4 �THE ECONOMIC TIMES | MUMBAI | THURSDAY | 12 NOVEMBER 2015Disruption: Startups & Tech
Bengaluru: Some of India’s toptechnology companies are slashingprices for marque clients, raisingfears of irrational pricing becom-ing the norm in traditional out-sourcing deals as clients shift tonewer technologies such as cloudcomputing.
Top executives including the chiefexecutives of Infosys, Wipro andUS-based Cognizant have acknowl-edged that the deep price cuts beingoffered to select customers such asGeneral Electric and Citigroup arecause for concern.
Experts said the latest pricing waris a result of the large-scale shiftshappening across India’s $146-bil-lion IT services industry, as moreclients ditch traditional servers infavour of cloud computing and optfor pay-per-use models.
Cognizant President Gordon Co-burn said on a conference call withinvestors that the company hadcome across “irrational pricing” bysome IT firms and was not con-cerned by it.
“These spots of irrational pricing
Overall pricing, though, re-mained stable as only companieslargely dependent on traditionalbusinesses were resorting to deepdiscounts, Coburn said. “We be-lieve this is a short-term phenom-enon… Often, when you see these
tructure management are more atrisk, they said.
On recent earnings calls, the CE-Os of Infosys and Wipro also calledout concerns over pricing wars andsaid that the number of large dealsin the traditional outsourcing mar-ket were evaporating fast.
Infosys CEO Vishal Sikka said onthe company’s latest post-earningsconference call that the “pricing en-vironment for traditional servicescontinues to see downward pres-sure.”
Wipro CEO TK Kurien, on a con-ference call with analysts after thecompany’s latest quarterly results,said, “We continue to see strongcompetition around large deals,and there’s clearly pressure onpricing with respect to new deals.The deal sizes are getting smallerand the number of multi-hundredmillion dollar deals have clearly re-duced in the marketplace.”
sorts of unrealistic assumptionsabout productivity built into bids,what you see is players shore uptheir profitability by cutting cor-ners. And historically this has re-sulted in unhappy clients.”
The real concern, analysts VijuGeorge and Amit Sharma ofJPMorgan India said, was if thecore of traditional IT business wasevaporating quicker than expectedand whether newer digital busi-nesses could make up for that short-fall. “The real worry this timearound is whether the traditionalcore behaves like a melting icebergpulling down overall growth whilewe wait for the full digital opportu-nity to unfold (including broadersystem integration) with a lag,” Ge-orge and Sharma said in a Novem-ber 6 report. Companies that aremore exposed to traditional busi-nesses such as application develop-ment and maintenance and infras-
(are) consistent with what we haveseen historically in the market, asthere have been big technologyshifts. And some players are havingtrouble with that shift, and there-fore act irrationally in their coremarket,” he said.
IT’s Return of the Price War as Demand Slows Experts say more clients are ditching traditional servers in favour of cloud computing and also opting for pay-per-use models
The Heads Say.... These spots of irrational pricing (are) consist-
ent with what we have seen historically in the market, as there have been big technology shifts. And some play-ers are having trou-ble with that shift, and therefore act irrationally in their core market
We continue to see strong competition
around large deals, and there’s clearly pressure on pricing with respect to new deals. The deal sizes are get-ting smaller and the number of multi-hundred million dol-lar deals have clearly reduced in the marketplace Gordon Coburn,
President, CognizantTK Kurien, CEO, WiproVishal Sikka,CEO, Infosys
Pricing environment for traditional services continues to see downward pressure
Do You Have Enough Moolah to Start a Co?
Starting a company and scaling are two very distinct things. You may launch a startup cheap, but you would you need much more to run an IPO-worthy business. The difference in numbers is striking. So why the huge gap?
To answer the more fundamental question, does it really cost more to build a Google than a Facebook? If their cost is about the same, then could it be that the connection between how much cash youhave and how much value you create is very loose?
