The document provides an overview of the data analytics outsourcing market and discusses key trends driving growth in the sector. Some of the main points covered include: - The data analytics outsourcing market is growing at an estimated 25% annually and is expected to become a $1.15 billion market in India by 2015. - Exponential growth in data volumes coupled with decreasing storage costs is fueling demand for analytics services to derive insights from large datasets. - Industries like financial services, retail, and healthcare are major adopters of analytics due to availability of large transactional datasets. - There is a large global shortage of analytics skills which is expected to boost outsourcing demand and represent a $20 billion opportunity

1. 1

2. Note To Reader
Dear Reader,
Big Data and analytics are the in-demand sectors at the moment. Industry estimates suggests that in 2009 alone enough data was created to fill stack of DVDs to
reach to the moon and back, and data is only expected to grow further. With the increasing volume, velocity and variety in the data, the ability of organizations to
derive meaningful insights from this knowledge base is getting diminished. In a tough economic environment, the ability to make smart decisions will be the
difference between being a leader versus being a laggard. This is where Data Analytics makes its mark.
Harnessing Big Data in conjunction with data analytics capabilities provides an opportunity for industry leaders to consolidate positions, and for the laggards to regain lost ground. The ability to model and predict business outcomes with a certain degree of confidence is a concept that has always fascinated decision
makers, but the concept is seemingly becoming more accessible and meaningful. Especially in an environment where storage costs have diminished
tremendously while data generation has witnessed explosive growth and businesses are connecting with their consumers in a new and increasingly digital world.
However, our interactions with industry professionals and the analysis of available secondary data seems to suggest that the offshore data analytics services
sector is still in a nascent stage of development - with significant headroom for growth. The absence of clear market leaders offers in its wake tremendous growth
opportunities as well as hurdles that are inherent in any industry where the concept is still seeking broad-base acceptance. Keeping the above in mind, we
thought a report on this segment would be timely and topical.
In this report, we have tried to capture insights and trends in the data analytics services market. We hope that you will find this report useful and look forward to
your feedback and continued patronage.
Warm Regards,
Amit Singh
Executive Director
Avendus Capital
2

3. Disclaimer
This note is distributed by Avendus on a strictly confidential basis. It has been prepared exclusively for benefit and internal use of recipient and does not carry any
right of reproduction or disclosure. The information and projections contained herein can not be disclosed, reproduced or used in whole or in part without express
prior written permission of Avendus
The information contained in this note has not been independently verified by Avendus. No representation or warranty is given by Avendus as to the achievement
or reasonableness or completeness of any idea and/or assumptions presented here. None of the company or its respective affiliates shall have any liability
(including liability to any person by reason of negligence or negligent misstatement) for any loss arising from use of this note and its contents (express or implied)
This note does not claim to contain all information that recipient may require. Recipient should not construe any information contained herein as advice relating to
business, financial, legal, taxation or investment matters. Recipients are advised to consult their own business, financial, legal, taxation and other advisors
regarding the industry and its constituents
Where this note summarizes provisions of other documents, recipient should not rely on the summary and the relevant document must be referred for any
conclusion
3

4. Executive Summary

Global knowledge services outsourcing market is estimated to grow at a CAGR of 24% between 2010 to 2015 to reach USD 7.9 Bn. India will remain
the largest provider of these services with ~70% market share during this period

Global data analytics outsourcing, a subset of the global knowledge services outsourcing market, represented a USD ~500-5501 Mn market
opportunity in 2010, out of which India delivered USD 375 Mn

Though the market has been around since the early 2000’s, the exponential growth in data generation, significant decrease in data storage cost and
increased need for companies to make decisions based on actionable insights, has increased the demand for data analytics

One of the earliest adopters of knowledge services, the financial services industry accounts for the highest share of the analytics industry

BFSI, retail, health and pharma sectors are the most penetrated verticals with ~75% of the vendors catering to these segments 1

Greater availability of transactional data in financial services, retail and CPG compared to other verticals is driving the analytics demand within these
segments
Huge Talent Supply

Estimates suggests a talent shortage of 140,000-190,000 professionals with analytical capabilities in the US by 2018, representing ~40% of the total
demand
Gap Anticipated

This talent supply gap expected to boost demand for analytics outsourcing services, and represents a USD 20 Bn offshore opportunity1

Highly fragmented market  large number of vendors due to absence of critical mass and most vendors with revenues less than USD 10 Mn1

Large proportion of vendors with India presence  talent shortage coupled with the cost advantage has made offshoring a requirement

Lack of scaled up vendors indicates few inorganic growth opportunities with significant scale in this space

Fragmented internal analytics practices at end clients are being mirrored by service providers as well

Lack of established industry leaders, which should lead to consolidation as players attempt to establish such a position

At an early stage of its industry life cycle, analytics vendors reflect strong growth opportunities and significant upside potential

Multiple adjacent supplier categories and lack of scaled players will make pure-play providers more likely to emerge as market leaders

Fragmented market and lack of industry leaders provide an opportunity for analytics services vendors to adopt an acquire a core and then grow
strategy

IT / BPO vendors are trying to reposition themselves as transformational partners to clients using analytics as a beachhead

With increased demand for assets of reasonable scale, analytics services providers can command a valuation of 2.0x – 4.0x EV / Revenue multiple,
with scaled up players being on the higher end of the spectrum
High Growth Market
BFSI, Retail And Health
Driving Vertical Demand
Fragmented Business
No Established
Leadership
Attractive Investment
Opportunity
Source: (1) Avendus Estimates
4

5. 5

6. 6

7. Knowledge Services Outsourcing | One Of The Fastest Growing BPO Segments
Knowledge Services Outsourcing Market
Global Market (USD Bn)1
Indian Knowledge Services
Outsourcing Market1
(% of global market)
CAGR: 41%
2.4


Highly fragmented industry with most players being subscale
2.9
69%
2008
While the North America remains dominant market for service providers (~65%
share), growing demand from UK and continental Europe is expected to reduce the
market share of North America from 65% to 55% by 2015 1
29%
31%
2010
2015E
71%
2010
1.2
2006
India contributed 70% of the global knowledge services outsourcing market in 2010,
employing 70,000+ professionals 1
Others
CAGR: 22%
CAGR: 10%
Global knowledge services industry grew at CAGR of over 41% between 2006-08

