2 US clients sign up for Four Soft's customs application
In an interview on CNBC-TV18, Srikanth Palem Reddy, the managing director of Four Soft Ltd talks about the latest happenings in his company and sector.Q: With regards to the announcement that you made on getting certification from the US customs office, can you give us more details on what this poses for you as an opportunity going forward?
A: We have always been marketing our transportation product called 4SeTrans which also has a built-in accounting module and we have integrated with visibility and a collaboration tool called 4SVisiLog. However, when you do more of these international transportation implementations, the customers always like to have the transportation and customs piece integrated together whereas the products that we build internally, we can certify them for their quality.
However, if you are building a custom's application then you need to get the local appropriate government approvals. For example, in the US, the US customs & Border Protection (USCBP) certifies your customs product functionality and compliance with US customs laws. We have not only built this product but we have now gone through the successful certification programme and we have integrated with our freight product called 4SeTrans.
The moment these two products, transportation and customs are integrated, then the whole international transportation immediately opens up to a much bigger piece. We already have two customers going for implementation with this in the US that is UTC and Jacobson Group. I do think this is a milestone in the company's product development life cycle.
Q: On account of this US border security, now that they have certified this product, how much of a revenue growth can you see? You also indicated that it opens up a lot more by way of customers. What else is in the deal pipeline for this?
A: We already have Jacobson and UTC. That is almost USD 1.7 million contracts running. The customs piece maybe only be 10-20% but what happens is if you are not able to put that critical component then the rest of the contract is also at a risk. The market's custom application alone, may be anywhere between USD 15 million and USD 20 million.
But if you integrate it with the freight product and visibility product or the supply chain product then the market multiplies by almost 10 fold. Now all we need to do is with the certified product that is integrated and with these two new customers already under implementation, we have an established base of customers in the US on the old technology that we can easily convert to our new technologies along with the customs products.
Q: When exactly could this turn into an opportunity for you, to start working within the transport segment in FY12 itself and what margins would you work with on these orders?
A: The opportunity has already opened up because now the product has already been certified and we already have two customers that have accepted this and are willing to start the implementation process. This year, we can surely expect more revenue from this product as there is a pipeline.
If we sell these licenses then on the day that we sell the license, our margin can be as high as even 70% because we have already invested the cost in the product development and had it written off. Increasingly, we are seeing a new trend in the market, particularly, in the small and mid-market. There is a trend towards buying our software instead of a license more as software as a service (SaaS).
In this case, the customer is only leasing everything on a monthly basis. The margins on that may only be 40-50% because we provide the entire infrastructure along with the product but this is more like recurring revenue. Both the customers and we as vendours prefer more of this SaaS revenue because it takes away some pain from them and it adds more revenue to us in the longer-term.
This is one product that is easily amenable to SaaS delivery to customers, both, because of its technology, which is all on J2EE and internet base and it is also a small piece of their entire operation. The customer usually doesn't want to take the headache of maintaining this entire software in-house. He would rather use it on SaaS, declare his customs, file his applications and then go home for the day. So, both will happen.