Enough Money to StartHow much money companies were started with
It seems every successful startups got funded pretty easy pretty early on. But is it so? How much money is enough for your startup to take off? How much is just enough?
Enough Investment to SucceedTotal venture capital raised by startup cos before IPO
$538 $1000 $1000 $5000 $10,000
$45,000
$60,000
$164,000
$64,000
$20,000$10,000
Hewlett-PackardElectronics
ThreadlessDesigner T-shirts
DellComputers
SpanxApparel
Whole FoodsGrocery chain
GoproExtereme Cameras
SAVINGS BORROWED
Possible reasons Some businesses choose to start smaller
Some founders over-raise
Some types of businesses are more attractive to investors
In nominal dollars
$ 2,426 m
$ 1,000 m
$ 441 m
$ 100 m
$ 25 m
$ 10 m
$ 3.6 m$ 2.5 m
$ 1 m
This is true in writing. Howev-er, more money makes more money. Those who over-raise
can afford to lavish more money on other factors. Marketing would be the biggest one. You can also lease a fancy offi ce and buy design-y furniture.
Microsoft Intel Cisco Apple Google Webvan Facebook
Deal Corner
Bengaluru: Singapore-based Mo-bikon has tied up with Bank of thePhilippines Islands (BPI) in Manilato offer its customer engagementplatform to restaurants.
The tie up will add a repertoire ofover 300 restaurants in Mobikon’snetwork and strengthen its pres-ence in South East Asia. Currently,the company has 1500 restaurantsacross India, Singapore, Malaysia,Macau, Philippines, and Dubai.
“Apart from organic growth forthe company, one of the key pivotin our strategy is where we targetlarger brand as a reference pointfor other brands to follow. The re-wards program given out by banksis commoditised. We saw an oppor-tunity for a win-win tripartitepartnership with BPI,” said AnujJain, vice-president, Asia-Pacific,Mobikon. BPI confirmed the tie upbut declined to discuss further de-tails in response to an email queryfrom ET.
Through this contract-based
partnership, BPI will provide Mo-bikon’s customer relationshipmanagement platform to restau-rants on a tablet as a ready-to-usevalue-added solution.
In turn, BPI will advertise its of-fering on Mobikon’s platform torestaurant brands as self-promo-tion and to strengthen relation-
ships. Currently,Mobikon workswith 100 restau-rants in Manila.
Mobikon is also intalks with otherleading banks in In-dia and other mar-kets and also explor-ing strategicpartnerships withmPOS & cloud POScompanies.
Within this year,Mobikon has raised close to $4 mil-lion from Jungle Ventures, Life-.Sreda and Qualgro. It strength-ened its market reach in Singaporethis August acquiring ‘Triibe’, acustomer feedback platform inSouth East Asian markets.
Mobikon Partners withBPI for Philippines Foray
The tie up willadd arepertoire ofover 300restaurants inMobikon’snetwork
Bengaluru: Online taxi-book-ing company Ola has acquiredGeotagg, a trip-planning appli-cations company, for an undis-closed sum to strengthen its newbus-shuttle service, accordingto two people aware of the mat-ter. Ola is investing .̀ 120-150crore to launch its intra-city busservice, which it is piloting inthe Delhi-National Capital Re-gion. Geotagg’s technology willhelp Ola address issues specificto urban traffic situations suchas peak-hour traffic, a top execu-tive at Ola said, declining to beidentified.
Another employee, part of thenew initiatives team at Ola, sep-arately confirmed the develop-ment.
Ola and Geotagg did not replyto email queries from ET.
Buses are a prime mode of trav-el in India, with about 1.5 lakhbuses transporting some 70 mil-lion people every day, accordingto industry estimates. Ola, thecountry’s largest online cab ser-vice, is looking to cement its cus-tomer base by expanding into re-lated transport businessesincluding shuttle services, car-pooling and motorcycle-taxis.
