Service Oriented Startups

Last week a very interesting free e-book called “Software Paradox” was trending on Hacker News. The premise of the book is, that the value of software as a product is diminishing, but the value of software as an enableris rising. Pure play software companies such as Microsoft and Oracle are fading in comparison to rising stars such as Google, Facebook, Apple, Amazon and newer ones like Uber, Dropbox, GitHub, AirBnB and others. None of the new age companies sell “software”. They all sell a service (or devices, in case of Apple).

The book goes on to argue that companies even prefer giving away their software innovations as open source so that they can get the respect of the developer community that they desperately want to attract. Apple’s operating systems are based on an open source flavour of Unix, GitHub has built a social layer on git, a version control system created by Linus Torvalds and Facebook is a leader in new age open source web development tools. So there is a clear trend of companies collaborating on an infrastructure and tool level and yet being able to create a lot of value in the services they provide.

They book suggests what pure-play software product companies should do in order to survive this next wave. There are a lot of great options described which range from moving to a subscription model to becoming a full-stack startup (doing very deep vertical integration in the markets they operate). In the context of pure play software product companies, where do we in India stand?

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A defining moment in the first episode of the new YouTube drama TVF Pitchers, an Indian take on the popular and brilliant series from HBO, “Silicon Valley”, is when the protagonist is about to dump his entrepreneurial dream and continue with an overseas posting. On his way to the airport, he sees large advertisements of Housing.com and Snapdeal and decides that his calling is a startup. On a side note, it is interesting to observe that the innovation described in TVF Pitchers is a “B-plan”, whereas the innovation on which HBO Silicon Valley is based, is a hypothetical “algorithm”.

My conclusion is that India has already leapfrogged to “Service-Oriented Startups”. The number of new startups and deals in the e-commerce and classified marketplaces domains greatly out numbers startups that have a technological innovation at the heart of the business. The aspiration of the entrepreneur who starts up today is to build the next Flipkart, not the next Google.

This is something we all will have to learn to accept. Like so many modern innovations we love using today are ones we did not invent, software is something we will rather use. Innovating on technology requires an intellectual rigour and ecosystem support that will probably never reach a critical mass in India. But amidst all this gloom, I still have hope that at least a few of the 3 million software developers out there will prove me wrong.

Ashish Belagali

It certainly looks like that. However, I believe in the saying that the top post is always empty. Microsoft started selling software in a market where they brought an unprecedented value. Today copying the same model will certainly not work. However, in case a technology company comes with a solid, really solid value proposition with its software, I wonder why it won’t make money.
- rmehta
  
  Ashish the point is that thanks to open source, no one wants to pay for exorbitant license fees. The newest developments in the database space are all open source whether its Hadoop or MongoDB. Oracle is still scrambling to get its act in place. Same with Operating Systems. Web development is almost all open source. Software is almost a commodity and the value has shifted to “what you can do with the software”
  - Ashish Belagali
    
    That point is well taken. No argument about it. All these areas, when new, can attract paying customers; and ultimately become commoditized. This has clearly happened with DB, OS and developer platforms. However, if one is successful in finding an area that is far from maturity, then there may still be scope.
Sid_G27

I think this is more to do with changing business models of both customers and software companies. SaaS has been sold for various reasons (customer demand, valuation aspects, capex vs opex etc). In the end the customer prefers what makes business sense to him. If he thinks that the software needs to be bough upfront, then he is right in his own sense.

Another key aspect here is that the market loves disruption. So, any change in business model is sold as such. If the technology is not new, the risk reduces considerably and the rewards can be huge. Software sold as a service or service oriented companies are something similar.

Software will still be bought because it creates value. How the companies will sell it (product or service), depends on their business models. And as complexities increase in the marketplace, collaboration will happen. Even Microsoft and Oracle used available technologies (sql, Xerox’s UI) in their products. A lot of people use Evernote and pay for it because it creates value. It’s up to Evernote to sell it at 100 USD at one go or have a subscription model.