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Cloud telephony market tough in India; many players will shut shop or merge: Knowlarity CEO Ambarish Gupta

2 Jul, 2013

Cloud telephony, where a firm's office communication equipment and the need to hire someone to keep the on-premises phone systems running is replaced by hosted voice applications, has come up as an effective tech solution that can help cut working costs, especially for small & medium enterprises (SMEs). A few cloud telephony services firms have also attracted funding over the past couple of years. But the industry is facing a flux and while some players have shut shop, others have tweaked their business strategies. Knowlarity Communications Pvt Ltd, which raised funding from Sequoia Capital, is shifting its base to Singapore. caught up with Ambarish Gupta, co-founder and CEO of Knowlarity, to find out the key reasons behind shifting base, growth pangs in the past, how the company changed its business strategy and more. Here are the edited excerpts.

How is the market for cloud telephony shaping up in India?

Many players have entered the market after we got funding from Sequoia Capital last year. Among the prominent players in the cloud telephony space, there are around nine firms in the country including us. There are Exotel, Ozonetel, Unicom, SMSlane and VMC Technologies, to name a few. But in terms of competition, Knowlarity has around 95 per cent of market share.

However, the Indian cloud telephony market is extremely tough to survive and many players will either shut shop or merge. For instance, VoiceGain, a global player which was launched last year, has already shut down its operations in India.

What's the problem that the industry is facing here? Is there an issue with business viability?

The telephony market is wider than the web, so the problem in not with the market. The problem is with the SMEs in the market and that makes the market difficult to survive. The SMEs and other enterprises in India are not ready to pay much and many of them have don't have much money.

Besides, it is hard to get investors in India and some of them don't understand this space. It is, therefore, difficult to raise funds here. Companies, which have raised funds earlier, are now looking for more money, but they are not able to secure any funding.

Is that a reason for shifting base overseas?

Well, international markets are growing very rapidly as enterprises there can pay easily and have good budgets. But if you ask about competition, we don't really know yet – it is going to be a new challenge for us.

Although we are shifting to Singapore, our Gurgaon office will continue to operate. India will remain the largest subsidiary for us but the South-east Asia is a faster growing market and it is the second largest market as well. The operational base will remain here in India for the time being and a few sales & marketing people will be working in Singapore. We will be mostly hiring local executives at the new base. We are also looking to double the team size to 500 and the bulk of the people will be working in India.

At least 30-40 per cent of our revenues are coming from outside India and the percentage will be higher by the next financial year as the Indian market is seeing sluggish growth.

Besides geographic diversification, what are the other tweaks you did to navigate through the tough local market?

In telephony business, there are two types of calls – outgoing (from enterprises to customers) and incoming (those coming from consumers to enterprises). As a business model, outgoing calls don't work out well because consumers don't like receiving automated calls. Moreover, a lot of margin fluctuations are involved as outgoing calls are available to consumers at cheaper rates, but enterprises can't leverage that. It means a consumer can make a call at 40 paise a minute, but providing the same or lower rates to enterprises becomes difficult for cloud telephony firms. So we are now focusing on incoming calls.

Knowlarity reported revenues of Rs 2.5 crore in FY11, which dipped in FY12. What was the key reason behind this and how was FY13 for you?

The dip was due to the business model we had at that time. Earlier, we were providing solutions for outgoing calls, but when we saw the dip, we changed to incoming calls. After that, the company is growing 2x year on year.

How far is Knowlarity from break-even point?

We are investing aggressively for growth. But we may break even in next financial year.

Why did co-founder and COO Pallav Pandey leave the company recently? Has anyone replaced him yet?

A company passes through different stages. Knowlarity reached a stage when Pallav could leave and follow his entrepreneurial aspirations. We won't have anyone replacing him or filling in that particular position.

Earlier, you spoke of consolidation in the cloud telephony space in India. Are you looking at such opportunities in terms of merger or acquisition?

Yes, if we get a good concept at a reasonable price, we are open to acquiring a couple of startups this year. We are looking for those Indian cloud firms that are currently facing problems and finding it difficult to survive in the market.

(Edited by Sanghamitra Mandal)