In the bus service market, the
company faces stiff competitionfrom smaller startups includingCityflo, rBus, Shuttl and ZipGo,which are gaining tractionamong consumers and drawingthe attention of venture capitalinvestors such as Sequoia Capi-tal, Orios Venture Partners, IDGVentures and India Quotient.
Gurgaon-based Shuttl, a mar-ketplace for point-to-point bustravel, handles 15,000 rides a dayin Delhi-NCR and is looking to
expand to other cities. Cityflo,which has tied up with somelarge bus operators in Mumbai,handles about 2,200 rides daily.“In the last three months, wehave noticed that commutershave started shifting fromtrains, private cars and cabs touse busses,” said Jerin Venad,chief executive of Cityflo. “Thekey is seamless experience.”
That’s where technology be-comes important.
Sequoia-backed Shuttl em-ploys technology to optimiseroutes, track buses in real timeand automate payments, whichCEO Amit Singh said is a key dif-ferentiator in the business.
Geotagg, founded by IIT-Ma-dras graduates Akhilesh Koppi-neni and Krishna Chaitanya,says on its website that it is de-veloping eticketing applica-tions, fleet management sys-tems, route optimisationsystems, and traffic densitymapping systems.
The Chennai-based startup’sflagship mobile application Raftcontextually presents transit in-formation to commuters usingpublic transport based on dataon weather, traffic congestion,occupancy and delays throughstandard sources as well as bycrowdsourcing information.Geotagg was incubated at IIT-Madras.
Ola Picks up Geotagg Before Boarding the Bus
Ride of a Lifetime
`120-150 crAmount being spent by Ola on new bus-shuttle service
Market Size
Startups in the Space
1.5 LAKHBUSES
70 M PEOPLE TRAVELLING EVERY DAY
Cityflo rBus Shuttl ZipGo
Mumbai: Online automobileclassifieds firm CarTrade has ac-quired rival CarWale from Ger-man media conglomerate AxelSpringer signalling the risingconsolidation in the industry seg-ment.
The deal, primarily in cash, willsee Axel Springer sell its 91%holding in CarWale five years af-ter first acquiring the stake.
“Both platforms will operate in-dependently. CarWale will focuson being the new car brand, whileCarTrade will be the used-carbrand,” said Vinay Sanghi, foun-der of CarTrade.
The two-wheeler retail divisionBikewale, will also move to Car-Trade as part of this deal.
Both Sanghi and CarWale Foun-der Mohit Dubey declined toshare details of the financialtransaction.ET had earlier reported in Sep-
tember that CarWale will be ac-quired for around .̀ 790 crore ($120million). However at least oneperson privy to the latest deal in-
dicated that the purchase pricewould be at least .̀ 530-590 crore($80-90 million).
CarTrade counts Warburg Pin-cus, Tiger Global Managementand JP Morgan as its existingbackers, and was valued around$100 million when it last raisedfunding in October 2014.
The combined entity will now have about 2,000 employeeswith some 9,000 car dealers and2.25 lakh used cars listed on theplatform.
After the deal, Carwale’s Dubeywill join the combined entity as acofounder and director with anequity stake in the CarTrade. Thecompany expects to earn revenueof up to $400 million in the nextfour years.
“Car dealers now get
around 60-70% of their sales fromonline customers and spendaround 1% of their sales on mar-keting,” said Dubey. In addition,he expects his company to earn ashare of advertising revenuewhich he estimates atabout .̀ 4,500 crore.
The exit forGermany’s Axel
Springer from the Indian on-line auto-classifieds marketcomes at a time when a slew of
new startups have also enteredthe space.
“Through the merger with Car-Trade, we are facilitat-ing reasonablemarket
consolidationand, at the sametime, are multiplyingour invested capital in a highlycompetitive market,” said RalphBüchi, president for internation-al business at Axel Springer in astatement.
The deal comes two weeks afterCarDekho, CarTrade’s main ri-val, acquired ZigWheels fromTimes Internet, part of the groupwhich publishes this newspaper.
