involved in setting up a captive centre can be justified if it employs more than 500 workers14. With an increase in the share of third-party service providers in the Indian OPD market, the following trends are also emerging in the market:
2.5.1.1 Product companies partnering with third-party service providers for value-added and expert services
Product companies in North America are looking beyond outsourcing code generation, testing and product engineering services. This is primarily due to the tremendous technical capability displayed by the pureplay product developers across the product life cycle. The product companies are increasingly searching for value-added services, such as product design and architecture, and expert services, such as reusability engineering, performance tuning and internalisation. They are aiming to establish longterm partnerships with their third-party suppliers who can contribute towards the complete product lifecycle services and provide exclusive on-demand services for engineering better products.
13 14
http://www.itbusinessedge.com/item/?ci=19498 http://www.itbusinessedge.com/item/?ci=19484
For instance, the Common Technology Group at Hyperion, which builds infrastructure platform to seamlessly integrate all Hyperion components, chose Aztecsoft as the outsourcing partner to build infrastructure modules for its centralised platform. Aztechsoft provided design services in addition to development and testing services to them as their strategic engineering partner.15
2.5.1.2 Product companies increasingly turning to vertical specialist suppliers
Till now, product firms in North America primarily outsourced development and testing services to third-parties. However, at present, with the product development market maturing and becoming more competitive, they are looking beyond these services. They are turning to industry vertical specialist with domain experience and expertise, who could understand the end-user requirements and product architecture in a better manner, and subsequently, contribute towards producing a superior quality product.
2.5.1.3 Gradual gradation in the nature of services outsourced to third-party suppliers
While OPD companies offshoring work to captives would typically outsource most or all of the stages of the value chain (including high-end components such as design and architecture as well), third-party service providers would more often be receiving specific components only. These components would typically be parts of the value chain that are easy to replicate and can be processed/commoditised without much difficulty (such as coding and testing as opposed to design services). As third-party service providers continue to gain experience and credibility, they are evolving towards higher end services as well. For instance, Aspire Systems, an Indian OPD provider, apart from providing testing services to its client and is involved in projects for complete product development. For example, it was involved in developing a Radiology Information System and its integration with Picture Archiving and Communication System (PACS) right from the specification stage to the complete product development16.
2.5.1.4 North American start-ups outsourcing to third-parties
With the product development industry growing exponentially, there is immense pressure on small start-up firms in North America that focus on product development, to gain cost and time-to-market advantage. By outsourcing to third-party specialists located in low-cost offshore destinations, these start-ups realise around two to two-and-a-half times cost savings while focussing on commercial activities, such as goto-market and branding strategies. It is estimated that 60-70 percent of the start-ups are outsourcing their product development to India currently as compared to about 10 percent three years ago17. For instance, Strong Mail Inc, an email delivery software developer, outsourced development work to Persistent which involved building of the core infrastructure of their email software product18. TeleGrow LLC, a Texas-based application service provider (ASP) for organic food buying clubs, outsourced the development of its first product CoopShopper to Aspire Systems and thereby saved around 60 percent of its product development costs19.
2.5.2
Companies Outsourcing Product Development increasingly Adopting a Hybrid Model20
In order to leverage the benefits of offshoring, as well as ensure confidentiality and IP protection, ISVs are increasingly adopting the hybrid model of outsourcing. The hybrid model combines the advantages of captives and third-party service providers by enabling the ISVs to set-up a captive centre in an offshore location even if they do not have the competencies to run it. The ISVs, in this model, outsource the job of setting up a captive centre to a third-party service provider. The third-party supplier puts the necessary infrastructure in place, arranges for staff and makes the captive centre operational. Later, the control is passed on to the ISV. The captive centre continues to do the core work while the non-core work, such as testing, version control, maintenance, etc., is outsourced to the third-party supplier. The hybrid model addresses key concerns, such as Managing IP protection and compliance Providing customised processes, which ensures the same standard of processes as the onshore location Managing cultural differences in the offshore destination, primarily while setting up the operations
http://www.aztecsoft.com/clients/case_study_5.htm http://www.aspiresys.com/asp/success_stories.asp?p=4 17 http://www.thehindubusinessline.com/ew/2006/09/04/stories/2006090400060100.htm 18 http://www.persistentsys.com/customers/cust_services.htm 19 http://www.cio-asia.com/ShowPage.aspx?pagetype=2&articleid=1105&pubid=5&issueid=48 20 http://patni.com/resource-center/collateral/Isv/tp_hybrid-offshore-outsourcing.pdf

15 16
2.5.3
Companies are Outsourcing Product Development Work to Multiple Service Providers
Outsourcing to third-party suppliers involves risks, as confidentiality of the project may be compromised. Competitors, taking advantage of sensitive information, may succeed in launching a similar product earlier. As a result, to evade risk, the ISVs outsource different component to multiple suppliers. This ensures that no one player has complete information of their product. Also, companies outsource to multiple suppliers to achieve higher productivity and hasten the whole development process.
2.5.4
Emergence of Specialised Third-Party Testing Players
The growth in outsourcing of testing services has led to the emergence of various companies specialising in this domain. Aztecsoft acquired Disha Technologies (pure-play software quality engineering company) in 2004 (to build Aztecsoft-itest)21, in order to acquire expertise in testing services. It provides core and expert test services in various technology domains, viz., wireless mobility, networking, storage, developer platform tools, enterprise infrastructure solutions, etc. This step was in response to the customers needs to manage rapid product development, while maintaining independence in testing.
2.5.5
Bay Area Generates Maximum Demand for Outsourcing Product Development Activities
Most of the demand for OPD from North America comes from the bay region in the US, i.e., primarily California (Canada constitutes a small portion of the North American OPD market). In 2005, California accounted for 30 percent of the North America OPD demand. Other key areas generating demand for OPD in North America include New Jersey, New York, Boston and Seattle, each accounting for 7.5-15 percent of the total demand generated in North America22.
2.6
Key Parameters Determining the Supplier Choice
The following parameters play an important role in determining the choice of a third-party service provider by a product company:
2.6.0.1 Ability of the OPD vendor to provide scalability
One of the key objectives for outsourcing to third-party service providers is to reduce the ramp up time of the product development in order to launch it in the market at the earliest. Hence, product companies prefer third-party service providers who have enough resources to meet strict timelines and absorb peak load demand in case the need arises.
2.6.0.2 Experience of the OPD vendor in a specific technology domain
With the competition in the market increasing, the OPD providers need to distinguish themselves from the other players. Technology specific expertise and know-how, which forms a critical evaluation parameter for the product companies, marks the effectiveness of the OPD provider. For example, Persistent Systems has a competence centre in Goa dedicated to embedded systems, which provides them an edge over other OPD providers in domains, such as enterprise networking, PCI, PCIX, AMBA, OCP, etc23.
2.6.0.3 Track record and experience of the service provider in the OPD domain
While evaluating different service providers for a project, their experience in the space holds significant importance, as it helps the product companies to asses the following: Quality of service provided Adherence to timelines Adherence to SLAs and confidentiality norms Client references can form an important means to establish credibility in the market. Also, the experience and expertise of the top-level management team reflects the competence of the company as a whole and may have a strong influence on the companys decision regarding selection of an OPD service provider.
2.6.0.4 Price advantage offered by the provider
Cost saving is one of the major factors driving companies towards outsourcing/offshoring product development activities to low-cost destinations. Due to stiff competition in the OPD space, ISVs currently have more bargaining power and can compare the prices quoted by different OPD providers for the same work.
http://itest.aztecsoft.com/ Primary research 23 http://www.persistentsys.com/focusareas/embeddedsystems.htm
21 22
However, though pricing is a factor in OPD provider selection, it is not very critical at this stage24. This is because a service provider offering the lowest prices may cut down cost on infrastructure, communications, information security, etc., and hence, compromise on the quality of the end product.
2.6.0.5 Expertise of the OPD vendor in a specific stage of the product lifecycle
Since some companies outsource specific stages of the product development life cycle, such as coding, testing etc., many OPD providers have emerged as specialists, offering unique capabilities in those stages. However, this kind of expertise is less favoured than technology specific expertise. For example, companies such as SAP America and InstallShield, have partnered with AppLabs Technologies for testing and quality assurance services. AppLabs is an IT services company specialising in providing quality management and testing services and is a preferred choice for third-party validation for many firms. 25
2.6.0.6 Expertise of OPD vendors in specific domains
Product companies rate expertise in particular verticals as an important criterion. Certain domains, such as telecom, embedded software, etc., present high growth potential. Companies focussing on these verticals will have a competitive edge.
2.6.0.7 Location and infrastructure facilities of OPD vendors
Location and facilities of a particular company can go a long way in impressing a potential client. Accessibility of the companys facilities is important from the product companies point of view. Also, certain major cities, which are now the hub of the IT industry in India, are more likely to attract good talent from different parts of the country. Figure 12 assesses the relative importance of the key parameters determining the choice of a supplier.
Figure 12:
Impact Assessment of Key Parameters Determining the Choice of a Third-Party Supplier
Low Short Term (less than 2 years) Scalability Vertical Expertise Location and Infrastructure
Medium
High
Medium Term (2-4 years) Technology Domain Expertise Pricing
Long Term (over 4 years) Experience Stage Expertise

