Tuesday, October 4, 2005                                             Section: Technology / Page: 4

Shanghai start-up to fill a niche with .Net

Software developer 2ndGate aims to take advantage of the popularity of the Microsoft platform

Julia Zhu

Shanghai-based start-up 2ndGate hopes to grab a piece of the mainland's booming software outsourcing market by focusing on an area overlooked by other developers - Microsoft's .Net platform.

Founded by Scott Worley, an author of several books on .Net development, the company aims to take advantage of the growing popularity of the Microsoft platform, which is grabbing market share from Java.

"The whole .Net technology mix, which is not just development tools but also server and desktop technologies, is fast becoming a global standard," said Mr Worley, who is also the company's chief executive.  "We are a starter in this area in the China market.. There is no competition yet."

Software outsourcing shops are looking to the mainland as costs rise in other outsourcing destinations, such as India.

International Data Corp researcher Dorothy Yang estimated the mainland market would grow 50.9 per cent annually through 2009, reaching US$4.69 billion in value.

2ndGate's primary focus is on the emerging .Net and Longhorn markets, but it might also focus on converting .Net applications into Linux applications. With few Indian outsourcing companies performing .Net work, Mr Worley saw room for rapid growth. "The market needs a .Net vertical outsourcing company," he said.

As the Microsoft platform makers inroads into a market long held by Java, demand for .Net outsourcing should increase.

A Forrester Research survey conducted last year found that 56 per cent of respondents planned to use .Net for upcoming development work, compared with 46 per cent for the Java 2 Enterprise Edition (J2EE) platform.

A Gartner survey of United States businesses last year produced similar results. In the survey, 41 per cent said they were using .Net or other Microsoft application platforms for mission-critical applications, compared with 40 per cent for J2EE or other Java platforms.

Nevertheless, .Net is the newer technology and the outsourcing market for it is not yet proven.

"The reason we are positioning 2ndGate as a .Net vertical is not to address today's demand, but rather to address tomorrow's demand. The market is telling us that .Net is the next development wave," said chief financial officer Adam Bornstein, who is also a venture capitalist at Ymer Capital Partners Asia, which is backing 2ndGate.

He said a new outsourcing player would have difficulty gaining traction on the mainland without focusing on a niche application.

"A new entrant looking to compete in the Java space will have a very difficult time profitably scaling their operations without blowing out their budgets and/or aggressively rolling-up existing development houses," he said. "We believe the only way a new player can participate in the outsourcing market is to be a niche player - this niche we look to exploit is Microsoft's .Net platform."

India's software outsourcing market is concentrated on Java development, although a few shops are taking up .Net to meet customer demand. Still, no single shop specialises in .Net.

Mr Bornstein said there was a window of opportunity for a new outsourcing shop focusing specifically on .Net development.

"We suspect, given Java's long history as the incumbent language, many companies are locked into Java until they upgrade to a new platform, which tends to happen every three years or so," he said.

But 2ndGate, like other outsourcing ventures, will still need to compete with India for business. Leonard Liu, chairman and chief executive of mainland outsourcing venture Augmentum, said: "In software outsourcing, China is clearly far behind India. One of the most significant disadvantages is China lacks experience in co-operating with world-class clients, who have world-class requirements and world-class products or projects."

Mr Liu noted that two other obstacles facing the mainland's outsourcing industry were its poor reputation when it came to protecting intellectual property and lack of English proficiency among Chinese engineers.

Mr Worley acknowledged the recruitment challenges, but said 2ndGate would train its own engineers to bring them up to speed. "All of our staff - even if they claim to be certified - will be certified internally before they can work on client projects," he said.

In addition, Mr Worley said having a niche was important to avoid spreading resources to thin.

"We plan on being the highest skilled team in China in this technology area. This is one of our key differentiators," he said.

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