Infosys Eyes Products as a Business Opportunity
Infosys is investing in a products and platforms business that will help it break its dependence on its traditional "time and materials" model, under which contracts are priced on the basis of the duration of a project and the number of staff working on it.
The new business focuses on creating products and platforms, and then offering them to customers in return for a license fee, payment per transaction, or royalties, said Ashok Vemuri, member of the board and head of Americas at Infosys, in a telephone interview on Tuesday.
The potential of the new business was a key focus of executives at the Indian outsourcer while discussing on Tuesday the financial results of the company for the quarter ended June 30.
Infosys has to work on new businesses that are less directly linked to the number of staff it employs, such as business transformation deals, and business consultancy, said analyst Amneet Singh, vice president for global sourcing at Everest Group. Focusing on platforms and products is an extension of this strategy, but will take time to contribute significantly to Infosys revenue, he added.
Infosys experimented with its products and platform strategy in 2009 when it introduced Flypp, a white-label platform for delivery of mobile applications that it is marketing to mobile operators who want to set up their own branded app stores. It also introduced iEngage Digital Consumer Platform in a SaaS (software-as-a-service) model for enterprises to engage with consumers across the marketing, sales and service lifecycle.
It also sells a banking product called Finacle, an offshoot of its earlier bid in the 1990s to get into large enterprise products.
The company now plans to develop small products that are customizable for multiple industries, and modular and flexible ones that can be deployed into the existing IT infrastructure of its customers, Vemuri said. The technologies will also be designed to target various industry segments, he added.
Its iTransform product suite, for example, helps companies in the healthcare industry meet compliance requirements.
Revenue from this business was about 8.3 percent of total revenue in the quarter ended June 30, including from an iPad application for video streaming for an undisclosed cable multiple system operator in the U.S.
The new business is expected to show significant revenue in about a year, and will reduce Infosys' dependence on more hiring to keep its revenue growing, Vemuri said. It will coexist with the company's services business which will still be the dominant source of revenue, because customers will require both the new products and the services, he added.
Infosys, India's second largest outsourcer, posted revenue growth in the quarter ended June 30, benefiting from a continuing increase in outsourcing to India. But a wage rise in the quarter pushed down margins.
The company reported on Tuesday that its revenue for the quarter in accordance with international standards was US$1.7 billion, up by 23 percent from the same quarter last year. Net profit was up 17.8 percent at $384 million.
The economic situation in Europe and the U.S. is still uncertain, leading to delayed decision cycles, the company said.
It has forecast that revenue for its fiscal year ending March 31, 2012, is expected to be in the range of $7.13 billion and $7.25 billion, for a year-on-year growth of 18 to 20 percent.
The outsourcing market is robust and stable, and Infosys' forecast is conservative, probably because of the management changes in the company that come into force in August, Singh said.
Staff utilization at about 75 percent was low, and could cut into margins. The lower staff utilization was mainly because a significant proportion of staff are in training to be able to meet customers' changing requirements for specialized skills, Vemuri said. Infosys said it had to cut fewer deals in its fiscal year to March 31, 2011, because it did not have enough staff.
Infosys added 2,740 staff in the quarter, taking the total to 133,560 at the end of June.