iON : In Me I Trust

The Tatas might be one of the largest business groups in India, but paradoxically in recent years it has been its focus on ‘small' things that have brought the spotlight on them. The launch of Nano cars was revoloutionary (and notwithstanding the Singur fracas) earning Tata Motors global recognition.

Similarly, the launch of iON, the customized ERP on cloud services targeted specifically at SMBs, last year was another feather in TCS' cap worldwide.

Apart from the fact that group scion Ratan Tata was personally interested in both projects and was there in person to launch both of them, iON was unique in the fact that no tech vendor anywhere in the world has attempted this level of customization for SMBs in the burgeoning cloud domain. The solution is targeted at the SME segment in India with cost benefit option for its clients. IT-as-a-service is an innovative service model delivering a bouquet of products and services on-demand. It allows its clients to choose what is relevant to their present needs from an integrated suite of hardware, network, and software solutions provisioned by iON and its partner network. The client has to pay the subscription charges only for what they actually use.

Once TCS came up with this globally unique innovation on cloud, it opted to rout its newly founded services through a network of channel partner tie-ups (keeping in mind the SMB focus) and launched it with much gusto.

According to TCS, iON is pre-configured with hardware; network and software bundled together and backed by business, technical and consulting services. Speaking at the launch about this initiative, Ratan Tata explained that through iON, TCS will empower the SMEs which contribute over 45% to the country's GDP. He further assured the SMEs that iON will modify the entire system and there will be powerful technological changes.
True to the claim, TCS launched iON with a projected revenue output of Rs. 5,000 crore over a time span of 5 years. Now, on the eve of the first centenary of iON, its performance as per most of with its channel partners has been average. However, most of their feedbacks come with the rider that this report card is influenced more by the nature of SMB acceptance of cloud and is less of a criticism of the iON model. In fact, most feel that the true potential of iON will start getting realized better in its second and third years in 2012 and 2013 respectively as SMBs shed off their apprehensions about moving to cloud.

Taking a look at the solution, iON adopts a holistic approach towards a client's need from configuring hardware requirements to optimizing the network configuration and then offering the office or business applications layer as per the client's requirement. Such a solution was bound to have a very important impact on the way cloud solutions are looked upon by the SME firms. This success rate however, in its first year could definitely have been better.

According to most of the iON channel partners, the client's outlook towards cloud computing is to be blamed for which cloud based solutions are finding it hard to penetrate into the SMB and SME sector. "It is very hard to convince the SME clients to opt for cloud based ERP solutions or anything over cloud. It is the primary reason for which cloud computing is still a buzzword and not a success story," said Umesh Shah, director, Orient Technologies.

Stating the same fact, Sampath Kumar of Valuepoint Systems said, "Cloud is yet to rule the SME chart. Considering the Indian scenario, SMEs have some reservations over opting for cloud solutions as it is quite opposite to the traditional on-premise implementations they have been doing till date."

However, TCS begs to differ with this particular line of thinking from channel partners.

"I don't see any road blocks (about SMB cloud adoption) really. The security fuss is gone. It is cloud story all along. There are a number of success stories to talk about. The early adopters have seen significant benefits," said Venguswamy Ramaswamy, global head, iON, TCS.
The primary hurdle, according to TCS, for leading cloud SPs is therefore in convincing the clients to opt for cloud based solutions.

COUNTERING COMPETITION

As far as its channel structure is concerned, TCS has a single tier sales channel involving cloud service partners (CSP). Under present trade agreements, it has 110 CSPs which according to TCS is fairly dispersed across the tier-1 and tier-2 cities.

"They (CSPs) rank amongst the top IT system integrators and have been in this business for more than a decade. Few of the CSPs specialize on specific industry solutions and others sell across industries", Ramaswamy added.

The interesting fact, though, is that while iON was the first cloud services dedicated towards SMBs, throughout the year TCS has been facing competition from the likes of Microsoft's Windows Azure, Google or even smaller players like Ramco. The fact that the likes of Microsoft and Ramco do have a strong traction amongst these channel partners (solution providers), was one of the primary factors which played a crucial role for TCS in deciding to opt for the channel model.

