COUNTLESS DEBATES HAVE OCCURRED ABOUT WHAT services are low-end and what are high-end and definitions change as often as the seasons, but anyway one slices it, the development of products that sell to enterprises and consumers is considered the apotheosis of value-creation in the world of information and information technologies.

Even those who don’t articulate this phenomenon in these terms have to grapple with the facts: even a cursory glance at industry capitalization-to-earnings ratios or revenue per employee figures indicates clearly that product companies have better economic models, are worth more, and have far greater brand equity than services companies. And who among Silicon India's readers doesn't know of a small services company that claims it plans to increase its “products to services composition ratio” to attract and retain investment?

Two questions immediately arise, one more subtle and nuanced than the other. The simpler question is “Given this, can a services company move up the value chain and differentiate itself?” The second question, the more complex one is “If product development is the real game, how do we account for the trend towards traditional product companies creating large services organizations and growing services revenue at a faster clip than product revenue?” In other words, “Look what IBM did. Services, not products, is the key to its current and future growth; therefore, this value chain model is bunk.” So what of the first question? How can a services company (like Infosys etc.) move up the value chain? And how will they create better revenue-per-employee and multiple figures?

There is no clean answer to this question, unless we think creatively. And to think creatively, let's borrow a framework from the product world. For lack of a better term, I will call this the “‘Intel Inside’ Framework.”

Easily the two most successful and epoch-making information industry companies are Intel and Microsoft. Incredible success and brand recognition-that’s what Microsoft and Intel have in common. But there is a difference between the two--here’s where the subtlety lies-which is reflected in the incredibly successful “Intel Inside” brand. It is this subtlety which offers an incredible model for services companies.

Intel’s direct customers are not the ultimate consumers of the product; in fact, the ultimate consumers are Intel’s customers’ customers (i.e. the real consumer buys a computer from DELL (who is Intel’s direct customer). Having said that, however, it is clear that the power of Intel’s brand (and the concomitant belief inculcated that its chips are robust, of high quality, and backed by a corporate leader) impels the consumer to look for the “Intel Inside” stamp when purchasing a PC. In technical terms, Intel’s success depends really only on the number of its chips bought by its customers, not by the number of PCs bought by its customers' customers. In real terms, however, it is absurd to think that the DELLs of the world would buy chips unless they were in turn selling computers. What all this means is that for its business to succeed, Intel must message its customers’ customers directly to ensure that they continue to have confidence in the products offered not by Intel itself but by its direct customers; only then will Intel ensure its own market. Thus, the absolute brilliance of the “Intel Inside” brand; it passes through its enormous value so as to be leveraged by Intel's customers in their endeavors.

What does this have to do with services companies and what lessons are to be learned? Simply put, IT services companies have to think not only about the technical and business value they bring to their direct customers but also about the “gravity” their presence confers with respect to their customers' customers. The notion here is quite straightforward: today, Indian IT services companies sell largely on the basis of the cost-savings they offer their customers. Some are moving up the value chain and offering critical core business services, that is, they sell on the value they bring their customers. But not a single Indian IT company currently has the standing or brand equity to sell to customers based on the notion of the “embedded” value they bring to their customers’ customers by way of attestation --that if Infosys (as an example) is handling the IT (or an aspect thereof) of Fortune 100 Company A then Company A’s customers and partners should be comfortable and happy doing business with A. Let's call this the “Infosys Inside” principle.

A simple example: Infosys designs, implements, and maintains a customer's (“RM Pharmaceuticals”) messaging system and servers. A partner or customer of this company that is in constant need of timely communication with RM Pharmaceuticals should feel inclined to do business with RM since she/he knows that Infosys will ensure that the messaging system is available, that messaging queues are cleared quickly, and that business is not arrested or in any way retarded.

Moving into more core business processes, the same should hold true of RM’s customers and partners. The fact that Infosys is “involved” in RM’s IT (through onsite consulting, deployment, configuration, through the development of customer code to bridge systems, through outsourcing, etc.) should immediately confer gravity on RM and create an automatic “trustmark” between RM and RM’s customers and partners.

The fact of “Infosys Inside” should mean that • RM is a continuous recipient of value addition and as such is a competitive company; • that RM’s IT solutions are best of breed not only in terms of the underlying platform but in terms of their design, implementation, configuration, and ongoing maintenance; • that RM’s core business processes are available, robust, and reliable and that RM’s IT systems are secure, in short, that RM has the best “insides” and as such is a healthy company with which to partner and from whom to buy.

The value that IT services companies offer their customers has to pass through to the entities with which these customers do business. That is how these companies’ services can move from vanilla to value.

Romi Mahajan is the Lead Marketing Manager-Security, U.S. Infrastructure BMO at Microsoft. Educated at UC Berkeley and UT Austin, he has written and spoken extensively on innovation in general and the Indian software industry in specific. He can be reached at romimahajan2000@yahoo.com