SIFY: Not another ISP
Date: Friday , February 04, 2005
Bolt from the blue. Black Sunday. Tsunami sepulture, are a few euphemisms referring to the calamity by the recent massive tidal wave. While the enormity of the destruction stopped even verbal communication in Cuddalore— the second hardest-hit district of Tamil Nadu, there was one company that was quick to provide wireless-internet connectivity for communication. It knew, for one, that the NGOs and the government needed connectivity to facilitate relief work, which included procuring food, clothes and water, in a land with no communication. It had the muscle to give—that muscle always giving first, before being asked—placing the company in good stead.
Meet Sify [Nasdaq : Sify], an Internet, network and e-commerce services company. Erstwhile Satyam Infoway, it built the first IP network in India to catalyze the growth of Internet in India. Now in its seventh year, the company is delving deeply into the Indian Internet market. So deeply that no one ever thought a services firm could transform an unfriendly land of Internet to a money machine. “Name something that could be done with Internet today and you have named Sify,” is something that the company claims.
A fortnight ago, the company announced its third quarter revenue of Rs 94.5 crores—the highest ever since the bubble burst. But what is really astonishing is the resurrection Rajasekhar Ramaraj, its conceiver and CEO, brought into being while the rumors of Sify’s sellout was ripe. Sify with zero debt and a cash balance of Rs 158.6 crores is the only private Internet service provider (ISP) in the country which is cash profitable—last quarter it accounted Rs 2.08 crore. Although Sify is just a small company with little profits, it has made the ISPs, Telcos, IT, BPO and even portal companies to look up and take stock of its competition—the company leads HCL Infinet and GTL in VPN services, vies Reliance and Tatas in Cyber cafes, snaps at Bharti, VSNL and BSNL in home broadband market, nips Rediff and Indiatimes in the portal business, and contends HCL Comnet and Wipro in infrastructure management.
Ramaraj, 54, is cranking up his company to face each competitor fiercely. He knows his company will be unbeatable in the near future, and innovation alone can take him to the top, where all competitors wish to be.
Craig Barrett once said that it’s the paranoid who survive. Sify seems to be doing just that in a country like India. “The Indian market is so paranoid that you don’t know what really works. Especially if you are player in the Internet domain, you’d better play whatever can be played,” he says, describing Sify’s strategy. To do this, Sify ventured into the three most important areas of business—consumer, corporate and the international—with one driving principle: Making the Internet work for you.
Say Sify, and the first thing that strikes the mind is the Iway—the cyber parlors. A high-speed Internet joint that offered connectivity as a commodity for the first time in India. Iway is one such service that got Sify instant recognition. Although it was one of Sify’s multiple revenue streams, it established Sify in the mainstream Internet domain. George Zacharias, President and Chief Operating Officer, states that Iways’ presence in more than 2,270 locations in 69 cities, from Baroda to Bangalore and Bhubaneshwar to Bhilai, is an achievement hard to replicate.
But what makes IWays different? “Importantly, it is Sify’s head start,” says Alok Shende, Director Technology Practice, Frost and Sullivan. Although the Tatas and Reliance have launched cyber parlors in some places they still have a way to go towards pan Indian presence like Sify. “It is quite natural that some of our competitors found it hard because no one new what it entailed to set up such large chains and where exactly were the jinxes while operating on such huge networks lay; until they started operations,” say Zacharias. “This is because the cyber café chains have to deal with issues such as revenue leakage which Sify has resolved with an online system.” However, analysts predict that Sify’s competitors have adopted a wait and watch mode in order to invest at the right time observing the growth of broadband—a service that can bring high-speed Internet connectivity to homes by lowering retail Internet access rates.
The head start alone is not the reason for the Iways absolute leadership, believes Sify. “It is Sify’s business, network connectivity and the process expertise in handling glitches that has made Iways ubiquitous,” says Ramaraj.