India
Knowledge services refer to business services that are based on tacit as well as
explicit knowledge of the provider and usually can not be quality checked at the
point of delivery. Knowledge Services are typically judgment based as opposed to
being rule based

7.9

2015E
Growth Drivers For Knowledge Services Outsourcing
Demand Side Growth Drivers

Supply Side Growth Drivers


Increased availability of low cost employees with specialized skills in developing countries
like India and China
Availability of diverse talent pool including statisticians, lawyers etc. enables knowledge
services outsourcing vendors to offer high quality services
Outsourcing demand shifting from the mature segments (IT, contact centers) to
complex judgment based knowledge services
Increased and changing requirements for regulatory compliance
-
Proliferation of vendors due to absence of critical mass and specialized nature of services

-


Acceptance of outsourcing of core business activities like clinical trials, market
segmentation etc.
Evolving buyer needs are driving innovation and leading to a higher degree of
alignment with vendors thus also fuelling competition
-
Complex nature of work and judgment based nature of services provides strong
career path for employees. This attracts talent towards the pure-play service
providers
Inability of even large end-user companies to attract and retain highly skilled talent
especially in non core areas
Source: (1) Nasscom, Indian Knowledge Services Outsourcing Industry – Creating Global Business Impact, 2011
7

8. Knowledge Services Outsourcing | Data Analytics To Lead The Market With 2x Average IT /
Knowledge Services
BPO Industry Growth Rate Outsourcing
Data Analytics To Lead The Market With 2x Average IT / BPO Industry Growth Rate
Data Analytics And LPO Services Are Expected To Drive Growth In Knowledge Services Market
Indian Offshore Knowledge Services
Market1
CAGR % (2010-15)

LPO
18%
2010
=
USD 2.0 Bn
44%
23%
Business Research
Data Analytics

20%
21%
Data Analytics
Legal Process Outsourcing
Data analytics and legal process outsourcing services expected to
emerge as the fastest growing segments primarily driven by
organisations seeking data driven decision making
25%
Business Research
19%
Despite its strong growth, business research is expected to lose
market share due to growth in other segments
29%
39%
2015(E)
=
USD 5.6 Bn
Business research accounts for the largest share of the knowledge
services outsourcing market in India

17%
21%
Others
Note: Others include data management services and market research
Knowledge Services Outsourcing Market – Components Services1
Market Research




Data Management
And Reporting
Business Research
Data Modeling And
Analytics
Legal Process
Outsourcing
Others
Research design and
project planning

Market assessment

Data entry

CRM analytics

Contract management

Social media research

Competitive intelligence

Data processing


Litigation support

Data collection and
survey programming

Business partner
identification

Data conversion
Sales & marketing
analytics

Data warehousing

Risk analytics

Procurement services
Data validation and
processing

Compliance
management
Marketing and sales
support

Financial research

Data cleansing


Newsletter and updating
databases
Equity research and
financial analytics
Data analysis and report
writing

Best practices
identification

Data reporting

Document management

E-discovery
HR analytics


Supply chain analytics
Segments Expected To Lead Growth
Source: (1) Nasscom, 2011
Mature Segment
High Growth Segment
Nascent Segment
8

9. 9

10. Overview Of Data Analytics Outsourcing Services (1/2)
Strong 25% CAGR Till 2015 Led By Increased Analytics Adoption
Research and analytics as a segment has significant headroom for growth with
current penetration at less than 10% of the total addressable market 2

North America is likely to remain the largest market for analytics offshoring contributing 65% of demand3,
Demand from other nations in APAC is expected to increase with financial
services leading the demand
79%
375
Data Analytics
2010
Lack of inhouse talent, increased acceptance of outsourcing of core business
activities, high margin pressures and explosion in data generation are primary
drivers for increased demand

21%
Data analytics services market share of the total knowledge services
outsourcing market is expected to increase from 18.5% in 2010 to 20.6% in
2015

1,150
Data analytics is the science of examining raw data for the purpose of drawing
business related conclusions about the information and for modeling and
predicting business outcomes

Data Analytics as % of Total Indian Knowledge
Services Outsourcing Market (2015)


India Data Analytics Services1 (USD
Mn)
Others
2015E
Analytics Services - High Billing Rate And Higher Margin Business
Requirement
For
Specialized
Skills
Revenue Per
FTE Per
Annum
EBITDA
Margins (%)
(USD ‘000)
18-20
30
30%
LPO4
35
15-30%
50-70
EBITDA margins for reasonable sized assets in the analytics business are
comparable to that of large established KPOs. As the vendors move higher up in
the value chain, margins from analytics services is expected to increase further
15-20%
Knowledge Services4
Average revenue per FTE for analytics outsourcing services is amongst the
highest within the BPO and KPO services at USD 50,000-70,000 per employee
per annum

BPO4

25-35%
Data Analytics4
Source: (1) Nasscom, Indian Knowledge Services Outsourcing Industry – Creating Global Business Impact, 2011
(2) Everest Research
(3) HfS, 2011 (4) Avendus Estimates, Industry Research
High
Medium
Low
10

11. Overview Of Data Analytics Outsourcing Services (2/2)
India To Continue As Major Analytics Services Supplier

India dominates the supplier landscape, catering to a large part of the total
demand

Given its headstart, mature delivery models and domain expertise, India would
maintain its dominance in the near to medium term

Buyers of services are expected to mitigate concentration risk and leverage local
expertise of other emerging centers like China, Philippines, Eastern Europe,
Latin America

As the industry matures, Indian analytics service providers will move towards
providing more complex services like model development, services based on
proprietary IP, consultative offerings and expand offerings beyond traditional
verticals

India was ranked 2nd (3.9 Mn graduates in 2010) after China (6.3 Mn graduates
in 2010)1 in terms total annual graduates. However, India will retain its
attractiveness as the outsourcing destination due to its large talent pool with
process expertise and knowledge of English language

India was ranked ahead of other offshoring destinations like China, Philippines,
Sri Lanka on the security of intellectual property index by AT Kearney in its
Global Services Location Index, 2011. Security is a key determinant for growth
in such businesses

