India Outsourcing and Rising Salaries

NYTimes wonders if India could be losing its outsourcing edge:

Over all, according to a recent survey by Hewitt Associates, the international consulting group, wages in the country’s major outsourcing sectors have been rising by close to 15 percent per year.

The reason is increasing competition for labor, thanks in large part to a rush by American companies to outsource work offshore. In fact, the competition has grown so fierce that the typical Indian operation in business processing – things like call centers and payroll, accounting and human resources functions – can expect to lose 15 to 20 percent of its work force each year, compared with single-digit losses in the late 1990’s.

as the data from India show, the offshore outsourcing phenomenon may to some extent be self-correcting. Though outsourcing is surely here to stay, rising wages and rapid turnover in Indian hubs may put a dent in the cost savings that American firms enjoy when they ship work abroad.

The stiffest competition for offshore labor tends to occur in India’s so-called first-tier cities: Bangalore, Mumbai (formerly called Bombay), New Delhi and Hyderabad. “You said it – Bangalore is a hothouse right now,” said Jaithirth Rao, chairman and chief executive of the midsize outsourcing firm MphasiS, which has operations in the city. In certain sectors of the outsourcing market, attrition rates are 50 to 75 percent, according to Sunil Mehta, vice president of the National Association of Software and Service Companies, or Nasscom, an industry trade group in India.

Even with wages rising 15 percent per year, the cost of a computer programmer or a middle manager in India remains a small fraction of the cost for a similar employee in the United States. A programmer with three to five years’ experience makes about $25,000 in India, but about $75,000 in the United States. But the wage savings from offshore outsourcing have never translated directly into overall savings – typically an outsourcing contract between an American company and an Indian vendor saves less than half as much as the wage differences would imply.

Evolution of Corporate Websites

Richard MacManus teaces the history over the past decade and looks ahead:

Corporate Web sites tend to re-invent themselves every 1-2 years and one reason is because Web design is constantly changing and adapting to technology in an evolutionary manner. Web design is a product of its environment, in particular of HTML and Browsers, but also secondary influences like Content Management Systems and the speed of computer processors. Web design is always pushing the boundaries of what current technology allows.

Over the past decade Web design has gone through many iterations, driven by the ever-changing environment. Web browser vendors have contributed a lot of new features and functionality. The HTML specification has grown from a rigid structurally-based markup language, to an extensible HTML-XML hybrid. And CSS is now widely used to keep structure separate from presentation.

Plus lets not forget the business drivers for Web sites. Marketing and businesspeople have slowly gained an appreciation of the Webs unique strengthsfor example that it enables a two-way dialogue with customers.

The changing landscape has led corporate Web sites to evolve from textual to multimedia, brochureware to interactive, static to transactional, chaotic to standardized, rigid to extensible, broadcasting to read-write. Web sites are no longer virtual places, theyre more like virtual agents. Today, corporate Web sites exist to serve their users and so their design must be personalized and loosely-coupled.

Web sites will continue to evolve and be products of their environment. Browser and operating system innovation (or lack of) will affect what the Web looks like in another 10 years. XML Web technologies that so far havent impinged much on corporate Web sites, like RSS and RDF, will force new ways of designing onto us.

Advertisers and Search Engines

NYTimes writes about the challenge posed by Google to traditional ad agencies:

Advertisers are finding they can attract buyers relatively cheaply without a blaring message and an expensive Madison Avenue agency to create it. On Google, most ads are simply a few words of text set to the right of the main search results.

“In the old days, advertisers had to chase buyers,” said George F. Colony, the chief executive of Forrester Research. “Now the buyers chase them.”

Such ads are not necessarily going to stop major companies from trying to reach a mass audience through television advertising or pursue a more narrowly aimed campaign by placing displays in newspapers and magazines. But they are extremely useful for a wide variety of companies in marketing their wares.

A Peruvian tour operator, for example, can inexpensively reach people looking for information on Machu Picchu; a music store can advertise next to the results from a search for information on the latest Norah Jones record.

In the first quarter, Google’s operating profit was $155 million, or 40 percent of its total revenue of $390 million. That was a greater operating profit than Yahoo’s, and a far higher profit margin. Yahoo’s operating profit was $132 million, 17 percent of its revenue of $758 million. And Google is growing at twice the pace of Yahoo.

Only a few years ago, when Internet companies were falling to earth like a flock of scorched Icaruses, online advertising was written off as little more than tiny, ineffectual billboards.

But in the last few years, Web sites have created bigger, more interactive advertising formats and marketers have learned how to use them. As a result, the growth of online advertising has taken off again, becoming a particularly attractive medium for reaching people, especially those young adults long craved by marketers, who are watching television less and less.