Horizontal classifieds playerQuikr has also been aggressive inthe market, through its verticalQuikrCars.
CarTrade Acquires RivalCarWale for about .̀ 590crGermany’s Axel Springer sells 91% holding in CarWale five years after first acquiring the stake
Bengaluru: Ecommerce plat-form for Indian food brands De-light Foods has raised .̀ 4 crore inits second round of fundingfrom an HNI family office repre-sented by LN Sadani of Lens-bridge Capital in Singapore. Ex-isting investors Mape AdvisoryGroup and Fireside Ventures al-
so participatedin this round.
The moneyraised will beused to facilitateexpansion plansafter launchingin Bengaluru.
“Delight Foodshas the right mix of addressablemarket opportunity, entrepre-neurial talent and shareholdersupport that we look for in anyinvestment,” said LN Sadani ofLensbridge. Delight Foods re-cently started servicing the NCRregion and will now launch inMumbai, Hyderabad and Chen-nai over the next couple ofweeks. The company will utilisethe funding to invest in market-ing and brand building activ-ities, increase product catego-ries, including internationalfoods, improve infrastructure atthe packing centers and alsostrengthen the team at all levels.
DelightFoods Raises.̀ 4 crore
The moneyraised will beused tofacilitateexpansionplans
Startups in the automobiles space are on the move with an online auto
classifieds firm buying a rival and Ola getting ride for its next road trip
Globe Trotter
Yamaha Motor displays the company’s prototype model of amotorcycle riding robot ‘MOTOBOT Ver 1’ at the 44th Tokyo MotorShow in Tokyo, Japan. — Reuters
KNIGHTRIDER
DUBLIN: Apple is to hire
an additional 1,000 staff in
Ireland, the government
said on Wednesday, as the
iPhone maker bids to boost
its presence in the country
where it declares much of
its overseas profit for tax purposes. The European
Union last year accused Ireland of swerving in-
ternational tax rules by letting Apple shelter prof-
its worth tens of billions of dollars from revenue
collectors in return for maintaining jobs. A deci-
sion on whether the tax deal with Apple constitu-
ted unfair state aid is due after Christmas, Finance
Minister Michael Noonan told journalists on
Wednesday. The decision could force Apple to pay
substantial back taxes. — Reuters
Apple Announces 1,000New Jobs in Ireland
NEW YORK: Dell’s $67-
billion offer to buy data
storage company EMC could
be derailed by a tax bill of
up to $9 billion, technology
news website Re/code re-
ported on Tuesday, citing
sources familiar with the matter. Certain key as-
pects of the deal, particularly a tracking stock,
may not qualify for the sort of tax treatment the
companies consider essential for the transaction,
the report said. Sources close to Dell disputed the
report, telling Reuters they were confident there
was no such threat to the deal since tax author-
ities would treat tracking stock in line with previ-
ous similar transactions. The merger agreement
also has no requirement on this issue. — Reuters
Dell-EMC Deal may Face$9-billion Tax Bill
LONDON: Microsoft
launched a cloud-based
blockchain platform on
Tuesday with Brooklyn-
based startup ConsensYs,
which will allow financial
institutions to experiment
cheaply and easily with the technology under-
pinning bitcoin. The blockchain works as a huge,
decentralized ledger of every bitcoin transaction,
which is verified and shared by a global computer
network and therefore is virtually tamper-proof.
The financial industry is increasingly investing in
the technology, betting it will reduce costs and in-
crease efficiency. Blockchain technology is not
limited to bitcoin -- it can be used to secure and
validate the exchange of any data. And other com-
panies are now building their own blockchains
that provide additional features to the original
bitcoin one. — Reuters
MS Launches BlockchainPlatform on the Cloud
READY FOR THE RACE TRACKA roundup of the top tech deals of the day
SOURCE: BUSINESS INSIDER
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