Beyond IT: It’s Time We Turned Our Focus Towards High Value Added Emerging Services

Indian IT is running into a roadblock, as the traditional services business model seems vulnerable. I attended the IESA’s (Indian Electronic and Semiconductor Association) Vision Summit in Bangalore in February, and the implied question there was whether the vacuum could be filled by the other side of IT: electronics. It is not entirely clear that we can be saved by electronics, but it’s worth a shot.

Electronics may finally be coming into its own in India. Even though the concerned Indian ministry is MeitY, the Ministry of Electronics and Information Technology, the focus has been on software, given its status as a national champion over the last 20 years. And manufacturing is not one of India’s core competencies, many feel.

Besides, the shortcomings of India’s ecosystem have more of an impact in the electronics sector. Lack of reliable power and water, poor infrastructure, the skill sets of technical manpower, and the virtual absence of the semiconductor industry in India have all been problems. Semiconductor fabrication, a strategic industry, is a must if India is to have dependable and secure electronic devices, but that’s another story.

Apart from all this, there are social reasons too: the tradition in engineering in India has been to do theoretical things; the whole idea of doing things with one’s hands (the “Maker Movement”) is somewhat alien.

But things have changed recently, based on three interrelated things: the spread of gadgets such as mobile phones, tablets and computers, the growth in internet usage, and increasing levels of prosperity. MeitY suggests that India’s electronics marketplace was about $80 billion in 2015, of which half was produced locally. But demand is expected to skyrocket to $400 billion by 2022 or so, and that would make India’s electronic import bill greater than its oil import bill! The large market is a clear pull factor.

So there is demand.

But is there supply?

There might be, because of several factors. One is the growth of the Maker Movement. Governments have invested in MIT FabLabs, and with 3D printing, there is a belated renaissance in the idea of actually making things by hand. 3D printing has many possibilities, and one is the irrelevance of scale. Professor Anil Gupta of IIM Ahmedabad and the Honey Bee Network made an intriguing point in my course on innovation: even if the demand is only for a small number of units, with 3D printing, scale doesn’t matter as it does in traditional manufacturing. It may still be viable (sort of a “long tail” phenomenon).

Another factor is the growth in design services. Increasing interest in ESDM (Electronic System Design and Manufacturing) may well play into India’s strengths in frugal engineering. Design is a high-value-added activity. The value in a product is mostly in the Intellectual Property Rights such as patents, and in the design, as opposed to the manufacturing. Thus India may be able to do an end run around China using its strengths in design and engineering.

Just as China excels at large-scale manufacturing because they have set up the capabilities for it, India’s core competence is design. The move towards open source is a boon as well. Just as UNIX-derived open source software helped the emergence of innovative product and service companies once they could depend on a well-defined system software interface or Application Programming Interface (API), the emergence of open hardware is a game changer.

Open, standard hardware such as Arduino and Raspberry Pi have made it possible to build quick proofs of concept within weeks, without having to worry about the underlying hardware, by using the APIs. In effect, proof of concept development becomes a software activity. So it becomes possible for someone with a good electronic concept, but relatively minimal electronic engineering skills, to knock together a working demo quickly.

Software engineers may already be familiar with the languages used in these systems (C/C++, Python etc), and so there is a viable business model, with increasing global demand. The production processes perfected by the IT services companies, such as CMM Level 5, can be repurposed for ‘hardware design factories’ that can turn out bespoke work for customers.

This only gets you to the proof-of-concept (PoC) level, but that itself has some value. There is much more value in the next step, which is to do proper circuit design using an ECAD package such as Mentor Graphics or Eagle. This can lead to optimised and tweaked circuits, and there is a lot of ingenuity that can be demonstrated here, to create an optimised, compact and easy-to-manufacture circuit. That would be the prototype.

In fact, the better capitalised firms that satisfy this demand could look at turnkey services, whereby they do not only do the PoC, but the electronic prototype, followed by a mechanical design service. The mechanical design is important for attractiveness, usability and manufacturability. Certainly, in the automobile market, Indians have demonstrated their mechanical design skills, for instance with the hit Mahindra Scorpio.

These are immediate possibilities, low-hanging fruit, that the Indian engineering fraternity can quickly pivot to, and thus innovate by using the existing services business model, only with different skills and different customers.

An altogether new business model may also evolve. Ron Black, CEO of Rambus, an American IPR developer in silicon, suggested a radical scenario. Based on, among other things, the recent $200 billion M&A activity leading to consolidation in the semiconductor industry, he suggested that the industry is being disrupted. He suggested, controversially, that the selling price of devices (though obviously not the cost) will tend towards zero, ie. you will have to give the devices away, and make your money through affiliated services.

There is precedent for what he says about shifts in where the value lies—there have been several clear phase shifts in the past, with the dominant players as follows:

1950s & 60s Mainframe computers: IBM

1970s Minicomputers: DEC/DG

1980s Engineering workstations: Sun/Hewlett-Packard

1980s & 90s PCs: Microsoft/Intel

1990s Internet: Cisco/Ethernet/TCP-IP

2000s Mobile: Nokia/Apple/GSM

2010s Cloud and IoT: Google/Facebook/Amazon

In the first three phases, the hardware was king, and you used to give away the software just to sell boxes. In the fourth phase, Microsoft figured out how to shift the value from the hardware (commoditised) to software (Windows). In the sixth phase, hardware came into its own again. But in the current phase, the value has once again shifted, from the platform to the data. The data owners now capture the value, and they are willing to give away both platforms and software to capture data. The era of mass commoditisation of hardware has arrived.

Unfortunately for the hardware makers, they have little or no access to the data or to the generators of data: the intermediary data services companies dominate. Therefore the hardware makers have to figure out a way of generating annuities from the data services providers as a way of amortising their device cost (which is enormous: a fab or semiconductor fabrication plant, for instance, costs $5 to $10 billion these days).

Ron Black’s intriguing proposal is as follows: the semiconductor makers should incorporate mechanisms that lead to service revenue for themselves post-deployment. As an example, he suggests a security mechanism in chips that could be a silicon “root of trust”, using cryptographic keys.

Using this mechanism to ‘attest’ that a chip is authentic could be a first-order service, especially when there is an epidemic of fake chips. This may also have national security implications, such as when you need to know that genuine and not maliciously modified chips are in your Electronic Voting Machines or field guns. (This is a strategic reason why silicon fabrication, even at enormous cost, needs to be encouraged in India). There are many instances where chips have been swapped in and used for nefarious purposes.

Besides, the root of trust can be used for additional services. Imagine a field programmable gate array (FPGA). A trusted service entity with the right key will be able to reprogram the FPGA while deployed in the field, turning on a CPU, turning off a GPU, and so on, as demand fluctuates: and that is another valuable service which may, for instance, increase the device’s life in the field by reducing its power consumption, or by matching peak computing power to peak demand.

These are high-value-added examples of new and emerging services. Surely, Indian technical manpower can be trained for them. There might be a bifurcation: engineers who can offer these services remotely for computing equipment, and technicians who might need to reach out to IoT devices like street lamps or sensors by physically re-provisioning them in the field.

There is one final possibility: open source in semiconductors. I understand that UC Berkeley has released an open-source specification called RISC V. Just as open source UNIX software and open source Raspberry Pi hardware revolutionised those industries, it is quite possible that open source silicon will be disruptive.

I do hope that Indian industry considers these new possibilities and business models and takes advantage of them.