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Numero-Uno--Testing-Pros
Vidya Balakrishnan
Tuesday, May 29, 2007
Sashi Reddi’s look is unfazed of the professional listeners. His face contains a boyish grin as he walks to the podium and poses in front of the camera and media in a Mumbai press conference. Shuffling through some last minute papers, his tone takes over the din of the crowd. Resounding over the mike, the Founder and CEO of Hyderabad-based AppLabs Technologies announces his $37 million acquisition of U.K. based testing firm IS Integration, thereby declaring himself as the largest independent global software testing providers in the world. This acquisition is unique for an Indian IT service firm considering AppLabs was buying a company that had much larger revenue than itself.
Simply put, the acquisition quickly realigned AppLabs’s five-year-old position to the numero uno position in IT testing services. And put the almost-entirely offshored company—(it has more than 90 percent of its workforce in Hyderabad)—among the aces in testing services companies exactly overnight.

Announcing further expansion plans in India, Reddi spoke in lengths as to what India can do for global testing industry. And how he wants to position AppLabs as a leader in the space, even after five years, he is preparing himself to cash in on this rapidly growing business opportunity.

The outsourced testing services market is about $3 billion, one-third of which is outsourced to India. Independent testing firms in India (like AppLabs), garner close to $300 million—about10 percent share of the outsourced testing market. And AppLabs makes $75 million of this. Though Reddi is sure to hold major chuck of this market, what excites him is the 70 percent annual growth rate of the market itself. Almost all other independent testing firms in this country are fairly small. Reddi sees some consolidation within next three or four years in this fragmented market and predicts that there would be independent testing companies of $200 to $300 million revenues emerging from India.

Birth of an AppLaber
A doctorate from the Wharton School, University of Pennsylvania, Reddi had built two software product companies early in his career. So he went ahead and setup AppLabs, an IT services company in 2001. But soon he realized the need for a specialized testing service for other software product companies. As he spoke to several of the CTOs, it was no brainer that they were comfortable to outsource testing part of their work. Within the first three years, AppLabs found itself executing testing for several of the product companies in the U.S. “We started seeing ourselves as specialists in the testing business,” says Reddi. Today the company does testing for nearly 80 software product companies.
For the initial three or four years, AppLabs remained content with its humble position as a small testing company. The company was scaling up the ladder at a nominal pace. Since AppLabs operated in a fairly fragmented market, like every other independent testing company in the country, Reddi’s venture lay unaware of the potential hidden in the market.

Not until two years ago, till a consolidated data envisaged the future of this market, did Reddi decide to lead in its aggressive pursual. The growth in the outsourcing market helped make a case for independent testing companies like AppLabs. Earlier it was a single RFP, which included development, testing and support. The trend these days is customers are asking for two different RFPs. They want the testing to be done by independent companies. “Customers who outsource application development to IT service players like Infosys, Wipro or IBM feel the need to have independent party check it. They ask ‘am I getting what I am paying for,’” says Sashi Reddi. “So we are seeing growth in the market for people like us.”

Three-Pronged Strategy
Reddi saw that AppLabs was focused only on the U.S. market and more so only on technology companies. There was an untapped opportunity in other verticals like financial services, pharmaceuticals, manufacturing and retail.

Reddi went on to write the blueprint of his next strategy. What followed was a strategy to cover up his three most important gaps in his company. First, the long-focused technology vertical had almost left opportunities untapped in the others. Second, given that avenues of verticals would open, very little work happened on the customer onsite. And last, working on customer onsite meant expanding his services to European clients as well, for which acquiring testing companies in this geography was the panacea. So strategies translated into execution with the acquisition of the U.K. Company, IS Integration. And interestingly with the acquisition Reddi struck a chord of two notes: AppLabs entered into the U.K. market, and also its first ever opportunity in the financial services space (IS Integration’s customer were from Finance vertical).

However, in the U.S., Reddi hired a sales person to focus on financial services. Within few weeks, AppLabs was testing American Stock Exchange’s trading platform. Going forward, AppLabs would look at offering services to other verticals.

The Onshore Capability
Though comfortably profitable since its early days (2001), Applab’s funding in September 2004 of $7 million from Sequoia Capital (earlier Westbridge Capital) helped the company acquire Lindon, UT-based Key Labs Inc. “We wanted to change from pure offshore testing company to one where we can also do the testing in the U.S,” says Reddi. This was important as its competitors—SQF and Tescom—had strong onshore capability while AppLabs has a clear edge and also has an offshore footprint.