Clients’ concerns regarding data security could lead to setting up of onshore
delivery teams along with offshore delivery
Poland
Romania
China
India
Philippines
Costa Rica
Sri Lanka
Chile
South Africa
Argentina
Mature
Competitors
Emerging
India Scores Above Competing Nations On Critical Parameters
Industry
Maturity
Spectrum Of
Services
Talent
Availability
India
China
Philippines
Eastern Europe
Latin America
Source: (1) Nasscom Strategic Review 2011
High
Medium
Low
11

12. Why Now ? | Increased Relevance Of Data Analytics
Exponential Increase In Data Generation
Exponential Increase In Digital Data Generated
(Zettabytes)1
35.00

Amount of data generated has increased exponentially over the past few years and is expected to maintain strong
growth momentum

Adoption of ERP, CRM, SCM is allowing companies to capture trillions of bytes of information about customers,
suppliers and operations
0.02
0.80
Integration and analysis of this vast amount of data is boosting demand for analytics
2002
2009

2020
Increased Affordability Of Data Storage In The Last Decade

Decrease in data storage cost encourages companies to store more data, which in turn increases the desire to unlock
the value of the data through technology platforms and usage of manpower

With cloud computing’s demonstrated track record of cost savings and efficiencies, the cost of data storage is
expected to further decrease
Significant Reduction In Data Storage Hardware Cost
(USD / Gigabytes)2
10.00
Proliferation Of Smart Phones Coupled With Increase In Unstructured Data
0.10


IBM estimates that by 2015 there will be 20x more mobile data and content and 40x more mobile transaction spending
as compared to year 2010 levels
Increased data generation due to expansion in social media, smartphones adoption and increased multimedia content
provides strong growth opportunity in the analytics market
2000
2010
Worldwide Mobile Subscriber Base5 (Bn)
Basis Of Competition And Growth For Individual Firms


Increased competition for same customer spend has led to greater need for companies to create differentiation by
leveraging analytics and to make decisions based on customer insights
94.0%
Demonstrated benefits of predictive analytics has lead to wider adoption of analytics across organizational functions

According to IBM’s survey, organizations agreed that the use of business information and analytics differentiates them
within their industry making them twice as likely to outperforms peers
64.0%
11.5%
7.50
4.60
0.70
2000
2009
2020
Shortage Of Skilled Analytics Professionals

By 2018, US is expected to face a shortage of 140-190K analytics professionals, representing ~40% of the total talent
demand3  this shortage represents a USD 20 Bn offshore opportunity 4
Source: (1) IDC, McKinsey Global Institute. 1 Zettabyte = 1012 Gigabytes
(2) Estimate based on cost s of 30.0 Gigabytes Maxtor Hard Drive in August 2000 and 1.0 Terabyte Seagate Pipeline Hard Drive in August 2010
(3) McKinsey Global Institute May 2011
(4) Assuming a billing rate of USD 60 / hour
(5) Source: Marketresearch.com; percentage
indicates worldwide mobile penetration
12

13. 13

14. Data Analytics Value Chain
Phase 1
Phase 2
Data Collection


Data collection from primary
source – CRM, customer
feedback etc.
Data collection from secondary
sources through following steps:
-
Problem Definition
-
Research Design Formulation
-
Data Integration, Validation
And Storage

Integrating data from multiple
sources

Extraction, transformation and
loading

Data warehousing

Data de-duplexing

Data validation and cleansing
Phase 4
Advanced Analytics
Data Analysis and Reporting
Phase 5
Presentation and Action

OLAP

Predictive analytics

Ad-hoc query

Behavioural analytics

Statistical modeling

Risk analytics

MIS reporting

Sales & marketing analytics

Structured reports

Social media analytics

Customized dashboards

Web analytics

Data collection from primary and
secondary sources
-
Phase 3

Analyzing and interpreting
results

Consulting services to clients

Policy making based on insight

Operational or tactical decision
making
Developing scorecards
Data verification
Complexity Level Of Analytics Services Mix
Consultative Solutions
Advanced Predictive
Analytics
Simple Analytics
Data Storage And Filtering

Research And Data Collection

Includes research services and
collection of data from primary,
internal and external sources
Communication Skills
Source: (1) HfS
Includes data cleaning,
maintenance and actual entry

Low-end service with limited
revenues potential


Includes running models
generating insight based on
simple statistical analysis,
dashboards, alerts and ad-hoc
reports

Deliver value to clients
through building partnership
and providing consultative
offerings

High-end offerings to create
client stickiness


Advanced level of analytics

Create predictive model to
build advanced models to
create actionable insights

Requires application of highly
specialized skills
Typically involves decisions
that might require long term
commitment from the client
Advanced Mathematical
Skills And Modeling
Deep Domain Knowledge And
Business Understanding
Constitutes a major proportion
of KPO-centric analytics work
Database Handling
Statistical Analysis
14

15. Data Analytics Value Chain | Services Providers As Integral Part Of Value Chain
Big Data Generation
Internal Data Sources
Big Data Management
Storage
Big Data generation through internal and
external data sources
Mining
Processing
External Data Sources
Market Research Data
Market Research Data
Big Data Analytics
Analytics
Filtering
Big Data management through storage, processing
and filtering of data to turn data into actionable
information
Reporting
Big data consumers including data scientists who creates
predictive / statistical models by leveraging data analytics
software and solutions
Enterprise Data Sources
Data Warehouse Providers / Data Aggregators
Data Analytics Services Providers (Onsite And Offshore)
Social / Unstructured Data Sources
Data Integration, Data Discovery And Data Visualization
Software Vendors
Data Analytics Software Solution Providers
Secondary / Market Research Data Sources
Note: Trademarks and logos are proprietary of the respective companies
Representative list of vendors
15