When Sify initiated its chain of cyber parlors, they were inexperienced with running remote business. It decided to franchise IWays on a 70:30 revenue sharing model between the franchise and Sify. Accordingly, the franchisee invests in the infrastructure and Sify provisions delivery of services by ensuring high quality broadband connectivity, systems and processes. Initially issues such as revenue leakage caused this model to be problematic. “You couldn’t monitor how much business these IWays did and whether the franchisee was reporting the right figures,” says Ramaraj. To monitor revenue leakage, Sify’s technology center developed an innovative registration and online administration process, where the user is given a username and password that is stored in Sify’s data center and allows access to users whenever they log in, depending on their cash balance.
During 1996-97, a small company like Sify invested such a great deal on its network infrastructure that it was the first to launch private ISP services when the government privatized this sector. Having built an IP network across the country, Sify got an head start in its cyber café business, edge over in the VPN market—two important business units of Sify which accounts to 60 percent of its revenue.
More importantly, it was Sify’s IP and process expertise that enabled the development of the remote system, along with the highest standards of security against any threats that gave it a competitive advantage. Today Iways have transitioned Sify from a functional to a process expert. The process of maintaining a function that Sify promised its customer has become its main focus of late.
The entire back-end work of monitoring systems, running security checks and ensuring high-speed connectivity for IWays is a process handled by Sify’s technology division. This allows Sify to scale, while ensuring administrative and account details to its franchisees. To benefit customers, Sify also increased their opportunity to access their accounts from Iways anywhere in the country using a single registration.
While most of Sify’s competitors established cyber parlors with a sheer interest of profit in the early days of internet boom in the country, Sify’s business focus was more long term and customer focused. Sify charges about Rs 20 per hour for broadband Internet browsing in its self-proclaimed bright, attractive, standardized, comfortable red and yellow air-conditioned parlors.
Leveraging on multi-location IWays, Sify’s technology team developed a unique automation tool to assist traveling executives to report their daily sales figures to senior management. Sify offered these executives a solution on a CD, with software allowing them to log on to their company’s confidential intranets securely from cyber cafes. Sify cashed on its Iway presence to get companies to use this innovative solution.
Recently, Sify also introduced video conferencing at Iways over the same Internet backbone at just Rs 5 per minute. This facilitates SMEs to conduct sales reviews, recruitment firms for interviews with candidates in distant cities and consumers for occasions when seeing the other person assumes great importance-such as in viewing a potential bride or groom!
Sify is optimistic about the potential for broadband access in India. “It’s broadband that provide the growth in home access,” says Ramaraj. Sify has been providing corporations with broadband connectivity for four years, and is now focusing on the home segment as well. Sify is collaborating with major cable providers in the country to reach the millions of cable homes in the country. To ensure high quality services, Sify ensures that Internet access is provisioned over a separate Ethernet cable alongside the coaxial cable used for television signals. An online administration system prevents revenue leakages and allows broadband subscribers to keep track of their accounts online. Yet penetrating the broadband market is no cakewalk for Sify, as its competitors in this space are not ISPs but large Telcos like Bharti, the Tatas, Reliance and BSNL.
However, Sify is aware of what cable did for India in the early 90s, something that no other business has ever done in the country. With 5.5 crores cable subscribers, Sify’s chance of gaining share in the broadband market is equally compelling. Currently, broadband contributes Rs 9.26 crores of its quarterly revenues, while its closest competitor, Bharti, makes Rs 280 crores from its broadband and telephone services, albeit mostly from voice at this time—a domain where Sify has no plans of venturing. While most of the Telcos are literally digging grounds and laying fibers to erect its broadband service, Sify is innovatively transmitting service to the cable providers wirelessly. “This is a provision that is highly cost effective and affordable to us ISPs,” says Zacharias. Sify is currently working also on the WiMax project, which it believes to be the market’s next big opportunity in an infrastructure-starved market. In order to trump its competitors Sify has launched its WiFi connection across many of its cyber cafes, hotels and Tech Parks. It currently has 150 access points across the country that enables laptop users to wirelessly connect to the Internet.
