The Neon Show
00:44:00 · Bhaskar Ghosh
[00:44:00] S1: Yes and no. That's a great question. So I some people will probably disagree with me. I think these transformations are going to happen in phases. I think the existing BPOs, many... The majority of them are Indian owned companies, in the, say, the India US corridor companies. They... What I'm pointing out is that they shouldn't wait to be disrupted. There will be two kinds of companies coming. One is new age BPOs. That hey, I'm bringing this new BPO which only has 10 employees instead of 100, which can do the same thing as you. Aspirationally, that's where the market is growing. I am betting on that that is not going to happen in one or two years. There's a phase wise refinement of that that's going to happen. So I feel the current BPOs who own these contracts have an unfair advantage in making themselves better. That's like crossing the chasm, that's like the whole problem of... I'm forgetting the phrase... It's like the whole Innovator's Dilemma problem, right? They have an opportunity to make their own processes much more efficient, and I'll give you one anecdotal example. We have spoken to at least five or six India US Colorado CEOs sitting in Dallas and Houston, who are in the... Playing in the mid market. Very often younger founders. $40.50, 60,000,000 in annual revenue. Not hundreds of millions. Not in billions. Tremendous eagerness in changing their how, you know, how their business model. They want to be design partners of these startups. So to me, that group, that ecosystem of mid market founders who are forward facing have a massive opportunity. Partly is, can you disrupt yourself? Will others come in and cannibalize? Third question is, people who are buying from them, is that growing or not? Are those the three parts? Let's get back to your question one more time.
00:46:02 · Siddhartha Ahluwalia, Bhaskar Ghosh
[00:46:02] S0: So my question is, how will the new age AI services company get the business? And I don't think that the older BPO businesses will be able to cannibalize themselves. [00:46:16] S1: They will not be able to cross the canyon. [00:46:18] S0: And they will not be able to realize importance of AI in their business. Because the leaders have to reeducate, they have to replace themselves, right? And it's not possible. So but then there's a business setting and a new company which has built AI enabled services. They have to eat the business which is for example in banking. So they either offer less cost or they offer more efficiency to these banks. So my question is on along these lines.
00:46:50 · Bhaskar Ghosh
[00:46:50] S1: I think the way I would phrase it, that's a great question is how do you sell these new services? So I think and you are hinting at that, so I'll take the bit. I think today a lot of the economic model is time and materials. It is going to go towards outcome based pricing. We are already seeing that. In one of our companies, a very well known company, a young company named Bespoke Labs, a founder of Google DeepMind, Mahesh. Co founder is a professor of CS from Berkeley, Alex DeMarcus. Which are doing something very deep in the post training phase of models, both in the data curation side and in RL environments. You sent me a bunch of questions. They are doing some very deep work in these areas. They are already working with one data science consulting company, very well known mid market company. Which are... Which are... Then the partnership is... Bespoke Labs is helping them deliver software for say analytics use cases, data science use cases, which is deeply AI enabled, building new models, where that consulting company is changing its business model. So, inevitably, you mentioned banks, the acquiring the person buying the service provider service will be is beginning to ask questions around outcomes versus time and material. I feel feel it is going to go through phases. I think this outcome based pricing is just beginning to hit the market. It is being proven out and a lot of this will be dependent on the customer's taste, and how do they manage their own hierarchy and incentives inside. Because it depends on the complexity of the... It depends on a lot of multidimensional problems, where Siddhartha is now a big exec on the BFSI side, comes to BG, and BG is this new AI enabled entrepreneur, and he knows that the old money that Siddhartha spent was in the context of time and material, and says no no no, you have to get this outcome done. It has to do with the nature of the project. It has to do with is that outcome measurable? Is there a customer support and success phase? You begin to ask SAS like questions also there. Not going to oversimplify it. I think you were anticipating that. That is very interesting. Outcome based pricing in services has traditionally not happened. So when you change business models, I think some of it is going to stick.
00:49:28 · Bhaskar Ghosh, Siddhartha Ahluwalia
Given what we see with AI, with the new AI coming in, and how well it is performing, assuming this other stuff that we'll talk about around around observability, around monitoring, around security, compliance. Assuming those things work, it is highly likely that some significant parts of time and material will be migrating to outcome based pricing. But we're going to see that over the next X number of years. [00:49:57] S0: So what I learned from you from this some, you know, and I have to summarize for our listeners, that, once a great team comes out of India and they build their moat in outcome based pricing, they'll be able to replace the old businesses. [00:50:14] S1: Or even a mix, that for certain things they're still offering time and materials, because it isn't their advantage because they can charge for bodies, but they have the confidence to give out going based pricing, it's going to be profoundly impactful. That there will be large degrees of amounts of success coming out of those sub ecosystems.
00:50:14 · Bhaskar Ghosh, Siddhartha Ahluwalia
[00:50:14] S1: Or even a mix, that for certain things they're still offering time and materials, because it isn't their advantage because they can charge for bodies, but they have the confidence to give out going based pricing, it's going to be profoundly impactful. That there will be large degrees of amounts of success coming out of those sub ecosystems. [00:50:31] S0: But do you think US has been sensitive for cost ever? Because what I hear from at least the Indian founders that have made big, right, and they have quoted on the podcast, so I can quote, the founder of what fixed Khajan. So when he sold the first version of what fixed to a Indian enterprise, said the Indian enterprise was asking for equity in return for the sale and when he sold when he went with a price like $75,000 annually, the US enterprise rejected him because saying that, hey, if you are only charging 75 ks, I don't know whether you will be survive or not. That was a great insight from the founder to price more. So the question here is, are US enterprises sensitive to costing for to migrate to an outcome based?
00:51:15 · Bhaskar Ghosh
[00:51:15] S1: It has to do with a lot of other extraneous factors, it has to do with macro economic forces, It has to do with that industry growing or not. I'll give you an example. There are two pieces of software that people always complain about. From the IT side and the IT ops side and the data ops side. Site ops side, SRE side. But they still pay. But they will absolutely switch if something cheaper comes. One is called Splunk, one is called Datadog. On the site observability side. People actually don't want to pay much. They they have been able to pay for it because their companies have been doing well. So I think how much capital you put into of budget, you put into IT ops is is the question. Yeah. Is your top line growing or not? So I think it it has to do with that. If you are in BFSI, you're in health care services, and your top line is growing, yes, you'll be willing to pay more. If your growth stabilizes, does not grow, these questions will come. That's one. The other part is the other part is quality. There is a quality aspect to AI. If AI, in line AI, shows much higher quality for the same or slightly more... So that's why I said numerator and denominator. Making people more accurate, more productive. There is a chance that it is not just about volume or budget, it's also about the quality of the outcome. People are willing to switch and maybe pay a little bit less, but that will be much more sticky. Coming back to it, I think your question relates much more to macroeconomic changes about the industry buying. Yeah. And if you are going into defense, you're going into government controlled areas or regulated industry like insurance, health care, banking. Government, you know, government policies have a lot to do with what sort of growth is happening there. Those are going to be effects that are going to... Those are going to be levers that are going to profoundly impact how you sell, what you sell, whether you're selling SaaS or you're selling outcome based services.