16. Data Analytics Value Chain | Key Industry Verticals
Deep Domain Nature Of Services Require A Vertical Centric Approach To Analytics Services
Major Verticals
Financial Services
Retail, CPG
Healthcare, Pharma
Telecom
Manufacturing
Claims And Renewal
Analytics
Demand Forecasting
Evidence Based Medicine
Collection Management
Demand Forecasting And
SKU Rationalization
Sales Force Analytics
Marketing Mix Analytics
Drug Treatment
Effectiveness
Subscriber Profiling
Media ROI Optimizations
Collection And Recovery
Scorecards
Performance Analysis
Clinical Analytics
Churn Management
Assortment Planning
Portfolio Analytics
Category Management
Average Length of Stay
Revenue Assurance
Route And Distribution
Optimization
Portfolio Management
Trade Promotion
Optimization
Key Opinion Leader
Analysis
Customized Offerings And
Up-Selling
Vendor Performance
Management
Pricing And Risk Analytics
Customer Loyalty
Analytics

Initial analytics demand was primarily driven by large financial services companies, which was catered to by in-house and offshore captives centers

Greater availability of transactional data in financial services, health, retail and CPG compared to other verticals have played a critical part in driving analytics demand in these
segments

BFSI, retail, health and pharma estimated to be the most penetrated verticals with ~75% of the vendors catering to these segments1

As the industry matures telecom, media and entertainment and travel will emerge as strong long term growth opportunities with large volume of data generation

Emergence of Big Data and new channels of client connection like social media would further fuel growth in mature as well as emerging verticals
Source: (1) Avendus estimates
HfS, 2011
Mature Verticals
Emerging Verticals
16

17. Data Analytics Value Chain | Key Horizontals In A Largely Vertical Centric Industry
Major Analytics Domains
Horizontal Functions
Risk
Risk based pricing, fraud detection and prediction, recovery management, loss forecasting, risk profiling, portfolio stress testing
Segmentation, marketing mix optimization, competitor analysis, channel analysis, sales performance analysis, campaign analysis,
sales pipeline reporting and, channel analysis
Sales & Marketing
Supply and demand analysis, strategic sourcing, quality control, inventory analysis, order fulfilment analysis
Supply Chain
Customer Analytics
Loyalty analytics, customer life time value, propensity analytics, churn analytics, customer segmentation, up-sell / cross sell
Web Analytics
Click analytics, customer lifecycle analytics, social media analytics, sentiment analysis, online traffic analysis, conversion analysis
Human Resource
Recruitment analytics, compensation analytics, talent analytics, training analytics, retention analytics, workforce analytics
Risk And Sales & Marketing Are The Two Biggest Domains Driving Demand For Analytics
Analytics Domain Demand1 (%)
Others
10%

Source: (1) Primary Research
HfS, 2011

From traditional domains like risk and sales & marketing, scope of data analytics application has spread to
other domains like supply chain management, logistics, operations, HR analytics and web analytics

Risk And Sales
& Marketing
90%
Risk and sales & marketing dominate the demand with ~90% of the total analytics application and are
expected to drive the analytics demand going forward as well
Overlap of talent requirement, sharing of best practices and certain intrinsically similar business needs would
lead to the emergence of a few horizontal specific players
Mature Domains
Emerging Domains
17

18. Key Trends In Analytics Services Adoption (1/2)
Increased Adoption Of Analytics Due To Benefits Offered By Software-as-a-Service (SaaS) Models
Business Analytics SaaS Market (USD Mn)1
A
1,344

Installation is complex and time consuming

Onsite installations with infrequent updates
of the software and processes

888
High upfront capital requirements

1,079
Requires large commitment to IT budgets
and dedicated analytics manpower
737
615

2008
2009
2010E
2011E
2012E
2013E
B
Analytics Challenges
1,692
Requirement to update software systems
according to organizational change and
changes in data sources
SaaS Benefits

+
Reduces large initial CAPEX, shifting the
lowered costs to OPEX

No requirement to install applications due to
SaaS delivery model

Hosted model allows for greater uptime and
frequent updates

Reduces dedicated IT and analytics
manpower
•
SaaS business analytics market is expected to grow at CAGR of 24% between 2010-131
•
Post deployment customization and concerns regarding data security and privacy have been major hurdles for SaaS adoption. Such concerns are progressively diminishing
Leveraging Unstructured Data Through Text Analytics
Shift Towards Text Analytics Due To Large Volumes Of
Unstructured2 And Real Data
Unstructured
Data
75%
Source: (1) Source: Accenture
(2) SAS Whitepaper 2011
Unstructured data i.e. typically text heavy data which is not part of predefined data
models or tables constitutes ~75-80% of the total data generated

Structured
Data
25%

Text analytics uses analytical tools to annotate and extract information from
unstructured data sources to identify and predict trends

Deriving insights from unstructured data, generated through multiple sources like
websites, customer contact, social media, blogs, claims etc. and which represent real
time data. Going forward, data is expected to play a critical role in organizational
decision making

Gartner estimated text analytics software market at USD 835 Mn in 2010, representing
only 8% of the USD 10.5 Bn BI, analytics and performance management software
market. This presents a significant headroom for the future growth of the text analytics
business
18

19. Key Trends In Analytics Services Adoption (2/2)
Mobile Analytics Expected To Unlock Significant Value For Organizations
Mobile / Personal Data Could Provide USD 100 Bn Potential Revenue Opportunity
Over The Next Decade1


37
According to IBM estimates, by 2015, there will be 20x more mobile data
and content and 40x more mobile transaction spending as compared to
2010 levels

2
30
Proliferation of mobile and smart phones provides significant business
opportunity from mobile analytics and revenue generation based on
mobile, personal and location based data
Not restricted to a single vertical, mobile analytics is expected to create
business value across industries leveraging mobile generated data to
provide new, better and targeted offerings
100-120
5
39
GPS
Navigation
People Tracking,
Remote
LBS,
Personal Car
entertainment
Safety
etc
Geo-targeted
Mobile
Advertising
Toll Collection
Total
(USD Bn)
Other Key Trends
Increased Focus On Predictive Analytics

Shift from simple reporting and statistical analysis to advanced analytics which predict
future events, behaviors or outcomes

Historical events are of less interest as companies focus on forecasting future trends

Real Time Analytics
Predictive analytics and data mining software market to reach USD 1.8 Bn size by 2014 2

Real time analytics refer to dynamic analysis and reporting, based on real time data

Real time analytics could facilitate better and quicker decision making by providing up-todate information in areas like CRM, pricing, risk etc.
Social Analytics - Utilizing Social Network Data For Decision Making With Analytics
Integration Of ERP And Analytics Software


