A strategic shift is under way at Infosys, India’s second largest software exporter. The $7-billion firm, globally renowned for its IT services, is opening a whole new channel of doing business with its latest software product platforms, taking the first steps towards achieving what Infosys 3.0 set out to do – securing a third of its revenues from products. At present, Infosys derives only 5% revenues from products.
The new platform for emerging markets, TradeEdge, is probably where the rubber meets the road for Infosys. In India’s maze of kirana stores where computers are yet to break in, getting real-time analytics on goods sold could be a daunting experience. TradeEdge, which Infosys co-developed with an unidentified American FMCG giant to link up small stores and manage the distribution channel with call centres, is now used in seven emerging economies, including India. The software product is expected to be Infosys’s biggest calling card in the product space after the success of its banking software Finacle, launched more than a decade ago.
Infosys executive co-chairman Kris Gopalakrishnan told FE that product revenues will soon play a major role at Infosys. “There is no doubt that it is a big part of the future,” he said in a recent interaction.
In just a year, the firm has won 23 customers for new product platforms including e-commerce applications, digital marketing, talent management and sourcing. It recently launched a mobile wallet for phone transactions (Airtel Money) and is also looking to adapt Flypp, its mobile phone app store to the television app space.
Sanjay Purohit, senior vice-president and global head for products, platforms and solutions (PPS), Infosys, said: “Over 3-5 years, you will see more momentum coming out of this every quarter. We have just started thinking through what we should do in the agriculture space; that’s one focus area over time.”
The platforms clocked a contract value of $300 million during the December quarter. However, Purohit reckons the next 18-24 months will still be the foundation years as the PPS business gains momentum and credibility. “The market will then start understanding what we are trying to do,” he said.
The 12 new platforms and a suite of products will add to the company’s flagship banking product, Finacle, which earned $237 million revenues in the last three quarters. Finacle, a web-based core banking system launched in 2000, is currently operating in 150 banks across 75 countries. Infosys claims a marketshare of over 70% for Finacle in India where the product first created a base for itself before expanding its footprint into Asia Pacific and the company’s biggest markets such as the US and Europe.
Sanjeev Hota, senior IT analyst with brokerage firm Sharekhan says: “For Infosys, other than Finacle which is at a mature stage, other non-linear cloud-based products and platforms that they are working on will take sometime to actually transform into a major revenue source.” Hota points out that it is difficult to give a time frame, but expects to see a shift in revenue mix over the next 4 to 5 years. “It is the only way the company can differentiate itself.”
The revenue from the product and platform business is typically spread over a longer term and margins are often higher than services. The margins in licensing out products and platforms can be as high as 40-50% and it is much better than the company’s current margins of 30-32%,” says Hota.
For a company known to be cautious on acquisitions, Purohit says it is “looking like furious” for potential buyouts. “In the end, we don’t build everything. In many areas, there are some intelligent pieces of property you can either partner with someone or acquire if its a good fit,” he says.
It isn’t just Infosys which has been making strides into the products space for the past year or so. For instance, the country’s largest software services exporter TCS last year rolled out an end-to-end cloud computing product for small and medium business which it sees as a potential $1-billion opportunity in the next five years.