IT business model is now lesser hardware, people, licences: Sify CEO Kamal Nath

Prior to my coming in, we had to make the change from consumer to enterprise. It was clear that Internet access would be predominantly through the mobile and using broadband. We wanted to be in the enterprise space and use our experience, having served end-consumers. Sify has been always building infrastructure in-house. We focused on two areas of enterprise — one, where the data would reside [the data centre] and two, the media that allows access to data [the network].

Earlier, we were too entrenched in infrastructure. When the infrastructure and managed services integration trend emerged, it boded well for us. We had a network piece, managed services piece, we were doing a little bit of integration also —

We also had some applications and offered security portfolio too. All these businesses were smaller when compared to our telecom business. It was then logical for us to combine the telecom piece and the telecom-managed services piece into one.

Here’s an example: earlier, we used to only give data centre services and hosting services; we only managed the facility. Now, we not only manage the facility, we will help you build the IT infrastructure inside the data centre in various models: if you want the hardware to be in your books, we can help you do it; you can use our infrastructure as a service; if you want someone else to provide the hardware and you just want us to manage it, that’s possible too. Hosting is the centre piece around which this entire thing is woven.

Our sweet spot is the medium-sized segment with client revenues in the range of ₹5,000 crore to ₹12,000 crore. That is a segment, which I have seen in the last 2-3 years, is more open to change. Earlier, IT was run on premise. You buy the hardware from HP, IBM, Wipro or HCL and, you ask someone to manage it.

The whole game was around more hardware, more people, more licences… That model is changing to lesser hardware, fewer people, fewer licences. The medium-sized segment loves this and it connects well with the purchasing chief financial officer. Also, our business outcome-based model has found favour with this segment. We have 3 to 4 customers who have signed up for this; we set up the entire IT infrastructure for the client and run the IT operations for them; we get the money when they get the money from their end-users. Medium-sized clients love it.

For example, we run the entire data centre for a health insurance vendor in India; 3 to 4 years back, this contract...it would have definitely gone to the large hardware players. Now, a lot of these come to us.

iTest is a great example of the outcome-based model. That’s a business process as a service. Cloud is at the core of Sify. In the SSC exam, for example, we get paid on the basis of per student per test We have conducted exams in 451 centres across the country. It is also a cloud model. We are not billing anything, the client is only subscribing to the cloud model. We are not billing separately for centres, for laptops or for the connection; everything has now become converted into a per student per test fee.

It is transparent, with no human intervention and [with] fair evaluation. It is one of the most successful lines of business for Sify. We see large growth here.

Similarly, our proprietary software for the supply chain business is also on the cloud. It adds to, instead of competing with, software applications such as SAP. Again, our target is the middle-sized business.

Cloud has changed the scenario. The government, too, has started acknowledging the role of cloud in data centres. In the utilities space, the U.P. state electricity board has opted for our pay-per-use model.

We partnered with an application metric and billing software company to provide this service to the government entity. Since there is little upfront payment, government agencies also like this model.

In services, where the investments are high, initial days of a business will suck up more margin. Our margins are more in telecom, but we are happy that our data centre-centric business has overtaken the telecom business in terms of contribution to revenue.

On the margins front, telecom will be contributing more because, over a period, monetisation has happened. We are investing in the data centre business, where we have to acquire market share.

When you are acquiring customers using the outcome-based model, you need to invest; because we are not expecting the customer to pay upfront.

Whatever we do today is not by adding people. When we moved from ₹760 crore to almost ₹ 1,800 crore, we actually reduced our people... from 3,500 to 2,500..

That does not reflect our true capability. We are here in India but are listed on the Nasdaq. Investors are yet to fully grasp our transformation story, so we’re ramping up our investor-facing activities.

We thought of transforming ourselves first and then going to investors. Clients are taking more and more notice of us. We need to go to investors with a complete re-messaging that the era has changed; that’s why cloud is at the core of Sify; that all the business units having relevance in the cloud is an important message.

Return on investments. Whatever we invest, we aim to quickly earn it back. There are two challenges. Infrastructure investment, and ramping up services portfolio. The revenue spread is important.

For example, in the network business, management services contribute to 25% per unit of bandwidth. Ideally, we want 100% of bandwidth customers to be managed-services customers. That is an important parameter. Because it is a growing business, we aren’t bothered about productivity. For a new business, client acquisitions are important.