24 25
http://www.webspacestation.com/it-outsourcing-news/articles/outsource.html http://www.applabs.com/
3 Demand Generated by Indian Captives

3.1 Indian Captives Subcontracting Work
The OPD market essentially comprises the following: Offshored product development processes to captive centres Outsourced product development activities (some or all components of the product development cycle) to third-party service providers There is also a separate segment Indian captive centres subcontracting parts of the value chain to other companies, as depicted in Figure 13.
Figure 13:
OPD Market Structure: Subcontracting Product Companies/ Independent Software Vendors
Offshoring
Outsourcing
Subcontracting Captive Centers Third-party Service Providers
2.1.1
Share in the Overall Market
This kind of subcontracting by the captives is not very prevalent in the market and currently constitutes less than two percent of the overall Indian OPD market. Also, this share is not expected to grow much in the future, as the product companies are increasingly outsourcing to third-parties instead of captive centres (as reflected by the expected increase in share of third-party players vis--vis captives).
3.1.2
Key Stages of the Value Chain being Subcontracted
The captives typically adopt a peripheral model, outsourcing primarily non-core activities, such as testing, code maintenance, etc., to third-parties. Figure 14 shows the stages of the value chain that are partially (development phase) or wholly (support and testing services) outsourced by captives to third-party service providers.
Figure 14:
Stages of the Product Development Value Chain Subcontracted DESIGN & ARCHITECTURE DEVELOPMENT TESTING SUPPORT
Not outsourced Source:
Outsourced Primary Research, Evalueserve Analysis
3.1.3
Key Reasons for Subcontracting
Subcontracting is primarily driven by the following factors: Need of the captives to ramp up their capacity quickly to reduce the time-to-market Effectively manage their peak load requirements for short terms and avoid hiring and firing people
3.1.4
Players Subcontracting to Third-Parties
Table 4 lists the companies whose captive centres in India are sub-contacting work to third-party service providers.
Table 4:
Captives Outsourcing to Third-Parties

CAPTIVES SUBCONTRACTING TO THIRD-PARTIES
Captive Centres
Adobe Cisco Google HP IBM Oracle Semantics Sun Microsystems Texas Instrument Yahoo!
Aditi Technologies Aspire Systems Aztecsoft Ness Technologies Persistent Systems Symphony Virtusa
4 Supply Side Analysis

4.1 Competitive Landscape
The key players in the Indian OPD market include: Aditi Technologies Aztecsoft Symphony Services Persistent Systems Aspire Systems GlobalLogic Pramati Trigent Applabs The top 5 players in the list hold key positions in the Indian market and have been assessed relative to each other in the analysis below.
4.1.1
Aztecsoft Emerges as the Market Leader with respect to Stability and Profitability
Aztecsoft leads the other players on all three parameters, revenue, stability and profitability. Though Aditi has a high profitability, its stability level as well as revenue is much lower than the other players. Figure 15 shows the relative positions of the key players, with respect to their stability and profitability. While Symphony and Persistent closely compete for the next positions, Aspire Systems clearly falls behind the rest of the companies.
Figure 15:
Competitive Landscape: Stability vs. Profitability

High
Aditi Aztecsoft
Profitability
Symphony
Aspire
Persistent
Low Low
Stability
High *Size of the bubble indicates the revenue of the company Source: Evalueserve Analysis
4.1.2
Persistent Emerges as the Most Credible Brand in the Market
Persistent holds the most credible position in the market, leveraging its 10 year experience effectively. Aztecsoft and Aditi claim the second position with respect to this parameter. However, Symphony (even though it has limited experience) has developed a strong technology and vertical focus. Aspire Systems, being a new entrant, still need to establish itself as a strong player. Figure 16 presents the relative positions of these players on these parameters.
Figure 16:
Competitive Landscape: Credibility vs. Expertise

High
Persistent Aztecsoft Expertise
Symphony Aspire
Aditi
Low Low
Credibility
High *Size of the bubble indicates the number of employees Source: Evalueserve Analysis
4.1.3
Persistent Focuses on the Complete Spectrum of Services
Low-end services essentially include lower complexity activities that do not need highly specialised skills, such as testing and support operations. High- end services typically need specialised product engineers for complex operations, such as design and architecture. All companies span across key activities, such as code development, testing, etc. However, some of them, such as Symphony, focusses more on higher-end services and end-to-end development. Others, such as Aztecsoft, focus more on testing services, as depicted in Figure 17.
Figure 17:
Gradation in Service Offerings
Aditi Symphony Persistent Aspire Aztecsoft

