Igniting a software IP spark in the Philippines

As the cornerstone of long-term success in the technology industry, the value of intellectual property (IP) cannot be overstated in the Philippines.

For any company harbouring ambitions to innovate, compete and thrive in a global market, building and maximising unique IP is a mission-critical endeavour.

Whether through competitive differentiation, revenue generation or strategic partnerships, this is now viewed as a vital asset that Filipino businesses must cultivate and protect to ensure sustainable growth and market leadership.

Hence a sharp rise in independent software vendors (ISVs) emerging on a path to build profitable and scalable solutions from the ground up, shifting away from service revenue in the process.

“The revenue growth of service businesses is directly tied to the growth in headcount,” outlined Arup Maity, President and CEO of BlastAsia.

“But this is becoming harder with the new realities of the market – cost of talent is going up due to competition and the new work-from-anywhere economy is also extending talent access beyond geographic boundaries.

“Plus, corporations that were non-tech based are now competing for the same talent to drive in-house digital transformation efforts.”

As a serial technology entrepreneur and software specialist, Manila-based Maity recommended that software start-ups leverage IP as a core business strategy to enable rapid growth in revenue without the added commitment of increased headcount.

“This also increases retention in talent and provides higher value to clients,” he added.

In short, the most common benefits realised by Filipino companies building IP-based revenue rank as:

• Scalability: IP-based revenue models allow for greater scalability. Once developed, a product can be sold to multiple clients without the need for a proportional increase in staff.
• Higher margins: IP-based products often have higher profit margins compared to services. After the initial development costs, the cost of replication is relatively low.
• Asset creation: Developing IP creates valuable assets that can be leveraged for multiple revenue streams, including licensing, subscriptions and sales.
• Market differentiation: Unique IP can provide a competitive advantage and differentiate a company in the marketplace, attracting higher-value clients.
• Global reach: IP-based products can be marketed and sold globally, expanding the potential customer base beyond local or regional markets.

Despite the lucrative rewards on offer, Maity cautioned that developing an IP or product-based business model is not as simple as creating the software – risks exist and are aplenty.

“There’s many components that are required to make the product work and reach product-market fit status, such as a whole new set of talents and different skills that traditionally, service companies don’t have,” Maity noted.

Equally, developing and marketing IP-based products requires different expertise compared to service delivery, including product development, marketing and sales expertise.

“When it comes to talent – there is ample supply and experience in the Philippines,” Maity shared.

In addition, this is a market that’s growing at pace from a gross domestic product (GDP) standpoint and remains fixated on driving digitisation across public and private sectors which in turn, is creating new opportunities for specialised ISVs.

“There is a potential for products built locally to grow into regional and global markets, because both language and business practices are at par with global standards,” Maity added.

“We’re also finding that global players are entering the Philippine market – mainly to tap into the technology talent and sell solutions locally. There’s huge untapped potential for both local and global ISVs to build their business out of the Philippines.”

Offering a word of caution however, Maity accepted that developing IP – especially software products – requires significant upfront investment in research and development (R&D), which can be risky and capital-intensive.

“It’s a high-risk and high-investment endeavour which requires external funding that is not easy to find in the Philippine setting,” he said. “Especially if the business is mixed between services and products, this makes it harder for venture capitalists to invest.”

According to Maity, achieving product-market fit can also be challenging and time-consuming. There is no guarantee that a product will be successful meaning the return on investment (ROI) can take longer to realise compared to service revenue, which can then impact cash flow in the short-term.

“While access to capital and credit is limited, service businesses can utilise their own margins and unused resources to invest in developing their own products and then build brands out of it,” Maity advised.

“Once a demonstrable traction is achieved, spinning it off as a separate entity and getting venture funding for growth is a common direction that technology companies take.”

Another notable roadblock is the protection of IP from infringement and piracy, especially in markets with weak IP laws and enforcement.

Putting faith in the Philippines

In drawing a map of the outsourced software development industry across Asia, India continues to rank as the outright destination for businesses. This is followed by the Philippines – a distant second yet still a lead player in the market.

New challenges from Bangladesh and Vietnam are emerging following significant in-country growth, in addition to select African nations gaining attention. But new success also comes with challenges.

“Some of our customers are moving out of Bangladesh and transferring their business to the Philippines,” Maity observed.

“It’s the typical growth problem of team leads and seniors being pirated from one company to another – resulting in product owners looking for more stable markets to outsource with a better track record of talent retention.”

Maity noted that outsourcing will always be anchored on “cost and talent” with market destinations expected to keep shifting as newer players emerge.

“At least for the lower-end skills and requirements,” he added. “The outsourcing leaders like India and Philippines need to move up the value chain – through higher-end services and developing their own IP-based businesses to remain competitive.”

Within that context, a handful of industry leaders have attempted to either develop in-house products from scratch or build solutions on top of existing platforms. Most remain a work-in-progress.

Meanwhile, others providers have gained momentum through domain-specific business process outsourcing (BPO) and IT outsourcing (ITO) projects in industries such as health and insurance. This is in addition to early growth in the B2B software start-up ecosystem across the Philippines.

For entrepreneurs seeking to enter the ISV market, Maity emphasised the importance of first initiating a “paradigm shift” at the board and executive management levels. Why? Because the skills and strategies that led to success in service provision will not necessarily lead to success in product development.

“Stakeholder management with key employees and the need for a change in direction has to be laid out for everyone to ensure the full buy-in during the challenging journey of transitioning to a product business,” he detailed.

“This shift requires clear communication and alignment across the organisation to navigate the complexities.”

Commitment in this space comes as artificial intelligence (AI) and machine learning (ML) takes centre stage across the Philippines, building on business interest and curiosity which first started more than five years ago.

“Several local products already utilise some AI and ML capabilities,” Maity added. “This has been boosted by the success of ChatGPT which has prompted new questions from clients asking how they can maximise the benefits.”

Established in 2001, BlastAsia was built to become a global digital provider for companies outsourcing to the Philippines.

Going to market as a leading Microsoft partner – with notable expertise in cloud-based application integration and development – full-stack software development services include DevOps, user interface (UI) and user experience (UX) design, solution architecting plus testing and quality assurance.

Technical practices span web and mobile applications, microservices, AI and ML as well as the Internet of Things (IoT).

In reflecting on the journey of BlastAsia, Maity cited his most profound achievement as steering the company through major global events, such as the dot-com bubble burst in 2001, the global financial crisis in 2007 and COVID-19 in 2020.

“Our biggest achievements are yet to happen once we turn our own products – Steer and Xamun – into global successes,” he says. “This resilience and adaptability underscores the importance of staying relevant and responsive to market changes.”

In looking ahead, Maity said the future of technology in the Philippines is dependent on the nation’s ability to innovate and adapt, turning local products into global successes and solidifying its position as a leader in a highly competitive software outsourcing market.