The acquisition also meant that AppLabs could tap into the state-of-the-art testing infrastructure that Keylabs had in place. “The lab that we have in the U.S. is in no comparison to the test lab by any other Indian IT service vendor has (in U.S). In fact, some of the IT service vendors rent our labs when they have sophisticated test projects,” says Reddi. The company is also a certification agency for Cisco. It has the exclusive right of branding all the hardware or software that works with Cisco, as Cisco Certification Label. “This is a big deal for us,” says Reddi.
But what is really big for AppLabs today is its competency, skill sets and infrastructure to offer performance and security testing. Two specialized areas within testing that have given the company an edge over others.

Best of Test
Banks that offer online banking or retailers that offer online shopping experience need to test the traffic that their Website can handle. For instance, AppLabs has the infrastructure to check the maximum load that can be handled by the VISA network.

For an online news portal such as MSNBC.com, a Website that receives between four and five million visitors every weekday, the ability to seamlessly handle sudden bursts of traffic is critical. AppLabs was engaged to run a performance test on this Website ahead of the increased traffic expected during the Winter Olympics for breaking sports news. AppLabs ran a 300,000-user-test and presented the findings. By tweaking the physical network in response to this testing, MSNBC.com was able to reach assurance that its hardware and web application were fully prepared to handle the maximum load.

“The lab that we have in Lindon will allow us to setup large application and simulate even if 12000 users were using the application simultaneously. So this is not just for web but also client server applications,” says Reddi.

AppLabs helps customers in the identification of security threats through extensive code reviews and vulnerability checks. Several information security analysts at AppLabs work together to mitigate security risks and stabilize the application behavior in different environments. For instance, the team ensures than any software that is being downloaded from major web portals like TRUSTe.org (Founded by Microsoft, Yahoo, AOL) meets certain security and privacy standards.

Innovation is the Key
Coming from a products background, Reddi emphasizes that going forward innovation is the key to differentiate testing services. The AppLabs team does a lot of innovation for several of the top security firms. The company is actively strategizing newer methods to create less expensive services—performance and security testing—for customers. While on a normal course the purchase of any testing product would amount to an expensive figure, AppLabs customizes the tools borrowed from the open source community and offers similar tools to the customers thus saving them the license fee.

Similarly, the company is planning to launch a compilation of essentials needed to create and manage a Website and offer them as a service; all aimed at removing the complexity for a customer. For instance, someone who wants to create an e-commerce site needs to work about several security issues. Security problems can come at application, database, OS, browser or network level. AppLabs is working towards making it easier for people to buy security services.

Having recently acquired CMMI Level 5certification, AppLabs is working towards smoothening the engines of this innovative streak. Engineers at AppLabs are now using this certification knowledge by applying them on to testing process and making it better. This results in new and improved testing methods and practices to surface.
Apart from focus on innovation, the company has actively involved itself in partnerships with many of the leading technology companies like Microsoft, Hitachi, IBM, Oracle; giving itself an edge in delivering as per customer requirements with access to skills, tools, and training methods of the big organizations.

Treasuring people
The 1500 testers communicate with teams across the globe—it could be directly with the customer or an IT service provider who does development to the customer. In India, AppLabs has 1110 employees in Hyderabad. The company’s depth in management makes it an ideal candidate for the leadership position in the marketplace. From the start, Reddi has hired people who had U.S. experience because Applab’s customers were going to be in U.S. In fact two-thirds of his leadership team have lived in the U.S. at some point in time.

As Reddi prepares to take AppLabs to its next stage, he has to recruit more people. Applabs intends to increase the headcount by another 600. “The challenge is not in recruiting people. India’s enormous talent is a blessing in disguise for us,” he says. But the challenge for Reddi is in gearing up the mid-level managers to take up leadership roles. While the senior management is in control of their position, the juniors receive appropriate guidance.

From here to what
With over 400 established customers, and comfortably trekking on the highest peak, AppLabs is not taking a moment’s break to enjoy the view below. After eyeing geographies and conquering various verticals, the company is ensuring it is well spotted from its high post.

So what is the next big move for the biggest testing company in the world?
“Execution,” declares Reddy explaining that AppLabs wanted its name to be synonymous with Quality Assurance.

“The pieces have been put together, the strategies have been formed, and the foundation has been laid; now it is time for AppLabs to execute and deliver more than before!”
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