If wireless situates Sify on the technology podium, their achievements in catalyzing Internet access growth in the country will be recognized a second time. Their first applause was for revolutionizing India’s dial up sector in the late 90s with its innovative and unique CD pack, which installed a dialer and came with Internet use instructions, mail and parental control. Today Sify’s focus is on broadband access at home, the Iways and its Internet telephony service. When the government allowed VoIP in India in 2002, Sify was the first to provide it to consumers primarily through its Iway chain of cyber cafes. Today this service accounts for Rs 6.14 crores of Sify’s quarterly revenue.
Sify’s primary portal is an integral part of its integrated Internet services business model. Standing second after Rediff [Nasdaq: REDF] its closest competitor, which is a standalone Internet portal, Sify still needs lot of marketing to increse its subscriber base. With a combination of advertisements and e-commerce revenue, Sify’s portal contributes 2.8 percent—Rs 2.6 crore in the last quarter. As an integral part of its integrated strategy Sify is employing the website as an interface point for all dial-up, Iway and broadband users. “To get this business up and running, we offer facilities such as custom design of each user’s web page in IWays, through which the user can keep their area of interest on the web page the moment he logs on to the net,” says Shrikant Joshi, President of Access Media. In an attempt to increase its portal revenue the company also introduced a valuable new portal for the broadband subscribers featuring the latest Hollywood and Bollywood trailers, in-house media reporting, and online games.
Corporate Customer Asset
For Sify competition is a crucial thing to watch out. “Since its business covers a wide area it needs a focused and strategic moves, and a fulltime monitoring of others business models,” says Shende. However its network has been a boon to it. Consider the IP VPN market with large players like Wipro. Sify was able to gain market leadership despite being a late entrant, and now competes with long-term players HCL Infinet and GTL, as well as Telcos such as Bharthi, the Tatas and BSNL. Today Sify has a 48.7 percent market share in this business, with HCL and GTL maintaining 12.8 and 11.3 percent, respectively.
According to OVUM, an International research firm, India’s VPN market is expected to increase by a compounded rate of 31.6 percent in the next four-years to reach a size of Rs 900 crores. Sify has built a network to handle mission critical data networking and converged voice, video and data connectivity, forming the core process of any VPN network to ensure its continued leadership. Currently it offers services to more than 800 corporate customers—Ford, Hutchinson, KPMG, Yahoo India, HP, Whirlpool, Gillette and many more.
Today most Indian pharmaceuticals, financial institutes and logistics companies seek VPN providers along the lines of IT and ITES companies. “The reason to look for a VPN provider is simply because big businesses today want their networks to be managed by someone who has professional expertise, technical skill sets, customer orientation, experience of managing large networks and provider of 99.9 percent QoS (quality of service) assurance,” says Rahul Swarup, President of Sify’s Enterprise Solutions business.
Until now a clear leader in the VPN space Sify will have to face fierce competition from the Telcos, the new entrants. “Although anyone outdoing Sify’s business in this space is quite a distant reality in the near future, you can never predict what the rich guys like Reliance can do in a short time of three to four years,” says Shende. Telcos,’ with large capital investments, can compete with Sify, but they are presently occupied building networks, he adds. A recent development arose when BSNL, a new entrant to the VPN market, raised questions concerning the validity of ISPs providing VPN services, claiming they were not included under the ISP license. Sify has realized that Telcos are not only competing but are trying to change the regulatory environment.
Leasing competitors network lines, whether from an ISP or a Telco, is a regular occurrence these days. “Telcos are in one way our competitors and in another our infrastructure providers for our network,” notes Swarup. Sify currently leases lines from Bharti, RailTeland and BSNL’s networks amongst others for its extensive network in India, and also leases international bandwidth from VSNL and Bharti. So Sify’s network is a meshed network made up of optic fiber leased from multiple infrastructure providers, and utilizing the network of the Telcos in each region or area of the country, backed up by another.
“In the VPN space, customer delight is the buzzword,” says Swarup. “Whether you are an ISP or a Telco, the customer is more concerned about his uptime, connectivity and quality of service you provide him, than how you provide it.” In order to keep ahead Sify established a customer relationship management team that proactively monitors customer networks and checks monthly on customer grievances over telecons and personal meetings.
