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Digital
has always wanted to get to the top of India’s software league.
While the tech meltdown has sent almost every company’s growth
plans into a tailspin, Digital has been quietly going about
acquiring products from Compaq and is even developing some
here. Prashant L Rao examines this strategy and the
issues involved
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Som
Mittal says the
new diversification is to protect Digital GlobalSoft from
market uncertainities |
When
PC-pasha Compaq swallowed Digital in 1998, little did anyone
imagine that the global IT giant would continue to exist in
a different form in India. It may be called Digital GlobalSoft
today, and may be a pure software player, but the famous Digital
logo and association carries on. And recently, Digital GlobalSoft
has been betting on products as a key strategy for future
growth certainly an important part of MD Som Mittal’s
avowed aim of getting his company into the top rungs of India’s
software ladder.
Digital GlobalSoft has traditionally been a services company.
The company had revenues of Rs 151 crore in H1 2001-02. Absolutely
nothing came from products. In fact, there was a net outflow
of cash (Rs 17 lakh) because Digital GlobalSoft supported
products from Compaq. That’s all going to change now.
Som Mittal reveals: “We have diversified into productised
services to hedge against market uncertainties.”
“Digital
is moving from a pure services organisation to one that has
a mix of services and products,” adds Homer Kehler, head-archive
business group, Digital GlobalSoft. The strategy is clear
move up the value chain by acquiring products from Compaq
that the global IT giant wants to shed prior to its merger
with HP, as these products clash with similar products from
HP.
The benefits of using this strategy are numerous. A product’s
existing customer base gives Digital the opportunity to cross-sell
other products. It gives the company solutions integration
services, product revenues and lucrative annual service contract
renewal revenues. All in all, a smooth way to move up the
value chain.
“Digital
has $25 million in cash for acquisitions,” says Mittal.
But the company is taking it nice and easy, ‘dig-esting’
each acquisition before pursuing the next one. Mittal states
that Digital is considering acquiring more products from Compaq.
And why just Compaq? Simply because Digital is familiar with
Compaq’s products and customers, being a Compaq subsidiary
itself.
There are other products in the pipeline. Digital’s 50
strong telecom group is working on products for the enterprise
mobile space. “We will productise telecom IP in 2002,”
says Mittal.
Going by Digital’s guidance of 50 percent growth this
fiscal over its last year’s revenues of Rs 184 crore,
the recently acquired Compaq Archive product could account
for 10 percent of Digital GlobalSoft’s revenues. Big
numbers for a company that had zilch coming from products
just six months ago. Once DEC EDI’s (the first product
that was acquired) revenues come in H1 2003 and the telecom
products roll out there’s no reason why Digital can’t
look to products and product-related services to account for
20-25 percent of its revenues, all of it high-value work.
Further explaining Digital GlobalSoft’s product focus,
Bala Mahadevan, head-new business initiatives and marketing,
says, “We have a different philosophy for each product.
In the case of DEC EDI, our engineers were familiar with the
product for a long time. Over six months, our engineering
team put in new features into the product, after which we
sold upgrades to the existing customer base. We used an established
brand to cross sell other services. In the case of
Compaq Archive (the second and current acquisition) we will
pursue new customers with a new international sales force.
Additionally we will cross sell to the existing 150 customers.”
DEC EDI is presently only bringing in upgrade revenues. Digital’s
aim is to play a zero sum game (cost = revenue) in the next
two quarters. By April 2002, the next version of DEC EDI will
be launched. “Once that goes in we would see more significant
revenues coming which will be licensed revenues as well,”
says Som Mittal.
We have already started engaging with customers. These were
the old DEC EDI customers. They are Fortune 100 or Fortune
500 companies. Right now our purpose to contact them is to
talk to them about DEC EDI and that could also help us upsell
some other services of ours.
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According
to Mahadevan, the
company’s new strategy will bear fruit by Q4 this year |
Digital
spent $2.5 million to buy the IP, equipment and infrastructure
for Compaq Archive, an archiving product. Excluding hardware
sales, this product had generated Rs 25 crore of revenue last
year on a customer base of 150 companies. Digital will enhance
this product, adding connectors for CRM that will push data
to mobile devices, add Web-based remote archiving capabilities,
plus Windows 2000 support. Som is bullish about the prospects
of the archiving product’s prospects which is yet to
be renamed by Digital.
“This
product is easier to sell since it doesn’t cost a couple
of million dollars.” Priced at $150,000, (ranging from
$75,000 to 250,000) it can be rolled out in one to three months
for a company that has SAP in place. Over 90 percent of existing
clients use it with their SAP R/3 system. Lotus Domino, Oracle,
Peoplesoft, Siebel and Microsoft Exchange are other products
that the erstwhile Compaq Archive works with. “The need
for this product arises 12-18 months after first production,”
says Homer Kehler. This product is used by large enterprises,
including companies like ABB, Black & Decker, Lego, BMW,
Pennzoil, Samsung, Larsen & Toubro, Mahindra & Mahindra,
Ranbaxy and Compaq itself.
The days of Digital taking Compaq’s work for granted
are gone. Digital’s plan now is to focus on non-Compaq
revenue while sustaining Compaq revenues. “We would hope
that this figure of 15 percent will move up to about 20 percent
by March. Our original target for March end was about 25 percent,”
says Mittal. Some of the so-called ‘Compaq revenue’
is outsourcing work for Compaq’s customers with whom
Digital has engaged in Europe and Asia-Pacific.
So, will Digital transform into a products and productised
services firm and perhaps go the products way where very few
in Indian software’s Big League tread today? The fact
is, Digital has certainly made significant moves down this
path, but it’s is too early to say which way things will
finally go. Bala Mahadevan will only say, “Wait till
Q4. Then I will be able to give you some numbers.”
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