Social analytics refer to analyzing insights trapped inside social networks data such as
emoticons, tweets, text messages, call center notes, blogs, online posts etc.
With increasing popularity of social networks, focus on deriving customer insights based
on online behaviour is receiving significant attention from CXOs
Source: (1) McKinsey Global Institute, Big Data 2011
(2) Forrester Research
Most G2000 organizations have some form of transactional system (ERP) and CRM
systems in place

The next growth of enterprise application expected from BI solution implementation


Large amount of data generation necessitates integration of the two key sides of the
business decision making – data generation and data analysis

Estimates suggests that 60% BI implementations fails to realize the envisaged value due
to inadequate integration with the business requirements
19

20. 20

21. Demand Drivers For Analytics (1/2)
Demand Side Analytics Drivers
Exponential Increase In Digital Data Generated (Zettabytes)1

Explosion in data generation has highlighted the need for advanced
analytics capabilities to leverage the same for business benefits
 Enterprise wide adoption of ERP, CRM, SCM tools leading to high
data generation has laid the foundation for use of BI solutions
 Amount of digital data generated is expected to increase by more
than 44 times in the next 10 years
 Integration and analysis of this vast quantum of data has been the
key demand driver for analytics services – including outsourced
services
35.0
Exponential Increase In Data
Generation
0.8
2009
2020
Insights To Drive Business Decsions2
Top Performers
Lower Performers
20%
Use insights to guide future
strategies
27%
CXOs are keen to shift from intuition based decision making to datadriven actions

Profitable leveraging of data analytics by industry leaders such as
Amazon and Google is a testimony to the power of analytics

Demonstrated Advantage Of
Analytics

53%
45%
A survey by IBM indicates that organizations that use analytics are
twice as likely to outperform peers
Use insights to guide day-to-day
operations
Survey Suggests Only 1/3rd Of Respondent Companies Are
Prepared To Compete Based On Analytics3
Company Not
Prepared
13%
Increased C-Suite Attention
Company
Prepared
36%
Source: (1) IDC
(2) IBM
(3) July 2010 Information Week Financial Services Analytics Survey of 220 financial industry professionals

Company
Neither
Prepared Nor
Unprepared
51%
50% of respondents in an IBM survey accorded top priority to
improvement of information and analysis
 Top-performing organizations show a 5x higher usage of analytics
as opposed to low performers2
 Despite C-Suite acknowledgement of importance of analytics, most
of the organizations are still not equipped to completely realize
benefits from data analytics
21

22. Demand Drivers For Analytics (2/2)
Demand Side Analytics Drivers
Top 3 Organisational Challenges (% Of Respondents)1

61%
50%
46%
Growth
Reducing Costs And
Increasing Efficiencies
Competitive And Margin
Pressures
Innovating To Achieve
Competitive
Differentiation
Top 5 Drivers For BI And Analytics Implementation For Banks2
35%
32%
29%
28%
26%
Analytics is fast moving from a discretionary spend category to an
integral tool for competitive differentiation
 Achieving competitive differentiation, growing revenue and cost
reduction emerged as the top 3 challenges faced by organization in
a recent IBM survey
 Organizations that proactively use data generated insight appear to
identify and predict trends better and are quick to adopt industry
practices thus giving them a competitive edge

Increased pressure for regulatory compliance and greater
transparency in sectors like banking, insurance and healthcare is
expected to increase the demand for analytics

Inadequacy of in-house and centers to adapt to complex risk
compliance norms like Basel III and Solvency II, could led to greater
demand for third party services

An IDC survey suggests that reporting and regulatory compliance
requirements is amongst the top drivers for BI and analytics
Increased Regulatory
Compliance Requirements
Reporting
Cost
Reduction
Risk
Better View
Management Into Financial
Data
Source: (1) IBM
(2) IDC Financial Insights 2010. Based on survey of 6,000 IT and budget decision makers from 280 banking firms
Regulation
Compliace
22

23. Acute Talent Shortage Coupled With Cost Savings Driving Demand
Offshore Capabilities Are Becoming A Necessity
Supply Gap For Talent With Deep Analytical Skills Expected In US1 (000’s)
440-490
140-190

Knowledge Intensive

300
150

Analytics services require employees with advanced
educational qualifications along with relevant domain
knowledge
Talent Shortage
150

2008 Employment
Additional Supply
2018 Supply
Talent Gap
According to Mckinsey report, by 2018 US will face a
shortage of 140,000-190,000 people with deep
analytical skills representing ~40% of the total talent
demand

Offshore analytics service providers can bridge this
talent gap to provide skilled employees across
geographies.
2018 Projected
Demand
Significant Cost Advantage Through Offshoring Analytics Services 2
30%
100%
-
-
70%
Cost
Savings
45%
Typical Analytics
Project Cost
Total Cost
Other Costs
Actual Cost
55%

Employee costs account for 60%-70% of the total
cost for analytics projects2
Off-shoring provides a significant cost arbitrage
with respect to salary costs
Globalization Required

In order to bridge the talent gap providers will need to
set up offshore centers where additional talent exists
Labor Cost
Shortage Of Analytics Professionals Represents A USD 20 Bn Offshore Opportunity3
Source: (1) McKinsey
(2) HfS
(3) Assuming a billing rate of USD 60 / hour
23

24. 24

25. Service Provider Landscape | Mix Of Services Providers
1
Pure Play Analytics Vendors
Salient

Domain and/or vertical expertise as go to market strategy
Features

Leverage expertise and technological platforms to provide
specialized services and establish leadership position in niche

Provide greater level of service, competitive pricing and service
depth

Fragmented segment with majority of players lacking scale

Lack of funds hinders technological innovation
Challenges
Pure Play
2
KPOs
Salient
Analytics
Service
Providers

Forward integration  generate new business through selling
services to new and existing clients

KPOs
Integrated provider of a wide range of services
Features
Captives

Use analytics to improve margins
Challenges  Build capabilities and acquire scale to win new clients
3
IT / BPO Vendors
Salient
Attempt to leverage client base to cross sell analytics services
Features

Reinforce positioning as end-to-end solution provider

Create value-added differentiator through providing capabilities
in high-value analytics services

