Author Archive for Shyam

Software As A Service: Is India ready for it yet?

In the 80s & most of 90s, paying for software (at-least for personal use) was considered a waste of money, at-least in India. Now with most people being able to afford to pay for software as the prices have also become more reasonable, I have heard people buying licensed software more than what they used to earlier.

With a lot of software companies offering bulk-usage licenses, for the corporates, the cost of software tends to get more reasonable. But even then I would say it makes sense to treat software as a service and expense it. Though my Office 97 license still works on the old Windows 2000 box that I have at home, I will not be able to open quite a few documents created with latest versions of Word. Would I have been wiser if I had bought Microsoft Office as a service in 1997? May be, provided Microsoft was selling it that way. That way I would have always been using the latest version though I would have paid for the service year on year.

A lot of hardware is also being offered as a service (HAAS model). I strongly believe that IT investments should be treated as an expense at-least by the non-IT companies. As IT by itself does not generate any business by itself and is just an enabler, why shouldn’t it be treated as an expense like marketing expense?

Coming to India as a market for software as a service, are we ready for it? I tend to believe we are. Most of the heavily used software tools are already available as open-source. But most of these tools by themselves cannot be used by corporates to run their businesses. We need someone to use these tools to build applications & sell them. Most of these applications are continuously evolving with their hardware footprints changing very quickly. As a user, I have no control over it, but the creator of the application will definitely have. In that case, why don’t we have the creator maintain the application as well? That is how SAAS was born.

In India we are used to renting an apartment, but not renting a car as it tends to get too expensive. But we do hire a taxi or hop on to a bus. We are also used to paying for electricity, water, broadband, browsing-in-a-internet-cafe, etc based on usage, then why not software? I am sure it suits most corporates as well. But the problem is very few people are selling software as a service in India. I guess that has to change first. I strongly believe that at-least here we can lead the world by adapting the SAAS model faster than the rest-of-the-world.

I would like to invite thoughts on this from the member of the venturewoods community.

On a side note, I am the Country Manager for Transera Communications (www.transerainc.com). We make on-demand software for call centers & offer it as a service (SAAS model) in the hosted model.

Sweat equity in new ventures

I recently read one article about compensation in early stage ventures. One of my friends is planning to invest in a startup where he is one the four partners of which two of them will be running the show while the other two will be just investors. The proposed equity structure is 25 percent each for the pure-investors in return for 35 percent investment (each) while the two guys who would run the show are putting in 15 percent of the money for a 25% stake (each). This means they are getting 10% extra as sweat equity. Interestingly, both of these folks would work for full salary in the new company (no salary cut).

Is this a good arrangement? In my view the managing promoters don’t deserve any sweat equity upfront as they are working for full salary. I would say that all four should have equity proportional to their percentage investment.

My friend wants to know what would be the best equity structure for this company with 2 working and 2 non-working promoters assuming that the working promoters take market compensation.