IT Innovation in a post Lehman world

1. IT Innovation in a post Lehman world Krishna R Sundaresan Crisil Irevna Argentina VIII Congreso Internacional en Innovación Tecnológica Informática, 3 septiembre, 2010

2. Disclaimer and Introduction • Disclaimer • "I think there is a world market for maybe five computers." -- Thomas Watson, chairman of IBM, 1943. • Any predictions / analysis of technology could go as wrong as the above quote • Intend to raise more questions than provide answers • About Me: Experience • Over 8 years of experience across IT, Supply Chain Management, Media, Consumer Sales, Financial Services • In 2006 - Part of a startup which tried (unsuccessfully) to create software solutions for media companies • Worked with top names like Oracle, CRISIL & Unilever India • About Me: Education • MBA ‐ IIM Bangalore, Class of 2006 • B.E. Chemical Engineering‐ BITS Pilani, Class of 2002 • Contact • Email: krishnarsundaresan@gmail.com, krishnarsundaresan@yahoo.com , krishnars@irevna.com • Voice: +5411 4837 7610

3. But first some definitions: Innovation, IT • Wikipedia - "Innovation is a change in the thought process for doing something, or the useful application of new inventions or discoveries. It may refer to an incremental emergent or radical and revolutionary changes in thinking, products, processes, or organizations." • According to economic theory "The goal of innovation is positive change, to make someone or something better. Innovation leading to increased productivity is the fundamental source of increasing wealth in an economy. " • In fact we now have a theory of economics called innovation economics, which puts innovation at the centre rather than being independent and largely affected by public policy • IT- Includes all hardware, software, communication technology, products services

4. Innovation has become more difficult....(1) • VC funds raised in 2009 dipped ~40% from 2008, although 2010 is showing signs of improvement. (NVCA) • R&D budgets of major tech companies have also fallen

5. Innovation has become more difficult....(2) • Shorter pay-back / technology diffusion • Life cycles • Long tail - Sellingsmaller end markets for products • Wage inflation - Costs per innovation increase • Globalization / low-cost countries implying falling margins • Complexity of IT products have been increasing - E.g. Cost of designing a chip have been increasing now it takes ~60-100 mln US$ to design a chip

6. ...But is more important than ever • "The (next) 100 years are about ideas.” - Seth Godin • Manufacturing efficiency and scale will no longer be enough. Wage inflation means that • China is no longer the lowest cost manufacturer • India is no longer the lowest cost for services • Stakes are higher, to compete companies regions or nations must drive innovation in the global marketplace in order to remain competitive • Innovation is the only way companies, nations and countries can sustain economic growth. Those countries that produce the most important new products and services can capture a premium in world markets that will enable them to pay high wages to their employees/citizens

7. Innovation is needed! ..But We need to do more with less! More bang for the VC dollar! More bang for the R&D buck! Some ideas from other successes

8. Hype Cycles - I • Concept created by Gartner • Useful tool to sense check where a particular emerging tech/trend is going • Is only a theoretical model, not all techs go follow it • 5 Stage model • 1. Technology Trigger: • 2. Peak of Inflated Expectations • 3. Trough of Disillusionment • 4. Slope of Enlightenment • 5.Plateau of Productivity

9. Hype Cycles - II • 1. Technology Trigger - New tech, very few investments • 2. Peak - Tech will revolutionized the world.... • 3. Trough of Disillusionment - Many investors, customers, companies have burnt their fingers • 4. Slope of Enlightenment - Technology matures, standards evolve, more wide adoption, conservative players still wait it out • 5.Plateau of Productivity Where would you place the following trends? Cloud Microblogging Data centre networking LBS RFID Molecular computing Social networking

10. Stay close to the market: Redbus.in • Redbus Is one of India's up and coming ".com" companies • It Started as India's first online bus ticket booking portal • Today, it is India’s largest such service with the highest number of routes (over 3200) and over 250+ bus operator partners. The market for bus ticketing in India is estimated at ~3.2 bln US$ • However some not so well known facts: • They deliver their tickets using cheap bicycle couriers • 80% of their orders are over the phone, not online! • Conclusion: Technology is an enabler, not an aim itself. Focus on cost and customer service

11. Value at the bottom of the pyramid? • How do you sell IT/Communication products to an Indian farmer making US$100 a month? • Conventional Approach: Cheaper products? • Low cost cell phones/ Free software => 2$ service? • Or... Flip the question on its head. • Why does the farmer make only $100 a month? • Solution from Bharti Airtel - Enable farmer to earn $500 per month and take $50 per month for that service? - Provide farmer with weather updates, price updates, farming advice - The cell phone now becomes a tool of productivity and not a communication service

12. Not just innovation for low cost, but low cost innovation • Designing a chip now costs upwards of $50 million. A typical semiconductor startup can raise about $60 million over 3 rounds of funding. Do the math! • Scope for low cost engineers to help in chip design. But why should only Intel, IBM and large companies • LogicFab, which was formed mid-2006, is meant to express the scope of the product rather than the detail. LogicFab is about design rather than manufacturing and takes on all chip design work • Startups can now cut their cost of chip design to ~ $20 million, giving them more leeway and a better chance to succeed • LogicFab is profitable and is planning and IPO in there years

13. About KPOs and About Irevna • Irevna is a division of CRISIL, India's leading ratings, research, risk and policy advisory company • Services • Financial Services • Corporate Services • Analytical Solutions. • Supports world's leading commercial and investment banks, insurance companies, corporations, consulting firms, private equity players and asset management firms • World's top-ranked research and analytical services offshoring firm

14. "Ideas are no one's monopoly" Dieter Rams Braun T3 Pocket Radio c. 1960 John IvesApple iPod2001 Rip-off or Inspiration? How different must you be considered innovative? Market (and legal authorities) will decide Exports evolving from goods to services to now ideas

15. Closing Thoughts • Focus the resources - Try to identify opportunity early, don't get caught up in the "Hype" • Show me the money - Keep close to the customer/market, technology is not an end in itself. VCs are no longer investing in ideas that don't have concrete business models • Explore new markets - Value at the bottom of the pyramid • Look for ways to lower the cost of innovation • Ideas are no one's monopoly - Look everywhere for inspiration

16. Sources • The Economist • EE Times • National Venture Capital Association • Gizmodo • Rediff.com • Redbus.in

17. Any Questions? (Answers)