Low-End High-End
Nature of Service Offerings

4.2
3.2.1
4.2.1.1
Player Profiles
Aditi Technologies
Company Overview
Aditi Technologies is a privately-held company, specialising in providing outsourced product development services. The company has more than 10 years of experience in product development and is focussed on providing end-to-end services. The company provides OPD services mainly to verticals, such as telecommunications, manufacturing, healthcare and financial services verticals. Apart from serving software product developing companies, Aditi also builds software applications, primarily for the pharmaceutical and healthcare industry. Table 5 provides a brief overview of the company.
Table 5: Aditi Technologies: Company Overview
PARAMETERS DETAILS
Company Overview Year of Establishment Number of Employees Type of Company Typical Customer Size Contact Information
1994 650+ (around 450+ employees are in India, rest in the US) Private Limited USD 20-300 million in revenues India Bangalore, Karnataka 224/16 Ramana Maharishi Rd, Bangalore 560 080 +91 80 23613344/23613399 USA Seattle, WA 2002-156th Ave NE Bellevue, WA 98007 +1 425 378 6500 www.aditi.com Pradeep Singh Pradeep Rathinam Anand Arkalgud Bharat Ahluwalia
Source: Company Website
India Headquarters
US Headquarters
URL Key Executives Chairman President - North America Vice President - Global Business Development Vice President - Engineering
4.2.1.2
Financial Information
In 2005, Aditis revenue was around USD 27 million26. The company targets a year-on-year growth of around 30 percent27. Figure 18 depicts the revenue split of the company by geography.
26 27
http://www.globalservicesmedia.com/sections/features/showArticle.jhtml?articleId=180207361&print= http://www.thehindubusinessline.com/ew/2006/09/04/stories/2006090400060100.htm
Figure 18:
Aditi Technologies: Revenue Split by Geography

1%
99% North America Others

4.2.1.3
Pricing Structure
Aditi uses the following pricing structures: Retainer price: Long-term partnership between the client and the service provider; cost depends on the resources allocated to the project Fixed price: Short-term assignment; fixed cost for the project (result-based) Figure 19 shows the split of revenue by pricing structure.
Figure 19:
Aditi Technologies: Revenue Split by Pricing Structure

27%
73%
Retainer Price
Fixed Price
4.2.1.4
Clientele
Aditis clientele includes start-up firms as well as established firms. However, bulk of its business comes from large product companies, as depicted in Figure 20. Microsoft is the largest client of the company, accounting for 35 percent of the revenue. Top three clients of the company (including Microsoft) account for 63 percent of its revenue, as shown in Figure 21.
Figure 20: Aditi Technologies: Revenue Split by Size of Clients
20% 37%
Figure 21:
Aditi Technologies: Revenue Split by Top Clients
63% 80% Large and SME Start-ups Top 3 Customers

Source:
Others
Primary Research
Table 6 lists the key clients of the company.

Table 6: Aditi Technologies: Key Clients KEY CLIENTS (ONLY SOFTWARE PRODUCT DEVELOPING COMPANIES)
Microsoft Atsmai Technology Serena28 Aventeon

Source:
Cisco Global Product Channel Omnicell pi Corporation
Expedia Zendit Solucient

Stelae
http://www.globalservicesmedia.com/sections/features/showArticle.jhtml?articleId=180207361&print=true, Forrester Research
4.2.1.5
Products/Services Portfolio
Aditi offers a range of OPD services to address different needs of product companies. Aditi categorises its services as follows: New product development: The services offered include end-to-end development of new software products from requirement collection and analysis, design layout to code generation and testing. Additionally, the company offers customer support and deployment services to its customers. Aditi has developed a number of new products, such as enterprise CRM product, an online retail store, a digital rights management system, financial trading software, an environment for distributed team collaboration, etc. Co-development: The services offered include addition of new features based on new technologies to an existing product. It also offers co-development services to companies for Assessment of a technology for its suitability to build a solution Integration of a product with other products Addition of features to a Web application or mobile device software Meeting the peak load demands of product companies Platform migration: The migration services offered by the company include the following: Offering of a product on additional technology platform. For instance, offering a J2EE product on the . NET stack and vice versa Re-architect product to either scale up or scale down Addition of Web 2.0 features in an existing online product Migration of user interfaces. For instance, making a Web-enabled interface Replacement of certain components of product architecture with new and better alternatives. For instance, transitioning from Crystal Reports to Microsoft SQL Server Reporting Services (SRS) Aditi in collaboration with Microsoft also offers a programme called NXT which helps ISVs in evaluating the suitability of a platform migration. The NXT programme also offers sessions on architecture design free of cost. The company also develops prototypes on new architecture at reduced cost (33 percent of the cost is incurred if it is done by the client. Testing: The company offers end-to-end integrated test automation services. There are automation frameworks for plugging, re-use and re-designing of scripts in order to support multiple product versions. Apart from providing automated functional testing of the product, the company also provides performance, reliability, scalability and security testing of the product. Aditi does not provide manual testing services. Professional services: The professional services offered by Aditi support the client in Getting opportunistic deals that involve one-off customisation of the product Developing market-specific versions of a product Trying out new selling models by spinning new versions of products Evaluating feasibility and benefits of replacing an existing technology with a new one Migrating from legacy systems to new ones, keeping functionalities intact Product maintenance: The services offered include maintenance of existing older products of the client and the clients customer base. The company also assists the technical team of the client to ensure that the product issues are addressed within specified service-level agreements.
4.2.1.6 NXT Expertise29
The company has core NXT expertise in the following: .NET Framework 3.0 SQL Server 2005 Office 2007
Formerly Pacific Edge Software Definition: NXT is a new, end-to-end initiative from Microsoft that helps to make the process of adopting Microsoft technologies faster, easier, and less expensive.
28 29
SharePoint Portal Server 2007 Windows Vista Windows Longhorn.

4.2.1.7 Table 7: SWOT Analysis Aditi Technologies: SWOT Analysis
STRENGTHS WEAKNESSES
The company has strong credibility in the market: The sales team in the US is too small (10 members) to cater to the increasing demand in North America for outsourcing Has more than 10 years of experience in software product development work to India. product development domain The revenue of the company depends largely on few Is a gold certified partner of Microsoft with competency in database management solution. customers (63 percent of its revenue is from top 3 The company has the expertise and experience ofcustomers). Departure of even one client could severely affect the financials of the company. offering end-to-end development of software product The company focusses entirely on the US market. from scratch Has opened up a Program Management Group for strengthening its product conceptualisation and design capabilities.
OPPORTUNITIES THREATS
With around 60-70 percent of start-ups outsourcing typically the entire product development lifecycle to Indian OPD service providers, Aditi is well positioned to tap the growing market opportunity. A number of large to mid-sized companies are winding up their captive operations in India and instead outsourcing directly to third-parties. Aditi, with its end-to-end service capabilities could reap the benefits of this trend.
4.2.1.8 Future Outlook
The company is heavily dependent on its experts group. The operations of the company could be heavily affected in case of slight attrition. The company does considerable work for start-up firms, mostly end-to-end product development. Failure of start-ups supported by Aditi, could affect Aditis revenue.
Source:
The OPD team of Aditi in the US has 35 people of which only 10 are engaged in sales. The company is planning to increase the strength of its sales team in order to tap the growing demand in the US for outsourcing software product development to India. The company will continue building expertise around technology or market trends rather than industry verticals.
4.2.2
4.2.2.1
Aztecsoft
Company Overview
Aztecsoft (Previously Aztec Software and Technology Services Limited) is a publicly listed company, with sole focus on software product engineering and quality engineering services. Established in 1995, the company has more than 10 years of experience in the industry and has been listed among the worlds 100 most innovative service providers. Due to its excellent HR practices Aztecsoft was ranked 11th in the Top 25 Great Places to Work in India. The company, headquartered in Bangalore, India, also has delivery centres Pune and Hyderabad. Table 8 provides a brief overview of the company.
Table 8: Aztecsoft: Company Overview PARAMETERS Company Overview Year of Establishment Number of Employees (2006) Type of Company Core NXT Expertise Product Releases Typical Customer Size Contact Information India Headquarters DETAILS 1995 2,005 (India 1,948 and USA 57) Public (Listing: BSE and NSE) Java to .Net migration and Oracle to SQL 1,500+ USD 5 million and larger India # 23, III A Cross 18th Main, 6th Block Koramangala Bangalore - 560 095 +91 (80) 2552 2892 USA 3211 Scott Blvd, Suite 204 Santa Clara, CA 95054 +1 (408) 748 3500 Pune and Hyderabad www.Aztecsoft.com K.B. Chandrasekar V. Chandrasekaran V.R. Govindrajan Samir Bodas Abhay Joshi Sundarajan V
US Headquarters
Other Delivery Centres (India) URL Key Executives Chairman - Board CEO, MD and Board Member CTO Product Engineering and Board Member President - Product Engineering Executive Vice President - Quality Engineering Chief Financial Officer 4.2.2.2 Financial Information
The companys revenue increased from USD 22.4 million in 2004-05 to USD 44.7 million in 2005-06, exhibiting a growth of about 102 percent. Figure 22 depicts the companys revenue and profitability30 for the period 2002-06.
Figure 22:
Aztecsoft: Revenue (2002-06)
30
Profitability = Profit after Tax/Sales
50 Revenue (USD Million) 40 13.1% 30 20 10 0 2001-02 3.0% 14.5 9.0 -12.0% 2002-03 2003-04 Revenue 2004-05 Profit Margin
Source:
44.7 17.8%
25%
10% 22.4 5% 0% -5% -10% -15% 2005-06
9.1
Company Website
Major share of the companys revenue is generated at the offshore locations, as depicted in Figure 23. The company is almost entirely focused on the US market, with 90 percent of its revenue coming from there, as depicted in Figure 24.
Figure 23:
Aztecsoft: Revenue Split by Location

