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August 14, 2009

Profile of Peristent Systems

Forbes India has a profile of Pune-based Outsourced Product Development (OPD)-focused IT Services firm Persistent Systems. The company, which has raised capital from Norwest Ventures, has recently decided to strike a new kind of "risk-and-reward sharing" partnership deals with its customers (typically US software product firms).
Take, for example, the work Persistent did for a customer who brought an American product to India in June. Here, Persistent developed its Indian version. The product has now been released through banks in India and Persistent will get paid depending on the number of users that sign up. If the product flops, so does the company. “It shows our willingness now to put our skin in the game,” says Hari Haran, president of Persistent.

Shailendra Singh, principal at Sequoia Capital, who has invested in OPD companies such as Global Logic, talks about the enormous revenue opportunity in doing this. “OPD companies can really move the needle.” Kiran Karnik, former Nasscom president, agrees, saying the risk-revenue model is very appropriate for right now, and that it will even be the model going ahead.

For the model to work, Persistent will need to own the intellectual property. If it has to reinvent the wheel every time, it won’t travel far. Persistent builds drivers, the computer programs that allow higher-level computer programs to interact with a hardware device. “We used to just build drivers for one company. Now, we are building drivers for that one company, and for all their competition,” says Deshpande, smiling at the improbability of it.

...Nevertheless, the risk-reward model is a tough one to pull off. The model is most often used by risky start-ups. “They are interested in this model because they are cash strapped and haven’t done the market research,” says Haque. Competitors in the OPD market also say the model can never be the only revenue stream.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in