“When Sify says networking, it is not just connectivity, but security as well,” says Ramaraj. Today Sify’s subsidiary, Safesycrpt, monitors Sify’s entire customers’ network ensuring high-end safety. Acquisition of EAP, a Chennai-based information assurance company to provide information security services, business continuity planning, certification and accreditation services, has not only developed Sify’s customer confidence, but also placed Sify in the global arena as a leading security services provider.
With 55.5 percent of revenues at Rs 52.47 crores, Sify’s corporate services are currently the highest revenue generator. It not only completes network and security but myriad other services like the digital security certification, web hosting and e-learning.
Seven months ago, Sify went global by offering its remote infrastructure management service, which can monitor and manage the IT infrastructure of any large company remotely from its data center in Chennai. By venturing into this global arena, Sify now competes with some of the software companies, including HCL Comnet, Wipro and TCS. Sify’s strategy in this Rs 4000 billion market could be a money-spinner, if things go well. But it’s a 24/7/365 onsite project that involves monitoring and updating clients’ mission critical IT infrastructure. Sify’s technology team has leveraged one of its highly reliable and scalable in-house-designed product, Beacon—a unique back end monitoring system for Sify’s various consumer and corporate operations—to provide these international segment.
Currently, Sify is handling this service for two of its American customers from its Chennai office. “This can cut almost 60 percent of a customers cost from managing infrastructure in-house,” says VM Kumar, Vice President of Sify’s International Business. “Ninety percent of the work can be done remotely except the 10 percent of physical work that needs to be done at the customers’ site for minor physical servicing functions like replacing servers.” In order to strengthen its business of infrastructure management, Sify recently partnered with Global Crossing, an iMPLS interprovider connection service, to provide converged IP services. With this partnership Sify’s international reach extended to more than 50 countries and 500 cities. A large percentage of Sify’s revenues could come from remote international infrastructure services in three years time according to Kumar.
Small means good?
Unique, like the sound of its name, is Sify’s business model. With one technology team, one business team and one lineage (Internet), Sify is developing multiple revenues streams—13 in total. “All our technology innovation is done in this rear wing,” says Ramaraj, referring to the technology center. A team of 500 technology specialists is chosen from over 2,000 resumes incoming yearly. They manage and monitor Sify’s entire service and product offering over its state of the art backbone infrastructure sitting in the Chennai network command center, as well as its Chennai and Mumbai data centers, and are just a part of Sify’s 1,500 strong workforces.
“Sify as such is not a research lab,” says Shende. But their work agility has got them incentive. “Our core technology proposition lies in identifying market opportunities and innovating new product and services to set a rapid pace of growth,” says Rustom Irani, the man behind technology and the “so-called CTO”—as he refers to himself. “In Sify its innovation that is appreciated and not the designation,” he adds.
After creating a massive 2,000 entrepreneurs with Sify’s IWays across the country, Ramaraj is now looking at providing broadband Internet access to every PC owning household. His vision and drive are such that the company has innovated many new products, services and standards in the country—some products like Beacon are even marketed. For Ramaraj e-learning is the next likely wave in India’s Internet industry. With a hunger to learn, people today are resorting to the Internet, and if Sify could offer what they want, they are sure to grab it, he says. His ambition is to globally mature by retaining local talent. This is from a man who groomed Sify for a 46 percent compounded growth in five years. A typical burst to bloom story.
What keeps Ramaraj up at night? He claims that retaining and extending Sify’s number one position in most of its services. Ramaraj is not happy these days to “see what the government is doing with all these regulations; this will reduce the growth of data transmission and in turn the Internet,” he says. Ramaraj is referring to the government’s new licensing policies that focus more on supporting voice-transmission in the country rather than data. But he is not serious as he sounds. For the man who helped catalyze the Internet in the country, this is a bump in the road. His challenge lies in introducing new services and products to society. For Sify the game has just begun, and its name bears a truth: Serving Internet For You.