IT / BPO
Vendors

Enhance analytics capabilities to better serve clients and move
up the value chain
Challenges  Ability to acquire and retain requisite expertise and build an
internal culture of innovation needed in analytics
4
* Representative Vendor List

Shift from captives dominated market to proliferation of third party vendors

The market structure is a mix of service providers like captives, IT / BPO players
and pure play analytics providers
Source: (1) Tholons, Market Research And Analytics, 2008
(2) HfS
Trademarks and logos are proprietary of the respective companies
Salient
Features
Captives


Emerged as early providers of knowledge services
Matured captive centers now operate as strategic partner
providing higher value propositions to parent through services
expansion
Challenges  Remain competitive with evolving technology and cost pressures
 Providing attractive career path to employees
25

26. Critical Success Factors For Analytics Services Providers
Strong focus on visualization techniques to make the presentation of analytics findings more intuitive
Analytics services require high degree of domain knowledge along with reasoning, interpretation and judgmental capabilities unlike the
primarily rule driven and repetitive work of BPO services

Attracting strong talent pool with specialized skills remains the critical success factor to meet client demand for analytics services

Non linearity of revenue by leveraging domain understanding and technology platforms also create entry barriers for new entrants

Increasing trend towards automation of services for more routine type analysis
Concerns around data security is one of the biggest hurdles in adoption of offshore analytics services. The data being seen as a
source of competitive differentiation by most clients

Service providers are implementing strict data security standards and employee training programs and policies are geared to address
these concerns

PRIMARY FACTORS
Deep industry vertical expertise and client relationships at CXO levels are critical for market penetration


Shift from project based engagements to outcome based delivery models ensures recurring stream of revenues and long term client
relationships

Focus on higher value add services, consultative approach and embedding of proprietary IP to deliver services lead to higher client
stickiness

Ability to maintain consistent service quality and high levels of client satisfaction are essential for success as the services are high
impact in nature unlike normal back office operations

Given its specialized nature of its service and talent requirement, scalability is a big hurdle and vendors are addressing it through a
combination of long term engagement with premier educational institutes, automation and technological interventions and advanced inhouse training programs

Unlike typical services companies, this segment has greater capital requirements and hence access to capital is critical to scale as well
Strong Talent Pool
Technology
Know-how
Infrastructure And
Data Security
SECONDARY FACTORS


Vertical And
Domain Expertise
Client Partnership
Model
Process Maturity
Scalability
26

27. Future Trends
Long Term Horizon
Critical Success Factors

Evolved large scale project management capabilities

Short Term Horizon
Off-shore delivery base with 1,000+ employee strength, along with
onshore and nearshore presence

Increased demand for analytics services
from Asian countries
Significant management expertise and relationships within the market
Time
Emergence of 4-5 large pure play
analytics vendors (>USD 500Mn)
Market expansion and penetration into new
domains and verticals
Potential listing by few large
analytics vendors
Critical Success Factors

Increased focus on building
onshore and near shore
capabilities
Scalability to execute large projects

Management bandwidth to drive sales & marketing efforts

Consolidation in the
fragmented industry
Sizeable employee base (>500+) along with off-shore delivery base

Current Focus/Priority
Build proprietary IP to gain sub segment leadership
Critical Success Factors
Existing suppliers to scale up
the business

Build capabilities through hiring and training talented workforce

Sales & marketing focus to acquire clients

Strengthen data security and privacy policy to build client confidence
Entry of new players via
Organic and inorganic route
Industry Maturity
27

28. 28

29. Evolution Of Indian Offshore Analytics Industry
Shift From Captive Domination To Third Party Providers
2000-05
Captives Were
Early Movers

Market Maturity And Growth

2005-10
Growth Of Third
Party Vendors

Growth in Indian analytics market
triggered by setting up of captive
centers

Initial focus on verticals with large data
generation and high growth like
financial services, retail etc.

Proliferation of third party vendors, mostly
with small business size but strong growth
trajectory like MarketRx, SMS, Marketics,
PharmArc
Vendors were vertically aligned

Emergence of specialized service providers


Strong demand growth for financial analytics
services

Early movers included GE, Citibank,
JP Morgan, UBS, American Express
etc.
Smaller size of market and hence fell
below the radar of established IT /
BPO players
2002
2003
2004
2010-15
Strife For Market
Leadership
2005



Entry of large IT / BPO company into
analytics space through organic and
inorganic growth route (Cognizant acquired
MarketRx, WNS acquired Marketics etc.)



2006
2007
2008
2009
2010
Expected growth of data analytics (25%
CAGR 2010-15) to outpace Indian
knowledge service outsourcing demand
(23% CAGR 2010-151)
Few scaled suppliers like MuSigma and
Fractal Analytics are expected to emerge as
market leaders with strong base and services
offerings
Emergence of new areas like HR analytics,
supply chain analytics etc.
Service providers increasingly moving
towards platform / SaaS based delivery
models – Wipro’s acquisition of Promax,
IBM’s acquisition of RedPill
Focus on global delivery capabilities
India is expected to remain preferred
destination despite strong competition from
Philippines, China etc
2011
2012
2013
2014
2015
Year
Source: (1) Nasscom, Indian Knowledge Services Outsourcing Industry – Creating Global Business Impact, 2011
HfS, 2011
29

30. Indian Offshore Analytics Industry | Following The Path Of Prior Outsourcing Segments
Mature Phase
Start-up Phase
OFFSHORE IT SERVICES
Post 2000
1995-2000
1978-1995

Patni, TCS, HCL and Satyam, Infosys founded 
Driven by short-term revenues mainly on-site


1989: GE Medical Systems pilots a software
development project located out of Bangalore

Inflection Point: Y2K resulting in the need for a large and
skilled workforce coupled with lowered cost of connectivity

Evolution of a more holistic view on global sourcing

Market consolidation, importance of scale
Early adopters begin outsourcing a large portion of their IT
spend

Multiple players over USD 1Bn in revenue
OFFSHORE BPO SERVICES
2000-2008
1985-2000
Captives set up by British Airways (BA), American
Express (Amex), GE
Post 2008

Performed non-core / call center activities

Inflection Point: Liberalization of the telecom sector resulting
in affordable bandwidth