15%
Figure 24:
Aztecsoft: Revenue Split by Geography

10%
85% Offshore Onsite
90% US
Source:
Other
Annual Report 2005-06
4.2.2.3
Employee Details
Aztecsofts total employee base increased from 1,405 in the financial year 2004-05 to 2,005 in 2005-06. Around 93 percent of these employees are engaged in technical operations and the rest in support functions.
4.2.2.4 Clientele
Aztectsoft is the software engineering partner for various software vendors ranging from early stage companies to established companies in the software domain. Top five clients of the company contributed about 55 percent of its total revenue in the financial year ending March 2006, as depicted in Figure 25.
Figure 25:
Aztecsoft: Revenue Split by Top Clients
Profit Margin (%)
18.8% 20% 15%
45% 55%
Top 5 Clients
Other Clients
Source: Annual Report 2005-06
Table 9 lists some of the key clients of the company.

Table 9: Embarcadero IBM Pervasive 4.2.2.5 Product/Service Portfolio Aztecsoft: Key Clients OTHER KEY CLIENTS Cadence Microsoft J D Edwards
Source:
Hyperion Novell
http://www.aditi.com/library/whitepap/WP%20Nasscom%20report.pdf
Aztecsoft enables product development companies overcome the numerous challenges they face in developing new products. The company offers the services under the following categories: Software engineering: The services offered extend up to entire product development life cycle from conceptualization to final product realization. The company helps the companies to define and analyse the product requirements properly. The products are designed using industry-standard tools. Quality engineering: The services offered primarily include independent test services through Aztecsoft-itest (previously Disha Technologies). Independent test services constitute system testing, security testing, functional verification and validation, patch testing, and logo and certification testing. Additionally, the company offers expert test services to perform testing, automation, penetration testing, QE lifecycle strategy development, and quality framework (QA) consultancy. .NET engineering: The services offered by the company on .NET include: Development and testing of enterprise class products Migration on .NET platform Performance engineering services Interoperability services Aztecsoft has helped around 35 ISVs with the expertise gained in .NET. In 2001 Aztecsoft created a .NET Centre of Excellence in its global offshore delivery centres. Implementation engineering: The services offered include custom integration services using technologies, such as ETL, EAI, workflow integration, XML and Web services. Aztecsoft is efficiently able to implement solutions in complex IT environments owing to its expertise on standards, such as .NET, J2EE, etc. the offerings range from business process analysis and redesign to implementing robust security. Sustenance engineering: The services offered by the company include up gradation of existing products and release of new versions for product companies to help them meet the market demand. The company offers services to add new features in the product based on the latest technologies available, at reduced prices. Open source engineering: The services are offered by the company under AztechSource - a set of services designed to simplify the deployment of an open source middleware stack for software applications. The major services under AztecSource are: technology evaluation development, testing and deployment of software products migration existing solutions to the open source stack
4.2.2.6 Focus Area Technology
Aztecsoft technology focus includes the following areas: Data management: The data management services offered by the company enable companies to manage large volumes of data efficiently. Aztecsoft has developed expertise relational database technology as well as building solutions based on directory servers. Additionally, it also offers services in building components for
data caching, developing drivers, such as ODBC, JDBC, etc., developing tools for data transformation from one format to other and vertical-special data management solutions. Web services: Web services offered by the company enable the interoperability of applications across various platforms. Aztecsoft designs Web services for companies in order to facilitate the collaboration of enterprise application on a service-oriented architecture. Security and Identity management: The services offered mainly include design of secure identity management frameworks. The security identity management solutions designed are strictly based on the requirements of the client making sure that company information is accessed by the authorised users only. Wireless product engineering: The services offered extend to all the phases of wireless product engineering lifecycle to start-ups as well as established companies. Aztecsoft has developed expertise on technologies, such as WiFi, WiMax, etc and on various platforms, such as BREW, J2ME, Symbian, etc.
4.2.2.7 NXT Expertise
The company has core NXT expertise in the following: Java to .Net migration Oracle to SQL
4.2.2.8 Table 10: SWOT Analysis Aztecsoft: SWOT Analysis
The company is ISO 27001 certified, which helps assure clients of information security. With Aztecsoft-itest, the company can provide independent and specialised testing services. The company has shown exceptional growth in the last two years (CAGR of 121 percent). The company has strong potential for inorganic growth.
OPPORTUNITIES
The company focusses heavily on the US market and is highly susceptible to the economic conditions there. The client works with a number of emerging ISVs that are in their early stages; the failure of these companies can significantly impact the company.
THREATS
A number of large to mid-sized companies are winding up their captive operations in India and instead outsourcing directly to third-parties. Aztecsoft, with its service capabilities could reap the benefits of this trend.
4.2.2.9 Recent Developments
The funding for certain new projects may slow down.
Source:
Aztecsoft earned the SEI-CMMi Level 5 and ISO 27001 certification for information security in 2006.
Future Outlook
4.2.2.10
Aztecsoft is planning to invest USD 11.2 million over the next 3-4 years to grow its Hyderabad development centre to around 1,500 people31.
4.2.3
4.2.3.1
Symphony Services
Company Overview
Symphony Services is a global provider for complete lifecycle software solutions. It also provides product engineering and consultation services to its clients. The company is headquartered in Bangalore and also has delivery centres in Pune and Mumbai. The company comprises three groups, viz., Commercial Software Group (CSG), Cost Management Group (CMG) and Demand Analytics Group (DAG): CSG group: Provides services for commercial grade product MG group: Helps companies to manage their indirect spending efficiently DAG group: helps clients to better understand market trends Table 11 provides a brief overview of the company.
31
www.Aztecsoft.com/news/press_release_jan_2006_latest_allindia.pdf
Table 11:
Symphony Services: Company Overview PARAMETERS DETAILS 2002 3,000+ Private 80+ USD 10 million and larger 730 India Outer Ring Road, Varthur Hobli Bangalore, 560 087, India +91 (80) 3027 1000 USA 4015 Miranda Avenue, 2nd Floor Palo Alto, CA 94304 +1 (650) 935 9500 Pune and Mumbai www.symphonysv.com Gordon Brooks Dr. Ajay Kela Dr. Jerry Smith Jeff Van Zanten Amitava Roy
Company Overview Year of Establishment Number of employees (2006) Type of Company Customers Typical Customer Size Product Releases Contact Information Office Address
Other Deliver Centres (India) URL Key Executives President and CEO Chief Operating Officer and Managing Director Chief Technology Officer Chief Financial Officer, Treasurer and Secretary President, India 4.2.3.2 Financial Information
In 2005-06, Symphony Services revenues were about USD 100 million32. The company has registered a CAGR of around 170 percent over the last three years33.
4.2.3.3 Clientele
Symphony Services has over 80 clients all over the world, primarily in the US. Its key clients are listed in Table 12.
Table 12:
Symphony Services: Key Clients KEY CLIENTS Oracle IRI Siebel Hyperion Iron Mountain Yahoo!
Autodesk BMC Software Texas Instruments 4.2.3.4 Product/Service Portfolio
Symphony offers specialised outsourcing solutions across the entire product development lifecycle. Its offerings are: Commercial grade software: The services offered cater to end-to-end product lifecycle. The range of services offered include: Product management Design and architecture Product development engineering Quality engineering Sustaining engineering Support Professional services Software as a Service (SaaS): The services offered by the company under SaaS include consulting, design, development, quality assurance, and remote infrastructure management.
http://72.14.235.104/search?q=cache:UOH26T9YKGYJ:www.cebitasia.com/en/down/0907/picdc.pdf+aspire+systems+number+employees&hl=en&ct=clnk&cd=8 33 http://www.theopenpress.com/index.php?a=press&id=7438
32
Embedded systems and software: The services offered by the company span across complete product development of embedded systems and software. Symphony has an Embedded Systems & Software Centre of Excellence comprising specialised professionals with vast experience. Symphony has expertise in design, development, testing and integration of embedded software. Strategic consulting services: The strategic consulting services offered by Symphony help clients achieve maximum out of outsourced product development process and thereby achieve their business goals. Symphony has professionals well versed in the latest technologies. The company had established Centres of Excellence for certain technologies and platforms. It has emerged as an industry leader in technologies, such as Microsoft technologies, Java technologies, Agile methodologies, AS/400 migration, Analytics R&D (for ISVs).
NXT Expertise
4.2.3.5
The company has core NXT expertise on SQL Server. It is utilising this expertise to Achieve maximum performance using SQL Server 2005 application compatibility labs to ensure success running on 32- and 64 bit-SQL Server 2005 assisting ISVs on competitive platforms to migrate to SQL Server Additionally, Symphony also has expertise in Java technologies, Agile methodologies, AS/400 migration and Analytics R&D (for ISVs)
4.2.3.6 Domain Expertise
Symphony boasts of expertise in the following domains: Storage (especially network storage systems) ERP Customer relationship Management
4.2.3.7 SWOT Analysis
Table 13:
Symphony Services: SWOT Analysis

