Building a New Age AI Services Company: Cognida CEO Feroze Mohammed (Part 6)

Sramana Mitra: If you look at the P&Ls of these Infosys, WiPro, Persistence and various companies that have achieved scale in the services universe, how do the components of the P&L and the margins of these companies compare with the kind of company that you are looking to build?

Feroze Mohammed: I won’t claim about the margins today, but…

Sramana Mitra: I’m not asking for today. I’m looking at what is the vision of what you’re trying to accomplish.

Feroze Mohammed: At a steady state, the typical type of P&L that you would have, I think these businesses would have very high gross margins. The gross margin, in turn, would give the leverage to deploy that for further IP development and building your moat further.

Sramana Mitra: Is this coming from the fact that over time you’d develop more of these predictable ARR and MRR kind of business, and that’s what’s going to give you the high gross margin portion?

Feroze Mohammed: Absolutely. Both on the MRR and ARR part of the business and also, as you rightly said, even on the consulting-led model, it’ll be more industry-specific. It’ll have a lot more premium use cases and high premium added to those services as well. Because you’re selling to the CXOs, you’re selling to the business as opposed to selling to the IT. So you sell to the business and a lot of this is outcome-based. If you’re able to do it well, it can be a value-minus sell instead of a cost-plus sell.

Traditionally, most of the IT services players are a cost-plus model. Here, it gives you an opportunity to do a value-minus kind of sell, where if you’re able to add distinct value and the business is able to realize the value, you would be able to partake in some of the gain that you deliver.

Sramana Mitra: Are you charging success fees in your account?

Feroze Mohammed: In some cases, yes. In a couple of cases we are now operating on a success fee-based model.

Sramana Mitra: OK, interesting.

Feroze Mohammed: I would assume as businesses transform, that would be a very good model to go after. Eventually, it might evolve into a model where you do per usage or per transaction kind of a model, based on the gain per transaction. If you’re owning a particular business process or a sub-process for a given vertical, and you operate that for the client – not just providing the platforms but actually operating it for the client – a lot of this business, looking five years down the line, might grow into that space where you completely operate that process for that client.

Sramana Mitra: There are a couple of companies that we did case studies on quite a while ago that were talking about exactly this model, like Absolute Data and LatentView Analytics. They were all in data science area and were managing entire processes. Do you see these kinds of companies in your deals?

Feroze Mohammed: In the AI space, yes, I think eventually that’s where it’s heading. There will be a few companies that would own certain business processes.

This segment is part 6 in the series : Building a New Age AI Services Company: Cognida CEO Feroze Mohammed
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