Emergence of leaders in the space – Genpact , EXL WNS,
Firstsource, Sutherland, Intelenet

3rd party BPOs emerge and captives are spun off



Enhanced focus of corporations on efficiency/cost
Offer end-to-end services and become strategic partners
with clients

Multiple players with USD 500 Mn in revenue
OFFSHORE ANALYTICS
2000-2010

Growth in Indian analytics market through setting
up of captive centers

Proliferation of third party vendors, predominately
small and limited scale

Emergence of technology capabilities and
frameworks that enable the processing of Big Data on
low cost platforms

Benefits realized by early adopters resulting in wider
adoption and exponential growth

Potential for 5-7 large pure play vendors with over
250 Mn in revenue to emerge as leaders in the
analytics space

Public market listings or strategic acquisitions by
leading ITO/BPO companies
30

31. Evolving Delivery Model | Shift From Ad-hoc Projects To Partnership Based Models
Delivery models are still evolving in the rapidly expanding
analytics market

Increased preference towards long-term / retained capacity (FTE)
based models ensure recurring revenue streams

Consultative approach, end-to-end service execution (analysis to
execution), automation and gaining shares are increasingly
becoming key differentiators for services vendors

Benefits To Vendors

Highly specialized nature of services and requirement for close
collaboration with the clients will lead to increase in the onsite
presence of the service providers
-
Onsite requirement for analytics services providers expected to
be at 20-25%, which is in line with onsite effort mix for leading
outsourced IT services providers
Analytics Center Of Excellence
(ACE)

Outcome Based Model


FTE Based/Flexible Services Model




Project Based Engagement



Ad-hoc project engagements
without any ongoing commitment
Initial capability assessment to
evaluate fit for a deeper
relationship
Least attractive to vendors due to
uncertain revenues and low
returns

FTE based delivery constitutes the
largest share of the total delivery
contracts
Cost-effective alternative to
expanding internal team
Allows effective employee career
path due to larger size of vendor
teams as opposed internal
captives
Vendors brings domain and
vertical expertise

Compensation linked to
achievement of specific objectives
Partnership approach towards
client engagement
Gain-sharing increases vendor’s
accountability and also
encourages innovation
Risk loaded against vendor



Create analytics centers for
clients, staffed with consultants
that work with clients on a
dedicated basis
Leverage vendors’ expertise,
technology and platforms to
benefit from industry best
practices
High client involvement and value
addition through consultative
approach
Vendor as strategic partner
instead of a pure low cost provider
$
Client Involvement
31

32. Growth Capital Needs Of The Fragmented Analytics Industry
Presents An Attractive Investment Opportunity
CURRENT MARKET SITUATION
Highly Fragmented Market, High Capital Requirement, Need For
Increased Funding

High growth nature of the business has resulted in the emergence of
many players in this space

The offshore analytics industry is currently highly fragmented with
most vendors with revenues lesser than USD 10Mn2

Realization among vendors for the need to expand portfolio of
offerings through addition of new verticals and domains and to
achieve scale to win and execute client projects and build technology
and platforms  need for additional funding
EXPECTED FUTURE TRENDS
Emergence Of Market Leaders With Scale, Range Of Service Offerings
And Technology And Platforms

Few large vendors are expected to emerge as market leaders with a
strong employee base, global delivery capabilities, a multitude of
services offerings and technology and platforms

Demand from newer market segments due to greater competition and
lowered cost of storing information for end clients

Large players would acquire smaller companies as the Indian
analytics vendors scale up and mature

Potential listing by top 2-3 vendors
Translating Into An Attractive Investment Opportunity For PE Funds
ATTRACTIVENESS OF ANALYTICS TO PE INVESTORS

Opportunity to invest in an established but high growth sector with sub-scale
vendors and no clear market leaders




Ability to scale operations through productization of offering and
expansion of global delivery capabilities
Diversify operations to emerge as an end-to-end solutions provider for
clients  service portfolio expansion and adding new domains and / or
verticals to the offerings portfolio
Leverage fragmented market for inorganic growth
RECENT PE INVESTMENTS IN THE ANALYTICS SPACE1
Target
Investor
Capital Invested
• USD 108Mn  December, 2011
• USD 25Mn  April, 2011
• USD 84Mn  September, 2011
Sale to a strategic or IPO provides typical exit routes
Source: (1) Mergermarket
(2) Avendus Estimates
Trademarks and logos are proprietary of the respective companies
32

33. Focus On Inorganic Growth
Pure Play Vendors
Multi
Vertical
KPO Vendors
High
Value Chain
Analytics Offerings
High value
Analytics
Vertical Focus
Acquisition Focus
IT / BPO Players
Niche
Niche
Multi Domain
Domain Focus
BPO /
KPO
Low
Low
High
Low
High
Geographic Diversification
Operations Scale
Inorganic Growth Drivers
Inorganic Growth Drivers

Service portfolio expansion and
adding new domains and / or verticals
to the offerings portfolio

Expand into analytics delivery services


Build scale and compete with niche
players

Emerge as a niche leader through
deeper domain expertise


Inorganic Growth
Drivers
Inorganic Growth Drivers
Scale-up through client addition and
new delivery capabilities
Expand volume in the existing space
(more coverage, newer markets), add
more and complex processes


Acquire technology and platforms




Offer high end services and move up
the value chain to a fast growth and
profitable market segment
Diversify operations to emerge as endto-end solutions provider for the clients
Acquire new clients
Strengthen nearshore capabilities
Acquire technology and platforms
Analytics services is an area of need for most large IT/BPO firms
‒
IT / BPO Firms
Facing Challenges
In Analytics Market

Falling margins due to increasingly commoditized nature of core business is resulting in firms trying to build high margin analytics capabilities
‒
Firms are trying to reposition themselves as transformational partners to clients using analytics as a beachhead
In-house attempts have been largely unsuccessful in developing requisite capabilities with firms restricted to providing lower end services
‒
‒

High end analytics services (predictive/behavioural analytics) are hard to replicate because of the specialized domain expertise required
Pure play analytics vendors have an inherent advantage while recruiting talent due to targeted market positioning
Lack of scaled up vendors has resulted in an ‘acquire a core and then grow’ strategy
Current Positioning
Expected Positioning
33