This is one of the best businesses I have ever seen,” said Steve Berkowitz, the chief executive of Ask Jeeves, a smaller search engine. “It is like a cash machine.”

For advertisers, search engines improve on traditional advertising in another way: they have to pay only when an Internet searcher clicks on an ad, so there is no money wasted on people with little interest in the product or service.

“When I put my ad on a search engine,” said Christopher G. McCann, the president of 1-800flowers.com, “I am putting my message where the consumer is looking for one of my products.”

Moreover, advertisers, to some extent, determine their own prices through an auction process in which those willing to pay the most are listed higher than others.

mBoom

Russell Beattie writes about the 150 million handsets sold in the first quarter of 2004 (Nokia 30% market share, Motorola 17%, Samsung 13.5%, Siemens 8.7%):

The important point to make from these numbers is not the total handsets (there were similar numbers of phones sold last year) but the *type* of handsets. For the last six months or so, a vast majority of those phones shipped are color, Java-enabled, MMS-enabled, data-capable phones. In the next quarter coming up, a good chunk of the phones are going to be MIDP 2.0/WAP 2.0 phones, if not all of them. By the end of the year, almost 600 million new phones will be sold and all will be capable of mobile data services and applications. 150+ million will be camera phones, and a good percentage will be advanced smart phones too.

And not only are the handsets arriving in vast numbers, data services have arrived as well. GPRS and CDMA2000 1x is rolled out worldwide, EDGE is here in the U.S and 3G has arrived in Europe and Asia. We have the devices and we have the connectivity. Woohoo! Finally! The time many of us have been waiting for since the end of the Internet Boom in 2000 is here.

Inc Profiles 25 American Entrepreneurs

The list from Inc:

Jeff Bezos, Amazon.com, because “optimism is essential”
Betsey Johnson, Betsey Johnson, for her stylish life
Russell Simmons, Rush Communications, for his powerful example
Scott Cook, Intuit, because he learns, and teaches
Sergey Brin & Larry Page, Google, for their integrity. And, well, for Google
David Neeleman, JetBlue, for creating an airline fit for humans
Tom Stemberg, Staples, for doing it exactly right
Jack Stack, SRC Holdings, for going naked
Judy Wicks, White Dog Enterprises, because she’s put in place more progressive business practices per square foot than any other entrepreneur
Davin Wedel, Global Protection, because he’s a lifesaver
Pat McGovern, International Data Group, for knowing the power of respect
Steve Jobs, Apple Computer, Pixar, because we like to be seduced
Lance Morgan, Ho-Chunk, because a man must make his own arrows–Winnebago proverb
James Goodnight, SAS, for saying no to Wall Street (repeatedly) and yes to the people who really matter
Stella Ogiale, Chesterfield Health Services, for doing good while doing well
Rhonda Kallman, New Century Brewing, for seizing opportunity– again and again
Laima Tazmin, LAVT, because she’s a lot like other kids–and then again…
Laura & Pete Wakeman, Great Harvest Bread, for living a little –no, a lot
Andra Rush, Rush Trucking, for rolling up her sleeves
Kathleen Wehner, Cirrus Aviation, for refusing to quit
Frank Venegas, Ideal Group, because he parlayed a little bit of luck into a lot of good fortune for others
Dan Wieden, Wieden + Kennedy, because he’s a true independent
John Sperling, Apollo Group, because he stirs the pot, and apparently always will
John Stollenwerk, Allen-Edmonds, for his commitment to U.S. workers. We also love the shoes
Mel Zuckerman, Canyon Ranch, for showing the way

Inc also asks some questions to entrepreneurs:

What sacrifices have you had to make en route to success?
What inspired you to strike out on your own in business?
What would you like to be known for?
What was the hardest lesson you’ve learned?
Is entrepreneurship getting more difficult?
What quality or skill is the most critical to success as an entrepreneur?
What would you be doing if you hadn’t started your business?
What would you do differently if you could do it all over again?
What is the one piece of advice you would give to someone starting out?

Will think about answering these in my case in a Tech Talk series.

Google and Akamai: Distributed Computing Platforms

Technology Review article discusses the commonalities in the distributed computing platform both Google and Akamai have built, and at the same time contrasts their different culture: Google’s “cult of secrecy” and Akamai’s “kingdom of openness.”

Google buys the cheapest computers that it can find and crams them in racks and racks in its six (or more) data centers. PCs are reasonably reliable, but if you have a thousand of them, one is going to fail every day, said Google’s vice president of engineering Urs Hoelzle . So if you can just buy 10 percent extra, its still cheaper than buying a more reliable machine. Working at Google, an engineer told me recently, is the nearest you can get to having an unlimited amount of computing power at your disposal.

