Though patents filed by information technology (IT) firms are yet to make a significant revenue contribution, they are a great differentiator when it comes to winning deals, say experts.
Pareekh Jain, Founder, Pareekh Consulting, a technology consultancy firm, said, “As competition increases, patents will be a huge differentiator going forward as they are indicators for innovation. Because of this, it will be key to grow business as well.”
For example, as enterprises move to digital, IT firms, big and small have jumped this transformation bandwagon. Here is where patents assume more significance as digital transformation becomes an important business decision.
"Now, it is not just enough that you have been in the field for so many years. Clients want to see what you have done after being in the field for so long," pointed out an expert in technology.
"Patents are an indicator of such capability," the expert added. Having them as a part of the solution adds value and also credibility to IT firms' capabilities.
The fact that IT firms understand this and are making investments in the space are a welcome sign, agree experts.
Investments in R&D
In the case of Wipro, R&D expenses have increased 30 percent to Rs 394.2 crore in FY19 from Rs 304 crore in FY18. The company has been granted 558 patents till March 31, 2019. The company has filed over 2,200 patents so far, a significant jump from 1,662 in FY17.
IT major TCS as of March 31, 2019, had applied for 4,596 patents cumulatively and has been granted 946 patents.
Though the number of patents filed by Infosys was not available in its FY19 annual report, its R&D expenditure in FY19 saw a 20 percent rise to Rs 451 crore from FY18.
HCL Technologies’ has created a separate business model for IP-led strategy, which is Mode 3. This focuses on platforms and products to drive growth. This is one of the fastest-growing segments for the company. It accounted for close to 11.4 percent of the company’s revenue for the quarter ended March 31, 2019, growing at 44 percent year-on-year.
C Vijayakumar, CEO, HCL Technologies, said in the analyst call that the company’s growth in Mode 3 will be primarily led by the acquisition of seven products from IBM for $1.8 billion.
While its peers have their own business verticals such as Finacle and EdgeVerve for Infosys and Digitate for TCS, according to an analyst, sustainability of such product-focused business model comes with its own challenges.
Monetisation of patents
There are two sides to monetisation of the IP business. The route most firms use is using IP as a part of a larger integrated solution. All IT majors such as TCS, Wipro, HCL Tech and Infosys are using it now.
The other is creating a separate vertical for selling the products and platforms like HCL Software (HCL Tech’s IP-focused arm) or EdgeVerve for Infosys. This is a high margin business, unlike services.
Jain of Pareekh consulting explained that in the products business, one needs to constantly think differently as the company is competing with the likes of product companies such as Microsoft and Adobe. One would also need significant investment in sales and marketing to establish itself and gain clients’ trust.
This is where HCL Tech might have an edge over its Indian peers. An analyst pointed out that with the acquisition of IBM products, HCL Tech was also able to get the share of salesforce, a building block for a product business. It was not the case for Infosys and TCS.
“Now that HCL Tech has an ecosystem that will enable them to push the products,” the analyst added.
Will it be successful? Give it a year, say analysts. “Most of the software businesses are yearly contracts. So it will take a year to see if the strategy is successful,” one of the added.