The company has a large number of employees and can absorb peak load demands from the clients. The company has developed strong expertise in embedded system and software and emerging technologies, such as SaaS.
OPPORTUNITIES
The company is dependent on certain key clients; Departure of even one client could severely affect the financials of the company.
THREATS
A number of large to mid-sized companies are winding up their captive operations in India and instead outsourcing directly to third-parties. Aztecsoft, with its service capabilities could reap the benefits of this trend. With around 60-70 percent of start-ups outsourcing typically the entire product development lifecycle to Indian OPD service providers, Aditi is well positioned to tap the growing market opportunity.
Recent Developments
The company is focussed on providing services to its big clients. Departure of some of these clients could severely affect the financials of the company.
Source:
4.2.3.8
Symphony Services acquired VMOplus, a consulting firm34 in June 2006. Symphony opened its fourth development centre in Bangalore, which can seat up to 2000 people35 in June 2006.
34
http://www.symphonysv.com/newsroom/newsdetails.asp?URL=http://boston.bizjournals.com/boston/stories/2006/06/12/daily45.html
35
http://www.symphonysv.com/newsroom/newsdetails.asp?URL=http://www.hindu.com/thehindu/holnus/006200606150310.htm
4.2.3.9
Future Outlook
The company is considering starting its operations in China soon, which will have 10 percent of its total workforce36.
36
http://www.symphonysv.com/newsroom/newsdetails.asp?URL=http://www.hindu.com/thehindu/holnus/006200606150310.htm
4.2.4
4.2.4.1
Persistent Systems
Company Overview
Persistent Systems, founded in 1990, is one of the old players in the Indian OPD market, focusing almost exclusively on offshored product development activities. Persistent was one of the pioneers in this domain and serves clients all over the world. Headquartered in Pune, India, it is a privately held company. It has three other development centres (besides Pune) located in Goa, Nagpur and Bangalore. Persistent was the first company in India to receive strategic investment from Intel (IA) fund. Table 14 provides a brief overview of the company.
Table 14: Persistent Systems: Company Overview PARAMETERS Company Overview Year of Establishment Number of employees (2006) Type Customers Typical Customer Size Product Releases Contact Information India Headquarters 1990 2,700 Privately Owned 160 USD 2-4 million 1,000+ India Bhageerath, 402, Senapati Bapat Road Pune 411016, India +91 (20) 2570 2000 USA 440 N. Wolfe Road, Sunnyvale, CA 94085. +1 (408) 524-7417 Nagpur, Goa and Bangalore www.persistentsys.com Dr. Anand Deshpande, PhD Raj Sirohi S P Deshpande Dr. Srikanth Sundararajan
DETAILS
US Headquarters
Other Delivery Centres (India) URL Key Executives Founder, Chairman and Managing Director President - Persistent Systems Inc. USA Co-Founder and Director Chief Operating Officer 4.2.4.2 Financial Information
Persistent Systems had a turnover of around USD 48.9 million in the financial year ending March 2006, representing a growth of around 49 percent over the previous year. The companys profits grew by around 18 percent over the previous year to reach around USD 9 million. Figure 26 depicts the revenue growth and profit margin of the company over the period 2002-06.
Figure 26:
Persistent Systems: Revenue (2002-06)

50 Revenue (USD Million) 40 30 20 10.5 10 0 2002-03 2003-04 Revenue 2004-05 Profit Margin 2005-06 5% 0% 14.3% 18.0 23.4% 23.2% 32.8 48.9 25% 20% 15% 10% Profit Margin (%)
18.4%
Report prepared by: Aditya Ganguli, Vice President, Business Development, PhoenixLogin Solutions Pvt. Ltd Source: Company Website
4.2.4.3
Clientele
Persistent serves more than 160 clients, ranging from start-ups to matured companies, with start-ups accounting for around 25-30 percent of the companys revenue37 in FY 2005-06. Figure 27 represents the split of revenue by client size. The companys customer base is spread across different geographies, with the maximum number of clients in the US. Figure 28 shows the split of the number of clients by geography.
Figure 27:
Persistent Systems: Revenue Split by Size of Clients
Figure 28:
Persistent Systems: Distribution of Client Base by Geography

12% 3%
30%
70% 85% Large and SME

Source:
Start-ups
America
Europe
Source:
Japan
Company Website
http://www.persistentsys.com/images/medi a/newsrel2006/20060714thehindubusinessl ine.gif
Table 15 lists some of the key clients of the company.