34. Transactions In Data Analytics Outsourcing Services Segment
Date
Target
Description
Country
Deal Type
Acquirer /
Investor
Jun-12
Coalition
Development
UK based company that provides research analytics and business
intelligence solutions for the financial services sector
UK
M&A
CRISIL
45
Jan-12
PharmARC
Life sciences focused company providing sales & marketing analytics
solutions to global pharma and healthcare companies
India
M&A
US
NA
Dec-11
Mu Sigma
Analytics outsourcing company that provides decision science and analytics
services
US
Funding
General Atlantic
NA
Nov-11
Copal Partners
Provider of consultative research and analytical service
UK
M&A
Moody's Corporation
NA
Sep-11
Opera Solutions
Provider of BI and predictive analytics services within BFSI, healthcare and
government services
US
Funding
SilverLake Sumeru,
Accel-KKR
NA
Sep-11
EmPower
Research
US based integrated media and business research company with strong
capabilities in social media research, media monitoring and measurement
US
M&A
Genpact
NA
Feb-10
SMS
Provider of technology-enabled marketing services and solutions
US
M&A
Genpact
43
Sep-09
Redpill Solutions
Provider of advanced customer analytics services to businesses in diverse
industries
Singapore
M&A
IBM
12
Oct-07
MarketRx
Provider of analytics, web based solutions, market research and software
services for pharma and biotechnology companies
US
M&A
Cognizant
Mar-07
Marketics
Technologies
Provider of offshore analytics service to enhance marketing effectiveness
India
M&A
WNS


Deal Value
(USD Mn)
135
65
Industry trends suggests that EV / Revenue multiples for analytics services providers have ranged between 2.0x – 4.0x, with scaled-up players at the
higher end of the spectrum
PE funds have paid higher multiples for analytics services providers, demonstrating the confidence in the ability of scaled up asset to provide strong
growth and higher returns
Source: Mergermarket
Representative list
34

35. 35

36. In Conclusion

Given the projected benefits to user organizations, analytics has emerged as the dominant skill to invest in for services providers

Due to the current fragmented nature of the vendor landscape, we anticipate consolidation and emergence of 3-4 players with greater
than USD 500 Mn revenue from high end analytics services within the next 5 years

Development of proprietary IP tools and ability to attract and retain talent would be the two most critical growth factors

Valuation trends expected to remain high in the 2x-3x revenue range over the next 1-2 years
36

37. Glossary
Particulars
Description
APAC
Asia - Pacific
BFSI
Banking, Financial Services and Insurance
BI
Business Intelligence
BPO
Business Process Outsourcing
CAPEX
Capital Expenditure
CPG
Consumer Packaged Goods
CRM
Customer Relationship Management
EBITDA
Earning Before Interest, Tax, Depreciation and Amortization
ERP
Enterprise Resource Planning
EV
Enterprise Value
FTE
Full-time Equivalent
HR
Human Resources
IP
Intellectual Property
IPO
Initial Public Offering
KPO
Knowledge Process Outsourcing
LBS
Location Based Services
LPO
Legal Process Outsourcing
OLAP
On Line Analytical Processing
OPEX
Operating Expenditure
RDBMS
Relational Database Management System
ROI
Return On Investment
SCM
Supply Chain Management
37

38. About Avendus Capital
Avendus Overview
Avendus Capital is a leading financial services firm which together with its group companies provides customised solutions in the areas of financial
advisory, equity capital markets, alternative asset management and wealth management. Avendus Securities through its Institutional Equities practice is
able to offer clients best-in-class research-driven advice to help them take investment decisions, while Avendus PE Investment Advisors manages funds
raised from its investors by investing in public markets.
The Group relies on its extensive track record, in-depth domain understanding and knowledge of the economic and regulatory environment, to offer
research based solutions to its clients that include institutional investors, corporates and high net worth families. Avendus Capital has consistently been
ranked among the top-five corporate finance advisors in India and has emerged as the advisor of choice for cross-border M&A deals and has closed 40
cross-border transactions in the past 4 years.
Headquartered in Mumbai, the firm has offices in New Delhi and Bangalore. Avendus Capital, Inc (US) and Avendus Capital (UK) Pvt. Ltd. located in
New York and London, respectively, are wholly owned subsidiaries offering M&A and Private Equity syndication services to clients in the respective
regions. For more information, please visit www.avendus.com
38

39. Contacts
AMIT SINGH
PUNEET SHIVAM
Executive Director
Executive Director
Head - Technology Group, and Co-Head Business Process Outsourcing Group
Head of US Business and Co-Head - Business
Process Outsourcing Group
Email: amit.singh@avendus.com
Email: puneet.shivam@avendus.com
Cell: +91 98864 11118
Landline: +1 646 707 0886
Landline: +91 080 6648 3601
JEFF BAKER
DIPESH JAIN
Associate Vice President
Email: jeff.baker@avendus.com
Cell: +1 914 924 9382
Landline: +1 646 707 0886
Associate
Email: dipesh.jain@avendus.com
Cell: +91 77609 81787
Landline: +91 80 6648 3634
Avendus Capital Pvt. Ltd.
Mumbai
IL& FS Financial Centre
B Quad, 5th fl, Bandra Kurla Complex
Bandra East, Mumbai, India 400051
Phone: +91-22-6648 0050 / 0950
Fax: +91-22-6648 0040 / 0940
Avendus Capital Inc.
Bangalore
# 1 & 2, The Millenia
Tower A, 10th Fl, Murphy Road,
Ulsoor, Bangalore, India 560001
Phone: +91-80-4115 0000
Fax: +91-80-2555 0868
New Delhi
Suite 22A/B, The Aman
Lodhi Road
New Delhi – 110003
Phone: +91-11-4535 7500
www.avendus.com
Avendus Capital (UK) Pvt. Ltd.
New York
499 Park Avenue, 12th fl.
New York
NY 10022
Phone: +1-646-707 0789
Fax: +1-646-707 0899
London
33, St. James’s Square,
London SW1Y 4JS, UK
Phone: +44 203 159 4353
Fax: +44 207 661 9400
Avendus Capital (UK) Private Limited is
regulated and Authorized by the FCA
39