The Neon Show
00:24:04 · Siddhartha Ahluwalia, Bhaskar Ghosh
[00:24:04] S0: Sir, can you tell more about it or how they are? [00:24:07] S1: It's about saying... So think of a customer of the services BPO industry. It's about the nature of the business you're running. Suppose you're in the category called PEO, which is I think Professional and Employees org or something like that. You can think of that as all things HR and payroll and benefits for small to medium businesses. Yeah. Think about a company which is small to medium which is growing. Yeah. Which decides to go with a new HR and payroll provider. And how do you make the decision when you are at 10 to 20 employees versus 100 employees versus 500 employees. Because when you bring in a services business like that, it so happens most of the services being supplied by that supplier is through human beings. So the customer is not only dealing with software, where you suddenly say, oh, I had this UI. Where the the the decision of buying the service is just like changing my UI and migrating a database. So the the the the... I think those are the fundamental reasons where when the handover is just about software, it's much more streamlined, structured. There are consultants who will migrate your HR system from this to this. But the act of going from one services outsourcing to another is much more human driven. That is one reason I think network effects are harder to adopt. Again, we'll come back in two years and I'm sure I'm going to be proven wrong, but that's where my head's at today. Okay.
00:24:07 · Bhaskar Ghosh, Siddhartha Ahluwalia
[00:24:07] S1: It's about saying... So think of a customer of the services BPO industry. It's about the nature of the business you're running. Suppose you're in the category called PEO, which is I think Professional and Employees org or something like that. You can think of that as all things HR and payroll and benefits for small to medium businesses. Yeah. Think about a company which is small to medium which is growing. Yeah. Which decides to go with a new HR and payroll provider. And how do you make the decision when you are at 10 to 20 employees versus 100 employees versus 500 employees. Because when you bring in a services business like that, it so happens most of the services being supplied by that supplier is through human beings. So the customer is not only dealing with software, where you suddenly say, oh, I had this UI. Where the the the decision of buying the service is just like changing my UI and migrating a database. So the the the the... I think those are the fundamental reasons where when the handover is just about software, it's much more streamlined, structured. There are consultants who will migrate your HR system from this to this. But the act of going from one services outsourcing to another is much more human driven. That is one reason I think network effects are harder to adopt. Again, we'll come back in two years and I'm sure I'm going to be proven wrong, but that's where my head's at today. Okay. [00:25:44] S0: And that's why you think these businesses don't have... Inherently don't have network effects yet. [00:25:49] S1: Yet. So
00:25:49 · Bhaskar Ghosh, Siddhartha Ahluwalia
[00:25:49] S1: Yet. So [00:25:50] S0: they'll not... Never get SaaS kind of multiples. [00:25:53] S1: Look, that final valuation stuff is anybody's guess, it depends on the market. But make no mistake, these are going to be massive dividend earning businesses, cash flow businesses. And the margins might expand dramatically. What multiple people will pay for, what the formula will be, I don't know. But can these be incredibly lucrative businesses? 100%. [00:26:18] S0: But do you think the kind of TAM available to grab right now is at the highest. Because that TAM creates companies, right? [00:26:31] S1: That's why the services side is really exciting. I mean the TAM scales with world population. It is insane. So the answer is, what will it grow to? I don't know. What is it today? It's already uncountable. What is it today? Actually don't know the answer. Don't put me on the... Multiple trillions of dollars for sure. Whether it's tens or twenties, I don't know the answer. But it is vastly larger than the enterprise software space. That much I can tell you. [00:27:00] S0: Then it leads to the... [00:27:01] S1: Both times are very large. Services time is much larger today than software time. Both are massive. [00:27:07] S0: So it leads to the question then, companies like Snowflake, ServiceNow, Salesforce got created in the last fifteen years in enterprise software, enterprise, infraspace. So the coming TAM, because of what AI is unlocking, is much larger than that?
00:27:29 · Bhaskar Ghosh
[00:27:29] S1: On this enterprise software, in the examples you gave, I'm not sure that I will support that statement strongly. I think companies buying software are still buying software from the same vendors, from the same departments. So will they pay more? That part I don't know. But I think that's unlikely. It has to do with the customer's domain. Are they going to grow a lot more? That is an unlikely observation to me. So I don't know if the rate of growth of pure enterprise software, horizontal software that you... You know, all the stuff you mentioned, the Snowflake, Databricks, ServiceNow, Salesforce, SAP. Right? Oracle on the enterprise software side. I don't know if the rate of growth of the TAM has grown. Don't know the answer. The question is, can they now sell this software to new industries that has never bought it? Maybe that is going to be true. Because models will be used, because orchestration software will be used. And you will be selling into new domains that have not been touched. If that is true, bridge is created, where software of the new sort can be sold into new domains, then the answer is true. So that's a great question, worth visiting again. Now, the same is true for the services side. I think services side will become more efficient for sure, as it ingests more AI enabled software. Will it enable it to create new markets? Might be true. It might be able to do new things that has not been done before. We haven't even mentioned things like manufacturing. We haven't mentioned things like defense. We haven't mentioned, you know, all the applications of robotics. We haven't even gone there. We haven't talked about the chemical industry. We haven't talked about the mechanical industry. There are massive, massive... We haven't talked about supply chain changing. There is going to be massive impact in those industries also. How will the fundamental TAM of this industry change? I do not know that answer.
00:29:42 · Siddhartha Ahluwalia
[00:29:42] S0: And do you think in the last twenty years, if you think fundamentally, TAM decided the course of how new companies got produced in enterprise software?
00:29:53 · Bhaskar Ghosh
[00:29:53] S1: I think there was growth all around. There was prosperity and growth all over all over the world. I think a few things happened. I think Internet and mobile phones changed everything. So people were much more connected, not just social media, but through commerce. If you look at India, India basically hopscotched and went from one generation to fifth generation through mobile phone infrastructure and the use of mobile phone, number one. Secondly, India and Brazil did very foundational work and went from a first generation to seventh generation for its payment infrastructure. All the stuff you know really, really well. And that has caused feedback loops and network effects in not only bringing people out of poverty, but in expanding the middle class. So if worldwide there is more growth and more prosperity getting created, then the answer is yes. It so happens that the enterprise software market has grown remarkably in the last twenty years during a time of mostly peace. And of the middle class rising in many companies, rise of China, rise of India, rise of the Far East of of Southeastern Asia. I don't know, I can't predict the future well enough to tell you that in the in the, you know, in the presence of climate change and in the presence of the current geopolitical situations, how global prosperity will grow. But I think TAM is also tied to that, which is probably something that you're also bringing up. Yeah. Don't know the answer, but that's the... How the question should be posed.