The decision to rout products through the channel structure for an SI of the scale of TCS was primarily based on two factors. The very product itself is tailored for the SMB which required a local presence. In its partner approach, TCS selected its partners based on strong local presence in the tier-2 and tier-3 locations. Also, the target to reach to its customers through a closer channel approach was felt feasible.

Confirming the value of its CSPs, Ramaswamy added, "SMBs feel comfortable to deal with service providers who provide a strong on-premise connect as and when needed." During its early stages of introducing iON to the channels, TCS was in talks with the leading solution providers (SP) in the nation with a predicable strong channel presence.

Nevertheless an interesting aberration is that, after a year of iON, none of the top 5 solution providers in India have opted to become iON partners. And each of them had their own reservations about iON's business model not mapping with their growth strategies.

"We were in talks with TCS for partnering over iON. However, it didn't work out and we never took up the solution. We do have a strong focus on cloud computing, but what iON offered was more of a packaged program in a reseller kind of model with little scope for creative implementations or testing," said Paresh Shah, director, Allied Digital, the country's #2 solution provider.

What Shah revealed turned out could however prove to be a factor for other solution providers too, especially those trying to break free of their ‘box pushing' legacy. The channel model which TCS opted for was to leverage on the existing channel partner capabilities in terms of client bases and implementation parameters but in this process, it offered just a ‘packed solution' although with a holistic implementation approach towards its clients.

COMMISSION OMISSION

Same was the case with Ashtech Infotech which considered venturing with TCS initially but opted out of the deal finally. The issue was with the commission structure which according to Ashtech was not aligned well with Ashtech's goals or was not lucrative enough for CSP partners.
TCS, however, is sticking to its guns. It has opted to keep its partners as just CSPs and not involve them into full scale implementation. "Yes, there is an expectation from our partners to extend to iON implementation. We have an out tasking arrangement for that. But fundamentally we don't want to deviate from our business model. It is too early for us to involve partners in full scale implementation", Ramaswamy added.

Under the present commission structure, TCS pays 10% of the deal as commission to its partners (based on the pay-per-use model) and evenly spreads the commission amount over a period of the contract which is normally 3 years. Also, another 10% is given to the partners as a proportion of the monthly billing done for a client which gets reflected as ‘maintenance charges'.

It would be pertinent to point out here that one year is still too less a time to wholeheartedly endorse either TCS' ‘reseller model' or Allied's intention to take ‘more charge' of the implementation. The jury is still out and it could only be after two to three years that a consensus could emerge which might very well incorporate both models partially.

Other partners like Binary Systems or Frontier Business Systems have a very interesting outlook and approach towards this commission model incidentally both are ardent supporters of TCS and already strong players for iON.
"We have managed to clinch 15 clients for iON over the years. The solution is doing good against competition," said Ravi Verdes, MD, Frontier Business Systems.

Also, Pentagon Systems and Services, a key iON player has been quite successful in its TCS venture. "Although cloud has nominal acceptance in the present SME scenario, the situation is likely to change a lot and iON is really doing good against competition particularly in the manufacturing and education verticals. We started the venture with iON recently and I am very convinced about its success in the near future," said Anil Kamaria, senior business development manager, Pentagon Systems and Services.

MINIMAL TOPLINE

Even as iON received mixed reactions from its channel partners, it is still early days to write home about iON in terms of overall revenue. Most of iON's prominent partners have little to say and insignificant monetary figures to share. For companies as large as Orient Technologies or Pentagon Systems and Services and Binary Systems, revenues from iON accounted for as low as a meager 1-2% of the annual turnover. In other cases as with Dhanush Infosol or Value Point, it is lesser than even 1%.
The primary factor cited by iON partners is the pay-per-use model which gives a partner good bottomline but negligible topline.

"It is a pay-per-use model and no initial hardware cost is involved. Therefore, since the client doesn't necessarily have to make hardware purchases, the deployment cost comes down. It is only over solution implementation that one is able to make money," Kamaria added.

Typically in this model it would take quite a few years for solution providers to have their cash tills ringing with iON revenues.

