Outsourcing By The Average Joe

Uday Challu (R), 46 & Vishal Dhar, 41
WHO ARE THEY? Challu is a techie; Dhar is a marketer. They met on a flight and became friends.
THEIR VENTURE: Set up iYogi to provide direct-to-consumer tech support services. Built a $19 million business in three years. Aiming for $70 million in 2010-11
BIG WIN: An alliance with Wal-Mart to reach out to potential customers.
WHAT NEXT: Eyeing Europe, India; To start offering depot repair services to US customers. Add Apple Mac and Android to service basket.

When Rachel Smith in Florida, USA, could not scan a document in her multifunction printer, she called a tech-support guy 14,000 kilometres away in Gurgaon, India. In a few minutes, the Indian at the other end took remote control of her computer and peripherals and resolved the problem. Sounds like a typical outsourcing call? Wrong. For years, it was the American companies that hired Indians to provide tech support to their customers. It took a lot of effort to convince users that accent and cultural differences were just a small inconvenience to be endured for the sake of cheap and quick service. But now, a small but growing number of Americans like Smith are prepared to bypass US companies and directly hire tech-support in India. Smith (name changed) belongs to the baby-boomer generation that grew up without computers or mobile phones. Like many of that generation, she has the money to buy the latest gadgets but is not comfortable experimenting with them.

In other words, the 117 million Americans who are above the age of 45 (US Census Bureau data) present a ready market for direct-to-consumer tech support, something that Smith’s service provider, a startup called iYogi, spotted early and cashed in on. Founded by techie Uday Challu and marketing professional Vishal Dhar in 2007, iYogi is a 4,000-people operation answering 15,000 complaints every day from technology users, mostly in the US. The company says it has 250,000 customers in the US, UK, Canada and Australia who have subscribed to annual contracts for round-the-clock service via a global toll-free number.

A big push will come from a recent tie-up with Wal-Mart which has agreed to bundle a free one-time support service from iYogi with computers bought online.

The Indian Identity
Challu and Dhar met on a flight and quickly found they could work together on entrepreneurial ventures. They first founded a business-to-business media outsourcing company called IQ Resources. Challu had run a third-party desktop support business in the 1980s but shut it down because it proved to be ahead of its time. But now, he sensed the emerging opportunity in reviving that business in a modern form.

Borrowing from the outsourcing model of charging dollars per hour of work, the two created iYogi as an Indian brand that sells tech support services online to users of computers and other gadgets in the developed world. They also used the Indian cost advantage to compete with US firms such as Geeksquad, PlumChoice and Support.com. The service is subscription-based and a first-time caller is offered a one-year package costing $169.99. CEO Challu says thirty percent of the customers take a three-year service at $369.99 once their initial subscription expires. The service is round-the-clock and allows unlimited calls.

But iYogi also differs from outsourcing companies in some crucial ways. For one, you won’t find a technician adopting a fake accent while handling customer calls. “We were clear from day one on our goal to build a proud Indian company that offers tech support service with our true identity revealed upfront,” says Challu. “Using fake names and impersonating someone you are not… is a flawed business model.” Along the way, the company has evolved the mindset of a fast-moving consumer goods company.

The business partner is the individual customer who calls, not a multi-billion dollar company headquartered in the US. “We are not taking these calls because we have no choice but to take them. Unlike an outsourced customer support centre for computer vendors, our technicians take calls because subscribers have opted for our service and want paid helps,” says Challu.

For a company of its size, iYogi is quite aggressive in marketing. And it has done it purely through the online channel. It spent $4 million towards paid search advertising on Google last year. This year, the figure will reach $10 million, says Dhar, co-founder and president for marketing. “We track about three lakh keywords on Google and bid for the most relevant ones such as ‘tech support’, ‘computer repair’ etc.” The company has about 2,000 toll-free numbers and has decided against outsourcing its online marketing or opting for automatic online marketing tools. “Less you think you know, the better. Platforms get reinvented in this medium,” he says adding the company can’t risk losing direct touch with the customers.

New Vistas
Endorsement of the business model has been quick to come by. The company has raised about $27 million in three rounds of funding by venture capital firms such as Canaan Partners, SAP Ventures, SVB Financial Group and Draper Fisher Jurvetson. It is also getting feelers from software and hardware manufacturers for tech support through the classical outsourcing model. “They have a clear picture of what they want to do; the CEO thinks big and wants to create a global tech support brand from India,” says Alok Mittal, managing director at Canaan Partners (India), one of the investors in iYogi.

According to projections by the NPD group, a US based consumer and retail market research firm, the market for support services ranging from installation, break-fix and repair, usability assistance and security services is worth $26 billion in the US alone. As new technologies and gadgets arrive, iYogi’s target customers will only need more support. Thus with every new technology wave, a new business opportunity emerges for iYogi. The challenge, obviously, is to prepare for such change in advance and be ready with a technically competent team.

A big breakthrough came in November 2009. The idea ran like this: In the US, computer sales are a low-margin business where it is difficult to find a differentiation. So retailer Wal-Mart could use a free starting up service by iYogi as a value addition for computers bought in its stores. The idea was simple enough but the two entrepreneurs just didn’t get an appointment with the Wal-Mart guys.

After much effort, the meeting happened and they managed to sell the idea, at least partially. Now the moment a customer purchases a laptop from www.walmart.com, he is sent a co-branded plastic card along with a letter offering a free service to move old data to the new machine, set up a wireless connection etc. When the customer calls, iYogi will provide the required service but also pitch its annual subscriptions.

Later this year the company plans to advertise on American TV networks and start tying up with local partners to offer depot repairs where customers can bring in their machines if remote support doesn’t solve their problems.

It plans to increase its staff size and handle Google’s Android as well as Apple platforms by March 2011. The scale-up will be a challenge because the demand is rising so rapidly that its own hiring can’t match that pace. So, only half of its technicians are employed by it directly. The other half work at outsourcing partners such as IBM Daksh, e4e, Ventura and Genpact though iYogi pays them the salary.

The company operates in only four countries and needs to find new markets. India and Europe are two targets. “We shall introduce more economical and customized packages for the Hispanic community in the US and this shall be done along with roll-out of low price offerings for potential Indian customers in the near future” says Challu.

The India plan is based on the assumption that most of the growth in the sales of new computers will come from countries like it. Challu and Dhar believe that the Indian market 10 or 15 years will be somewhat like the US of today. When that happens, its market could be several times bigger than the baby boomer population.