Table 15: Microsoft Agilent Oblix
Source:
Persistent Systems: Key Clients

KEY CLIENTS
IBM Openwave Informatica
Oracle Critical Path Google
http://www.aditi.com/library/whitepap/WP%20Nasscom%20report.pdf, Forrester Research
4.2.4.4
Engagement models
Persistent understands that the requirements of different t types of companies will be different. Keeping this in mind, it has offers different engagement models depending on the level of maturity of the company. Go-to-live This model is for company in the early stage of their growth especially start-ups. The go-to-live engagement model is developed keeping in mind the requirements and challenges of these companies, such as cost considerations, dynamic environments, development across multi platforms, etc. Go-to-live is quite flexible and offers product development across the entire lifecycle, keeping the cost low and adhering to deadlines. Keep it alive The Keep it Alive engagement model is best suited for those established software vendors who want to cut costs on version releases and lifecycle management. The model enables these vendors to focus on their core competencies and provides maintenance and support for older/existing versions of products. Offshore development centres- ODC The offshore development centre engagement model has proved to be an advantageous option for many of Persistents clients. The resources provided by Persistent here become an extending team and enable the company to scale up rapidly in case of high demand. Use of standardised tools and processes and seamless integration further facilitate the process. The ODC ensures max ROI for clients by accelerating the time-tomarket for software products at reduced cost.
4.2.4.5 4.2.4.5.1 Product/Service Portfolio Services Product development life cycle
Persistent Systems delivers services for every stage of the product development value chain i.e. from prototyping of the product to support and maintenance services. Persistent uses the Persistent Standard Software
37
http://www.thehindubusinessline.com/2006/07/15/stories/2006071503170600.htm
Process (PSSP) framework for developing products. This is modelled on Rational Unified Process. Some of the lifecycle services offered by the company are: Prototyping: The services offered include prototype development to be put into production. Persistent has, earlier, built prototypes in domains, such as pharmaceuticals and bio-informatics. Usability Engineering: The usability engineering services are offered using a user-centric design methodology, which ensures that all user requirements are taken into consideration and an easy-to-use product is developed. The usability engineering methodology includes user-focussed analysis of requirements in order to develop a user-friendly design. Development: The services offered include complete development of a software product right from the conceptualization stage. Persistent over the years has helped many companies and ISVs develop innovative products giving these companies a competitive edge in the market. Testing and Quality Assurance: The testing services offered include all kinds of testing, such as white box, black box, functionality, load, regression, compliance, etc. Persistent has a team of quality assurance specialists and has more than a decade of experience in testing and quality engineering. It provides both manual as well as automated testing services. Performance Engineering: The services are offered by the Performance Engineering Group (PEG) at Persistent. PEG comprises people with distinct skill-sets who undertake performance modelling, evaluation and optimization of the product. The objective is to improve the architecture and code of the product, in order to get a better product. Porting: These services include re-engineering services for various clients depending on their business need to ensure a smooth migration of legacy systems to new platforms. Sales Support: Persistent offers back office engineering team, which can also be brought onsite during period of high sales. Apart from that, it also offers patch management and system compatibility testing. Technical Support: The technical services offered by the company include troubleshooting services and fixing product defects. Maintenance: The maintenance services offered by the company primarily include handling change requests to offering regression verification taking care of the defects arising in the product. Persistent provides longterm support and maintenance services to its customers.
Persistent offers product development services in the following areas: Data Management Field Force Automation Service Oriented Architecture (SOA) Data Connectors Identity Management Porting and Interoperability Lab Push Email Persistent has developed software components that have been used in various solutions. Over the years it has developed solutions mainly in the following domains: Enterprise integration Identity management Radio frequency identification (RFID) Life sciences
4.2.4.5.2 Focus Areas
Software The services offered by Persistent are focussed on the following kinds of software: Application software: Content management, search tools, RFID, supply chain collaboration and customer relationship management (CRM) Infrastructure software: Telecom and wireless, identity management, email and messaging, business intelligence, embedded systems etc. Technology Persistent is currently focussing on the following technologies: Databases and DB internals: Query processing, database optimization to data mining and development of ETL tools. Web services and XML Custom connectors:
4.2.4.6 NXT Expertise
The company has core NXT expertise in the following domains:
Business intelligence Email and messaging Office integration Telecom/wireless/RFID Life sciences WinFX (Windows Workflow, Windows Presentation Foundation, Windows Communication Foundation)
SWOT Analysis Persistent Systems: SWOT Analysis
4.2.4.7 Table 16:
The company is one of the oldest players in the OPD market focuses almost entirely on product development activities, which helps convince the customers that they understand their market offers services across the product development lifecycle, from design to support Given the nature of IP concerns in the market, the companys BS7799 certification will help strengthen its credibility in the market. The company has grown at a CAGR of 60 percent over the last three years.
OPPORTUNITIES
The companys revenue and profit growth rate have slowed in the recent years, with the profit margin falling from 23 percent in 2004-05 to 18 percent in 2005-06.
THREATS
The company is in a good position to tap the Identity Management market, which presents a key growth area (expected to grow from around USD 2 billion currently to about USD 8.5 billion by 200838), with its new tool in this field, Identity Aware. The companys design for manufacturing strategy, which is targeted specifically at emerging ISVs and start-ups, can be instrumental in capturing a significant portion of their market.
4.2.4.8 Recent Developments
A significant portion of the companys revenue comes from start-ups, which can be impacted by the failure of these start-ups.
Source:
Persistent became a part of Google Enterprise Professional programme in June 2006. Persistent is utilizing its experience in developing Custom connectors that will empower Google search appliance by providing the customers with choice of searching various data sources39. Persistent acquired ControlNet in 2005 to expand into the domain of Embedded Systems and Application Specific Integrated Circuit (ASIC) Design40.
4.2.4.9 Future Outlook
The company plans to increase in presence in Tier 2 cities such as Nagpur. At present, it has some 200 employees working there41. Persistent plans to open two new centres at Pune, seating 2,500 people each. The first centre is expected to become operational by December 2006, followed by the second one around July 200742.
http://www.persistentsys.com/images/media/newsrel2006/20060621economictimes.jpg http://www.persistentsys.com/media/newsrel/2006/20060621forbes.htm 40 http://www.us.design-reuse.com/news/news11936.html 41 http://www.persistentsys.com/images/media/newsrel2006/20060713theindianexpress.jpg 42 http://www.persistentsys.com/images/media/newsrel2006/20060715efytimes.gif