Most of the CSPs who have met with some degree of success opined that education and manufacturing are the core areas for their iON deployments. As a natural flow, the bottomline for these partners pour in from these sectors.
TCS too agreed with Ramaswamy stating that it is seeing good traction in education and manufacturing more because the size of the market is bigger. "In education particularly, we are seeing universities asking for campus wide digitization programs and reforms in examination process. In manufacturing, we have good examples within both process and discrete manufacturing", he said.

According to Kamaria, who has done 4 deployments with iON, the user cost for manufacturing sector is as low as `7,000 every month. A minimum of 70 users are needed for implementation in this vertical. For education segment, the cost is minimal with just `70 per month for every student. The catch, however, in this vertical is that the basic commitment needs to be atleast `1 lakh from the client. Most of these strong iON partners so far have an average deployment rate of 6 over the timeframe since iONs inception.

There are certain large solution providers who are right now not willing to spend a long time on breaking even on their iON ventures.

Value Point was a company which came into the limelight recently as it moved towards defining and setting up its goals and objectives and now has clearly laid down its focus areas and business plan associated thereof. It was a key CSP in the beginning but slowly its interest waned over the timeframe. After one year of iON, Value Point is not considering it as a feasible opportunity.

"Initially when we signed up with iON, we were not having a clear definition of the verticals we wanted to get into or the business plan needed. However, now the process is in place and we are seriously considering cloud opportunity, but with our own products," said Kumar. He further added, "For the verticals we are focusing on, iON isn't a good choice and we are keeping a very low profile with iON."

For Dhanush Infosol too, iON has been a ‘failed attempt' to leverage on its cloud business. The company started off on a high note with iON but then faltered and now have no business with TCS.

Dhanush's MD, Anil Kumar complained, "For me, TCS personnel have a very rough attitude and I think they have failed to support their partners in terms of sales lead conversions. The partner is left alone to pick up and then process the leads and the TCS personnel only comes into the picture once it (the deal) is in its last stages of finalization."

Also, he said that the commission and target model in place is not in tune with the channel players and failure to complete targets often results in a lot of hurdle or even in forfeit of the commission.

While Dhanush might have some individual issues with TCS, it must be noted that the commission structure was a key concern even for Ashtech and Allied Digital. Maybe it would make business sense for TCS to address this issue in the near future before it starts affecting more partners.
However, TCS does have certain justifications. As a fact, the business model for iON is different from competition, which gets reflected in its support system too. "We are purely cloud providers. There is no precedence to this model and hence we have responsibility to shape it up. We do rely on on-premise implementation support. But unlike our competitors, the implementations are done by TCS. For our partners to participate in this there is a long enablement time," Ramaswami elaborated.

Not all are unhappy though. The likes of Pentagon Systems and Services, Frontier Business Systems and other partners do not even complain about the commission or payout structure of iON.

"The revenue model for TCS is good enough for us. Although we are having some initial difficulties with implementing iON, I believe that over the years, the mindset of the SMEs will change and iON will pick up," Kamaria elaborated.

Pentagon Systems and Services is expecting to have atleast `1 crore of business every quarter in the coming years with iON. Also, Binary System is having a targeted bottomline approach towards iON. According to Edward Jeevan, MD, Binary System, "My experience with iON was quite channel-friendly but it doesn't account for much of my topline. It is even less than 1% but the OBB valuation would comprise of 4% of the aggregate."

Although Binary System has been quite successful in its iON venture deploying the solution for 25 customers, Jeevan opined that the growth momentum of TCS is indeed going slow and it takes time to convert leads.

"iON is structured in such a way that it cannot be a topline contributor. iON can be a good add on choice for SPs but I find it hard to believe that iON can contribute good enough to the topline," Jeevan concluded.

As in February this year, iON completes one year since that heady evening when Ratan Tata launched it in the plush lawns of Wilson Gymkhana, the jury is still out on whether it called be a success. General lack of awareness amongst SMBs, a disputed payout and commision structure might have been a dampener for a few, others have virtually set up their entire public cloud strategies based on iON only.

A third breed of solution providers is also emerging who have their own private cloud infrastructure. iON definitely scored the first brownie points, thanks to its innovation and uniqueness, but the excitement has visibly dampened over the year.

The next two years are crucial in how TCS manages to balance its iON stategy amongst all the three models.