There is another company that has perfected the art of running massive numbers of computers with a comparatively tiny staff. That company is Akamai.

Akamais network operates on the same complexity scale as Googles. Although Akamai has only 14,000 machines, those servers are located in 2,500 different locations scattered around the globe. The servers are used by companies like CNN and Microsoft to deliver Web pages. Just as Googles servers are used by practically everyone on the Internet today, so are Akamais.

Because of their scale, both Akamai and Google have had to develop tools and techniques for managing these machines, debugging performance problems, and handling errors. This isnt software that a company can buy off the shelfthey require laborious in-house development. It is, in fact, software that is one of Akamai’s key competitive advantages.

To be fair, there are important differences between Google and Akamaidifferences that assure that Google wont be breaking into Akamais business anytime soon, nor Akamai moving into Googles. Both companies have developed infrastructure for running massively parallel systems, but the applications that they are running on top of those systems are different. Googles primary application is a search engine. Akamai, by contrast, has developed a system for delivering Web pages, streaming media, and a variety of other standard Internet protocols.

Looking forward, a few business opportunities have obvious appeal to both Google and Akamai. For example, both companies could take their experience in building large-scale distributed clusters to create a massive backup system for small businesses and home PC users. Or they could take over management of home PCs, turning them into smart terminals running applications on remote servers. This would let PC users escape the drudgery of administering their own machines, installing new applications, and keeping anti-virus programs up to date.

Ted Schadler, a vice president at the market research firm Forrester, says that its possible to envision the two companies competing because they are both going after the same opportunity in massive, distributed computing. In that sense, they have the same vision. They have to build out a lot of the same technology because it doesnt exist. They are having to learn lots of the same lessons and develop lots of the same technologies and business models.

Schadler says Akamai and Google are both examples of what he calls programmable Internet business channels. These channels are companies that offer large infrastructure that can offer high quality services on the Internet to hundreds of millions of users at the flick of a switch. Google and Akamai are such companies, but so are Amazon.com, eBay and even Yahoo!. They are all services that enable business activityfoundation services that [can be] scaled securely, Schadler says.

If I were a betting man, Schadler adds, I would say that Google is much more interested in serving the customer and Akamai is more interested in provide the infrastructureits retail versus wholesale. There will be lots and lots of these retail-oriented services.

TECH TALK: The Company: A Personal View

If there is one thing common to most of us, it is that we are part of a Company. Be it a startup or an established one, be it small or big, be it a local one or a global multinational, the Company is where we spend the better part of our adult lives. It is the mechanism through which we effect change (or get changed), where we build relationships (friends and business), and through which we generate income. The Company is a unique institution that binds us all together. Each of use has our own Company stories. Ill start with mine.

In my 15-year work life so far, I have worked at one Company, and started two of my own, of which one I sold. The Company I work for was simultaneously young and old. NYNEX (now Verizon) had been created out of the break-up of AT&T. The group which I worked in focused on new technologies. It was a great experience while it lasted just under two-and-a-half years. I left because of the inner desire to start my own Company be an entrepreneur back in India, just like my father had done more than 20 years ago.

The Company I started went through many ups and downs. My lack of experience and focus meant that we meandered from one seemingly interesting area to another, much like a butterfly flitting from flower to flower. The perfect idea never came. And after two-and-half-years of efforts, I had to accept that my First Company had failed. It was time to reboot it.

This time around, I kept a clear focus, made sure we grew incrementally, kept costs under control, built a bread-and-butter business even as we kept the long-term vision in mind, and had profits to report in the first year of operation. As it turned out, the Company was in the right place at the right time. Five years after I had re-started, I sold my First Company (version 2) to a Bigger Company.

Eighteen months later, I was back to creating a New Company from the core of something which I had started a few years ago. Today, this Company has its own set of challenges profits are elusive and yet the potential for what is being done is immense. There are many challenges. With a staff of 40, this is already the Biggest Company that I have managed. We need to balance the short-term need for building businesses which can generate cash and the long-term desire to transform verticals.

I have begun on the path of growth with earnestness, but the road is long and unchartered. Personally, I couldnt think of doing anything else. In my first Company, the goal was to prove that I could build and manage a successful business. In my second Company, the goal is bigger and bolder I want to build something that will last and make a difference, and to do well and do good. Perhaps, they are all the same. Only time will tell. For me, the Company is an all-consuming love affair. It is an instrument of innovation, of bringing forth new ideas and revolutions into the world.

In this Tech Talk series, we will look more closely at the idea of the Company through three books: The Company, The Origin and Evolution of New Businesses, and The Living Company. We will end with Peter Druckers thoughts on the future of this amazing all-encompassing institution.

Tomorrow: John Micklethwait and Adrian Wooldridge