ERP Bells Toll For Tally

This is a natural progression for the accounting king. After

closing FY 2005 with revenues of Rs 229 crore, with six lakh legal customers

mostly in the small enterprise and single user space, the accounting major had

to look elsewhere to grow. So does this worry the competition? No, if other

vendor statements are to be believed.

ERP is a bad word," Bharat Goenka tells, batting an

eyelid, forcing a smile. It is no mystic grin. The three-letter word is still

aspirational. The thud is in the very few Indian successes.

The demystification is in the numbers. If we take all the ERP

companies considered successful and total its list of customers, they wouldn't

have penetrated even 1% of the market - considering there are 200,000 businesses

in India who are potential ERP patrons.

This sea of opportunities is there, but rafting in rough

waters is no fun. Bharat is willing to risk it as Tally finds inspiration in a

bad word and promises to cross over to the next level of growth high tide.

In many ways, this looks a very obvious thing to do. The

accounting software giant closed FY 2005 with revenues of Rs 229 crore, has

600,000 legal customers according to some accounts — mostly in the small

enterprise and single user space — is the undisputed number one in the SME

segment in its area in India with over 60% market share. It grew 118% last year,

reducing licensing costs, battling piracy and introducing VAT-compliant

solutions.

The point is, this kind of growth may be difficult to sustain

for too long on the one big mast of accounting software, even with innovative

schemes like offering insurance to legal customers against perceived risks of Rs

5 lakh. It cannot outgrow the market. Two, the traditional Indian small market -

which till sometime back had probably not felt the need for an ERP - is

undergoing a silent change. Enterprises in this segment (let's say companies

in the Rs 5-50 crore range) had automated their accounting practices but had not

automated anything beyond that. In cases where this had been done, the solutions

came mostly from local unorganized vendors who implemented 'home-grown ERP'.

With many companies in this segment competing internationally now, the need for

having better processes in place has been felt. Some of Tally's traditional

customers, it is said, were keen on upgrading to an ERP. This left the company

with little choice.

Right choice, it may be. But it will be a battle where babies

of the industry will meet fathers and grown-up brothers. The goal aspirations of

bigger vendors like SAP and Oracle could earlier be taken care of by mid and

large enterprises. The number of large enterprises not having ERP can now be

counted on fingertips. The mid market cup has started to fill. There is growth

to be had here still, but people are looking at the next level and that is the

small market.

There are varying theories on what constitutes the small

market. Frost & Sullivan, for example, says this is the market of companies

with less than 30 million annual turnover and there are two kinds of ERP

companies reaching out here. One is vendors who were earlier focused on the top

and middle of the Indian enterprise pyramid - SAP is a very good example

considering its recent focus on the bottom of the pyramid companies.

The second kind is more interesting. Traditionally, there

were no players who came from the bottom and who could perceive the opportunity

in the small market. It will happen now with Tally moving in. The real value for

the company is enormous because they have a good degree of existing customers,

many of whom are users of pirated copies. "Since you cannot grow more being

the number one already in the accounting business, it is logical to upgrade

functionality and add more features in the suite. Besides existing legal

customers becoming a prospect, people using pirated software might also be

brought into the fold because ERP is about implementation and less about pirated

copy use," says Alok Shende, director ICT practice with Frost &

Sullivan.

There are other positives he sees. Many people are very

comfortable using their software. It has great degree of stickiness in terms of

menu and logic of applications among others. So, chances are, Tally would keep

all the front-end of the ERP package same — the user experience of using the

ERP will therefore be very similar to the user experience of using the

accounting application - the back-end part, which has the business logic,

databases etc., will be made more stronger.

Rowing into the sea, therefore, will not be very difficult to

begin with. The calm might give away to a storm only when Goenka is challenged

by people like SAP and 3i Infotech, who will get into this market or is already

aggressively positioned.

It will thus be an interesting battle to watch. On one side

you have a traditional ERP player who has been successful in all tiers of the

market they have operated in versus a homegrown company with a huge base of

customers. The success, initially, will be in giving their existing users an

easy migration path. "We will have our hands full in trying to keep them

happy," Goenka quips.

Mark my lips



The happiness for the customer will be in Tally's ground-up design. Why

have so many ERP companies failed in penetrating the Indian market? That's

because most people focus on implementation and not on the lifecycle of the

implementation, says Tally's MD. Speed matters. Every organization changes in

approximately two-two and half years — in scale and type of activity, the type

of customers it is addressing. So, there is a continuous effort in continuously

modifying the systems one has deployed rather than effectively utilizing the

systems. "There is more energy devoted to constant change of the system to

keep pace with the business change. The main thing that we have historically

brought to the table and continue to bring is how to use technologies that make

initial implementation rapid," he says. The rapidity is because the product

allows continuous implementation to happen without effort. "Unless you have

technologies deployed in that manner, you cannot address the mass market. You

can address the niche market, which is what people have done so far," he

adds.