38 39
4.2.5
4.2.5.1
Aspire Systems
Company Overview
Aspire Systems is outsourced product development firm that has partnered with firms to help them develop new software products. Its product development team is spread between the Global innovation Centre (Chennai) and other offices in the US. Table 17 provides a brief overview of the company.
Table 17: Aspire Systems: Company Overview PARAMETERS Company Overview Year of Establishment Number of employees (2006) Type of Company Contact Information India Headquarters N.A. 300 Private India 1/D 1, SIPCOT IT PARK, Siruseri (near Chennai) Tamil Nadu - 603 103 +91 (44) 6740 4000 USA 22725, 44th Avenue West, Suite #103, Mountlake Terrace, WA 98043 +1 (425) 673 5205 www.aspiresys.com Gowri Shankar Subramanian Bhoovarahan Thirumalai Shankar Krishnamoorthy Rafael Gonzalez
DETAILS
US Headquarters
URL Key Executives CEO EVP and Co-Founder Vice President Development Vice President North West US
Aspire Systems was expected to hire 340 engineers by March 2006, taking its staff strength in India to around 50043.
4.2.5.2 Financial Information
The companys revenues were around USD 7.9 million in the financial year ending March 200644. The companys revenue growth and profit margin for the period 2003-06 are depicted in Figure 29.
Figure 29:
Aspire Systems: Revenue (2003-06)

10 26.9% Revenue (USD Million) 8 6 4 2 0 2003-04 2004-05 Revenue
Source:
30% 7.9 25% 20% 14.3% 2.9 1.5 15% 10% 5% 0% 2005-06 Profit Margin
http://economictimes.indiatimes.com/articleshow/1008916.cms
US accounts for the largest share of the companys revenue, as depicted in Figure 30.
43 44
http://economictimes.indiatimes.com/articleshow/1008916.cms http://economictimes.indiatimes.com/articleshow/1008916.cms
Profit Margin (%)
Figure 30:
Aspire Systems: Revenue Split by Geography

3% 2%
95% US Europe Israel

4.2.5.3
Clientele
The company has more than 20 clients (software product companies) in the US45. It serves several emerging ISVs, such as Senable Technologies (which is a 15-people technology start-up in the US)46.
4.2.5.4 Service Offerings
Aspire systems utilises its technical knowledge and industry expertise offering a variety of services: Product development: The services offered span the entire life-cycle of software product development, right from product design to its final realization. Product advancement: The services offered include: Product enhancement Aspire can upgrade the software product by incorporating new features in it that satisfy changing user needs and/or integrate it with new platforms Product migration Aspire offers range of migration services from simple upgrades to complete rewrite of the product Product re-engineering Product testing: Aspire systems adopts a rigorous testing methodology for testing development products. The testing services include unit testing, integration testing, system testing, etc. Additionally, the company offers testing of third-party products, where team at Aspire acts as an extended testing team and speeds up the product development process. It includes services, such as smoke testing, functionality testing, etc. Product implementation: The services offered include: Data adaptation: data mapping and conversion to different formats, such as XML, etc. Customisation to implement unique functionalities to satisfy customer needs. Integration Product maintenance: The maintenance services offered by the company include bug fixing, system adaptation, and performance improvement.
4.2.5.5 Technology Offerings
Java: Aspire has used the J2EE application server technologies, such as BEA WebLogic, IBM WebSphere, and JBoss .NET: Aspire systems has a dedicated team comprising of people who have expertise on .NET and related technologies C/C++: Aspire has worked on C/C++ for many years and gained expertise in Microsoft Foundation Classes (MFC). Testing: Aspire has gained expertise in area of manual testing and also offers automated testing especially in case of products whose new versions are to be released. It has gained expertise in numerous testing tools, such as Jtest, Junit, WinRunner, QA Run, Web Application Stress Tool (WAST), etc.
4.2.5.6 Table 18: SWOT Analysis Aspire Systems: SWOT Analysis
45 46
http://economictimes.indiatimes.com/articleshow/1008916.cms http://www.thehindubusinessline.com/ew/2005/11/07/stories/2005110700170300.htm
The company has a strong focus on providing the right kind of training to its employees, as per the market demands.
The company is relatively new and does not have a strong track-record to impress potential clients. The company has a smaller resource base, due to which quick scalability may be an issue.
THREATS
OPPORTUNITIES
A number of SMEs are winding up their captive operations in India and instead outsourcing directly to third-parties. Aspire, with its service capabilities could reap the benefits of this trend
Most other competitors already have an established presence in the market; Aspire, being a newer entrant, will have to compete with them.
Source:
4.2.5.7
Future Outlook
Aspire systems is investing USD 10 million over the neat two years in the OPD domain. The investment is directed towards infrastructure, manpower, technology, and training. The move is made by Aspire to consolidate its position in the OPD market47. The company aims to reach USD 22.4 million in revenue by 200848.
47 48
http://www.thectoforum.com/website/people/stories/65481.html http://www.ciol.com/content/news/2005/105100510.asp
5 Conclusions
5.0.1 India is fast emerging as the most preferred OPD destination
The OPD market in India is expected to grow from USD 3 billion in 2005 to around USD 15 billion in 2010, growing at a CAGR of 35-40 percent. It accounts for one-third of the global USD 9 billion OPD market. Availability of skilled professionals, low cost of operations and quality of work are positioning India as an OPD hub.
5.0.2
Software product developing companies are increasingly outsourcing high-end work to third-party service providers
As the OPD market in India is maturing, product companies are now showing inclination towards outsourcing high-end work such as product conceptualisation and its design to third-party service providers. The excellent quality of work being rendered by Indian third-party service providers has acted as a catalyst behind this trend. As a result, third-party vendors are now emerging as providers of end-to-end product development work. Third party suppliers allow them to scale up or down their operations quickly and easily, while also avoiding the hassle of hiring and firing people. It gives them the flexibility to manage resources more efficiently, by synchronising the team composition with the kind of work being done (as per the stages of value chain).
5.0.3
OPD: The remedy for the pain points of software product development companies
Software product development companies face various business and product development related constraints. OPD vendors can pitch in as panacea for these pain points and thereby present outsourcing as a better alternative for these product companies. Figure 31 illustrates the pain points faced by companies of various categories (based on revenue) and the degree of criticality of these pain points.
Figure 31:
Pain Points of Software Product Development Companies
Company Type Degree of Criticality
Large (Revenue > USD 1000 Million) Time-to-market
SME (Revenue USD 1001,000 Million) Time-to-market Constraints in hiring resources in bulk Peak load management Need to focus on companys business Limited R&D budget Ball park idea of product blurred approach
Start-ups (Revenue <USD 100 Million) Time-to-market Limited R&D budget Constraints in hiring resources in bulk Peak load management Need to focus on companys business Ball park idea of product blurred approach
High
Medium
Peak load management
Low
Limited R&D budget Constraints in hiring resources in bulk Ball park idea of product blurred approach Need to focus on companys business
5.0.4
Intense competition amongst Indian OPD vendors
The rapid growth of the Indian market has intensified competition amongst OPD vendors. While Symphony has the largest revenue, Aditi has the highest profitability. The key players in the market have been depicted in Figure 32.
Figure 32:
Relative Rating of OPD Vendors on Different Parameters
STABILITY Aditi Symphony Persistent Aspire Aztecsoft Aditi
PROFITABILITY
Symphony Persistent Aspire Aztecsoft
Aditi Symphony Persistent Aspire Aztecsoft CREDIBILITY

