Persistent leads IT pack in shifting away from 'effort-based' billing
While India’s large pre-internet era companies are grappling to transform their revenue models, which are stuck on effort-based billing Anand Deshpande, founder and chairman of Persistent Systems, believes the game is over for that kind of model.
Dealing with technology obsolescence is hard and replacing legacy business lines with newer ones is even harder. But the USD 420 million-Persistent Systems has been attempting to walk this path for the last three years. While India’s large pre-internet era companies like Infosys, Wipro and TCS are grappling to transform their revenue models, which are stuck on effort-based billing –- charging hourly rates for their software engineers -- Anand Deshpande, founder and chairman of Persistent Systems, believes the game is over for that kind of model. Newer technologies today allow companies to do a lot more with a lot less effort.
In conversation with Moneycontrol at his headquarters in Pune, Deshpande said: “We realised that that you can do a lot (more) with a lot less. A lot of our business was effort-based and if effort goes down, billing goes down. We decided to move our business in two different ways. We found that everybody wants to become a software company. We realised we could go after a larger market because whatever product development we had done was relevant to everyone else. We decided to do this without charging on the basis of effort.”
Today, the company’s go-to-market strategy is based on revenue-share than effort-based billing. Over the last two years, the company has managed to move 50 percent of its revenues away from the effort-based model, which is currently at risk as clients are asking vendors for cost-take-outs.
Persistent, which has a partnership with IBM for its Watson Internet of Things platform, will not only be responsible for continuous engineering of the product, but will also get a percentage of sales of the product. Explains Deshpande, “We bill on percentage of sale of the product not on effort. The product sells more, we make more. There has to be continuous use of software that gets delivered on things.”
The company has undertaken another project with USAA, a bank that serves the US armed forces, whereby it will market the bank’s security software for risk-based access controls. He said: “Another project we have taken on is with USAA, which is a bank that serves the US armed forces. They have a good security mechanism and risk-based access controls. We convinced them that what they had could be marketed. So we are responsible for selling and distributing that in the market. They have software that can be marketed to other geographies.”
Even though 50 percent of the revenues have already moved away from an effort-based model, weeding out the other 50 percent won’t be that easy. The company has taken on some bets, some of which may pay off while others may not. But the journey over the next 12-18 months will be challenging as a lot will change. Once that plateau has been overcome, Persistent could be well on its way to achieve a USD 1 billion revenue target.Read more: Most pre-internet cos going through a major transformation: Persistent Systems Chief