If the problem is of technology and speed, MNCs have no upper

hand either. Can SAP deploy 10,000 solutions in one year in India? "In 18

years all over the world, they have 3,600 customers. Let's assume a company is

able to do 1000 installations a year. Then it will take 200 years for it to

reach the figure of 200,000," Goenka reasons.

Ability to service is a problem for all companies now because

their products are designed for implementation that requires this kind of

effort, says Goenka. Tally has spent 25 man years worth of effort in designing

the product from scratch to address the problem of incremental implementation

and if the architecture of the product supports that. The claim is, it should

not take more than 6 to 9 man months to implement its solution - almost one—tenth

of the 7.5 man years required by competition. In doing so, it is expecting to

mobilize a fleet of 7000 people first.

That is enabling a significant ecosystem of SIs who are

trained to deliver this solution. Tally is in the process of tying up with SIs

and it already has an ecosystem of 14,000 people in the market who are selling

its small enterprise products. Out of the, around 200 are capable of, or are

already delivering solution to the mid enterprise and large enterprise space.

They will automatically become part of the company's new ecosystem. "We

are hoping that in the next six months, we will engage another 100-150 SIs who

will be able to take this to the market. We should be creating an ecosystem of

400 SIs," says Goenka. He is not talking to the big SIs yet. That will

happen after a formal entry into the market is announced in January.

Snatcher! Keep away



There are very few people who have seen Tally's ERP solution outside of

the company as of yet. D. Kalyanaraman, managing director of partner company JL

Infomatrix, who has had a close peek, says the solution has the potential to

usurp the entire mid-market space because of



its robust and simple to use characteristics.

January will therefore be crucial to the competition. But

vendors like 3i Infotech says it has nothing to fear since it is already

positioned in the mid-sized market for the last two years. "We had never

been in the tier one market. SAP and Tally are now coming in our area. The

advantage we have is we are here for a long time, also our approach," says

R.K. Kanthi, group head, Enterprise Solutions, 3i Infotech.

The approach is micro verticalization. All enterprises in the

Indian scenario are worried about cost - buying a software, implementation of

that, the time taken to implement, the people-time taken, post implementation

maintenance support - How can vendors reduce cost for the enterprise? A nifty

ERP which is user friendly and easy to maintain, as Tally says its solution is,

is one answer. The other reply comes from 3i Infotech that says the only way

this can be done in the SME segment is by having all ERP micro verticalized.

"For example, we have a product called Orion Advantage Auto Components.

This ERP is only for auto component manufacturing segment. So, here there is no

need for business study, mapping, no need for customization. Only the specific

functionality for the specified vertical is available," Kanthi says. 3i

Infotech has such micro veticalizations for auto components, the process and

chemical industry, textile and apparel industry. The implementation time in such

cases for the SME segment is typically



45 days.

The company's hope: Tally will take a long time to settle

in - by the time they come out with micro-verticals for example, 3i Infotech

will be way ahead with 8-10 verticals. It could be in for surprise as some of

Tally's partners have already developed or are developing verticals. JL

Infomatrix Limited for example, is building vertical solutions for the apparel

and the jewelry industry. D. Kalyanaraman says it would take a maximum of two

months for Tally's partners to build one vertical.

SAP, on the other hand, says it has stood the test of time

against all kinds of competitors. "If you look at the number of new wins in

Q3 of 2005, there are 27 in SMB space — more than all the competition put

together - we have a value proposition, which is very sound," says Nagaraj

Bhargava, director marketing, alliances and sales operations with SAP.

He predicts a resource problem for start-ups in the market.

"Let us take just one example of the underlying technology - you will

have to be available on multiple databases; on multiple operating systems, which

means that you will have to necessarily have resources behind each one of this

if you want to deliver on a constant basis. You need to put in a lot

of resources (both people and money) to have a platform that will

scale and a technology that will enable it," he says. Complexity in one

aspect of upgrade, or database is huge for example. "Factor in the fact

that customers buy business solutions to use over many years. This means

ensuring all parts and modules of your product are upgradeable.

Customer and market needs are very dynamic and subject to change -

new capabilities will need to be constantly built, sometimes you have to

make available on versions of your product that are not necessarily the current

one. It just requires lot of resources, money and sustained involvement. It is

not about building a fantastic product today. It is about building it on an

everyday basis," he adds.

The fine line is that building an ERP product for the large

enterprise is very different from doing so for a small company. The difference

mainly is in complexity. So the R&D dollars Tally has pumped in to build a

product and keep that in cycle, fine tune, customize, and build processes, is

not enormous.

Knowing more about the company's ROI from its ERP arm will

have to be a long wait though.

Goutam Das in

Bangalore