Source:
Aditi Symphony Persistent Aspire Aztecsoft EXPERTISE
6 Appendix
1.1.1 Outsourcing: Software Product Development vs. Customised Application Development
Although the concept of outsourcing is similar in software product development and customised application development market, the nuances involved in each are quite different. Table 19 brings out the differences between the two.
Table 19: Contrast between Software Product Development and Software Application Development
OUTSOURCING
Software Product Development
Customised Application Development
The architecture and design of a product is more complex, requiring specialised technological knowledge due to the following reasons: The product architecture has to be flexible and robust, enabling its scalability to meet disparate needs Certain type of software products (such as embedded software) require specialised skills OPD companies need to provide products that are more generic and adaptable to enable the following: Cater to the ever-changing needs/demands of the wider user base Continuously changing technologies and new emerging platforms The relationship between the customer and the supplier is typically long-term. It lasts till the customers use the product. This is primarily because Several version changes and re-engineering of the product may take place The product company is required to provide support services for a fixed duration to the consumer
Source:
The architecture and design of a software application are relatively simpler, since they are based on the specific requirements, which are not subjected to change over time. This can be managed with a workforce with relatively less technological competency.
A software application is especially customised and dedicated to the specific needs of a particular customer (essentially, a closed customer base). It is easier to define these needs and their evolution with time. The relationship between the customer and the supplier is typically for a fixed duration, ranging from few months to years.
Outsourced Product Development - An Overview, Aspire Systems
6.0.2
Software Product Development Value Chain
The software product development value chain comprises a series of stages as shown in Figure 33.
Figure 33:
Stages of the Product Development Value Chain
DEVELOPMENT
TESTING
SUPPORT
Definition of the Stages of the Value chain Requirement analysis: This is the first stage of the value chain and focusses on analysing the functional requirements of the product. The functionality and specifications of the software product are understood and documented in this phase. These requirement specifications form the critical base for subsequent phases in order to build the intended software product. Design and architecture: This stage focusses on developing the logical system/framework of the product, i.e., specifying the behaviour of various design components. On the basis of the requirements gathered, the high and low-level designs of a software product are defined in this phase. This includes defining the overall relationship between the different design entities and programmes that are required by the software (high-
level) as well as their working (low-level), along with the design of interfaces. The design component is very critical as an imperfect product design can prove to very expensive to be rectified in the subsequent stages. Development: The development stage of the value chain primarily includes the implementation of the software product design, which is carried out by translating the design into an actual code. Hence, the focus at this stage is on code generation. The programming language to be used by the developer for generating the code depends on the functionality of the software and its compatibility with the platform employed. For example, the developer may prefer C++ to C, if the product necessitates the use of object oriented techniques. Testing: Testing is one of the most critical components of the software product development value chain. It aims to ensure that the product provides the desired output (as per the requirement specifications) with different sets of inputs (i.e., all test cases). Any flaws recorded at this stage may necessitate rework in some or all of the preceding stages. Support: After the software product is installed, it requires maintenance and support services in order to provide for various changes that require to be done. These changes may occur due to changing user requirements, incompatibility with new platforms, flaw in design, etc. Thus, support may range from simple bug fixing activities to upgrading the entire software product in order to ensure compatibility with the latest technologies.
6.0.3
Methodology for Competitive Positioning of Key OPD Vendors
The key parameters used to evaluate the relative positions of the key players have been explained in Figure 34.
Figure 34:
Methodology for Competitive Positioning of Key OPD Vendors
Stability: The stability of a company has been evaluated on the basis of Revenue growth for the past 2-3 years Dependence on revenue of top 3-5 clients Revenue by geography Profitability: The profitability of a company has been evaluated on the basis of Revenue per employee Profit margin for the year 2004-05 Experience: The experience of a company has been evaluated on the basis of Number of years since establishment Brand image Information security certification Expertise: The expertise of a company has been evaluated on the basis of Technology focus Vertical specialisation Product releases Relative weightage has been given to the sub-parameters within each of the parameters. Based on these weightage, scores have been calculated for the parameters viz. stability, profitability, experience, and expertise for each company.

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Report prepared by: Aditya Ganguli, Vice President, Business Development, PhoenixLogin Solutions Pvt.

2Market Overview ............................................................................................................................ 3

2.2Market Size and Segmentation....................................................................................................................4

2.3Analysis of Software Product Development Value Chain............................................................................5

2.4Drivers and Inhibitors.................................................................................................................................10

2.5Key Trends .............................................................................................................................................. 12

2.6Key Parameters Determining the Supplier Choice....................................................................................14

3Demand Generated by Indian Captives ......................................................................................16

4Supply Side Analysis ................................................................................................................... 18

Outsourced Product Development An overview

Outsourced Product Development

OPD Market in North America and India (2005-10)

14.4 11.1 15.0

Demand for OPD in North America

OPD Market in India (Supply)

DESIGN & ARCHITECTURE

Share: ~15% Support: Low-value

Symphony Aztecsoft Persistent Aspire Aditi

Aditi Symphony Aztecsoft Persistent Aspire

Persistent Aztecsoft Aditi Symphony Aspire

Persistent Symphony Aztecsoft Aditi Aspire

Systems & Peripherals Networks & Servers Storage Systems

Off-the-shelf Products Customisable Products Outsourced Product Development

Infrastructure Management Managed Services/App. Development System Integration Consulting

Types of Software Products

Market Size and Segmentation

OPD Demand Generated in North America (2005-10)

Market Size (USD Billion)

0 2005 2006 2007 2008 2009 2010

http://www.enterblog.com/200508220325.php, primary research Primary research 3 http://software-outsourcing.spaces.live.com/blog/cns!279E88EACFF2FFFB!287.entry 4 Primary research

3.33 10.50 7.78 5.76

Demand for OPD from North America

Demand for OPD from Other Regions

Market Segmentation: Captives vs. Third-Party Service Providers (2005-10)

Third-Party Service Providers

Third-Party Service Providers

Hindu Business Line India, Primary Research

Analysis of Software Product Development Value Chain

http://www.itbusinessedge.com/item/?ci=19498, Primary Research Primary research

Software Architecture Feature Definition Project Planning

Feature Definition Customer Support

Zinnov Report7, Primary Research, Evalueserve Analysis

Market Segmentation by Components of Value Chain

Market Segmentation by Components of Value Chain (2005)

45% Design & Architecture Testing Developement Support

Analysis of the Stages of the Value Chain Being Outsourced

Source: Primary Research

Not Significant (les s than 5%)

DESIGN & ARCHITECTURE

Different Models of Outsourcing

Outsourced Product Development - An Overview, Aspire Systems

Evolution of Outsourced Product Development Models

Full-fledged Development CoDevelopment

Modular Development Peripheral Development

Growing Maturity of Service Relationship

Increasing Control given to Service Provider

Select product modules are outsourced

Joint product development by ISV and OPD provider

Independent end-toend product development

Offshored to captives, which is economically justified due to the scale of operations

Drivers and Inhibitors

http://itoutsourcingindia.com/offshore/ http://www.indiafirstfoundation.org/ARCHIVES/news/05/november/b&e_m.htm 12 http://www.wdi.umich.edu/Blog/index.php?q=node/28

Impact Assessment of Key Drivers on Market Growth