PACKAGED SOFTWARE: Everyone Says They’re Fine!

All the major packaged software vendors say that their business recorded modest to heavy growth last fiscal. However, a Nasscom report points only a 5% growth in the overall packaged software industry, which it believes was stagnating at Rs 2,100 crore. In an attempt to increase the market size, vendors are now aggressively targeting the SME space with competitively priced and even customized offerings. Partners on the other hand have realized that services on top of product sale is the only way to stay profitable.

Year 2003-04 was an interesting one for the packaged software business in the
country. While the market saw some aggressive moves being taken by major
software vendors, it couldn’t translate into a marvelous growth in terms of
market size.

According to a Nasscom report, the packaged software business grew at a
meager 5% to Rs 2,100 crore as against Rs 2,000 crore in 2002-03. And looking at
its performance further into the past, one may not hesitate to state that this
industry is experiencing a period of stagnancy. In 02-03, it experienced a 5%
growth while in 01-02, a negative growth of 2%.

Some of this slow-paced growth could be attributed to the fact that
obsolescence or upgradation in software products is not as common a phenomena as
it is seen in hardware.

It also strongly attests to the fact that while customers are talking of
increased IT spending, hardware continues to be their priority with expenditure
on software being largely incidental.

In fact, the recent Mega Spenders 2004 survey conducted by Dataquest and IDC
India further reveal this fact. According to the survey which spanned 178 top
enterprises across all major verticals, over 50% of the IT budget was allocated
to hardware while only 25% towards software. Surprisingly, one of the largest
spenders on IT–the banking and financial services–only spared 18% of their
total IT spend on software.

VENDORS PAINT A ROSY PICTURE

For most of the major software vendors that Channels India spoke, 2003-04
was a year of excellent growth. "We recorded nearly 80-85% growth in our
business last fiscal and expect to grow at a similar pace this year too,"
says Ambarish Deshpande, Marketing Manager, Symantec India.

Companies like Trend Micro and Red Hat report of nearly 100% growth. CA talks
of a growth at more than double the industry growth rate. Oracle, while not
divulging its growth figures does indicate that its Indian operations have grown
significantly to become the fifth largest market in revenue terms in Asia, up
from tenth few years ago. Veritas too mentions of a growth rate upwards of 20%.

According to some industry sources, IBM’s software business has also
increased significantly with its products like Lotus Notes, Websphere, Tivoli
and DB2 gaining wide popularity in the market.

While Microsoft did not reveal its growth figures, its spokesperson
maintained that the company has been growing at a CAGR of 35% over the last five
years. However, many in the industry believe that the software major witnessed a
very humble increase in its business last year.

"While many other companies like Oracle, Veritas, IBM, CA would have
experienced very good growth in their business, Microsoft as per my estimates
would have grown only by 10-12%," says Ujwal Andhari, Director, Softcell
Technologies. He attributes Microsoft’s performance to the consolidation that
the vendor is currently doing.

In 2002-03, the company is estimated to have clocked in a revenue of Rs 711
crore (DQ estimates) and guesstimates put its revenue at around Rs 800 crore for
2003-04.

Last year many vendors cut down their product prices in order to cater to a
rapidly-increasing SME customer base. "Realizing that SMEs are very
cost-conscious buyers, vendors offered products with lesser features at
relatively low prices. Also, in order to win customers, vendors were ready to
bargain like never before. This could also have resulted in the overall revenue
size of market not growing very much," opines a partner.

But according to this partner, the absolute revenue size of the packaged
software business may not be a perfect indicator of market growth. A more ideal
way is to see how many more users are using a certain kind of software product
as compared to a year ago.

PARTNERS STAY HEALTHY

No matter what figures vendors gave out, partners by and large remained more
focused on their bottomline growth instead of topline. While many witnessed
20-30% growth in their business, they maintained that their bottomlines grew
much stronger last year. "Though our topline grew by only 15%, we made sure
our profitability became much better as compared to last fiscal," says
Vikas Deshmukh, Regional Manager, Fiona Infosystems. For the current fiscal,
Fiona is eyeing a healthy 30% growth.

Jeevan Reddy, Partner of Hyderabad-based Alliance Technologies feels his
company will maintain a growth rate of 25-30% this year too. "We see
solution-centric products to be selling more and hence have divided our business
into two distinct teams: one handling products and other solution," remarks
he.

Mumbai-based Softcell, which is one of the largest software reselling
organization servicing end-customers directly, saw a mild dip in its revenue.
"We were Rs 90 crore in 2002-03, which came down to Rs 86 crore in 2003-04.
However, it was a conscious decision to say no to unprofitable projects, that
led to a slide in our turnover," states Ujwal. But he adds that this year,
Softcell will breach the Rs 100 crore-mark and will record increased
profitability at the same time.

Riding high on demand for security and storage solutions, Bangalore-based
Kinfotech reported nearly 70% growth. "We recorded a turnover of Rs 12
crore and expect to grow by nearly 100% this year," says Prabhakar Kini,
MD, Kinfotech.

For many other companies as well, storage and security software brought in
good moolah. SecureSynergy, a leading player in the security space, recorded a
whopping 400% growth in its business. "Of course, that is largely because
of the small base that we previously had. But at the same time, we expect to
continue at similar growth rate this year too," says Anil Menon, Sr
VP-Operations, SecureSynergy.

CHANNEL RELATIONSHIPS SOAR HIGH

FY 2003-04 saw vendors rolling out various channel-friendly initiatives.
Microsoft led the pack in introducing a range of schemes and programs for the
benefit of its partner community. Last year, the company introduced Microsoft
business benefits program, an online, point-based rewards program wherein
partners earned points on every sale of Microsoft products. These reward points
were then redeemed by the eligible channel partners for various benefits.

"This program helped our partners build their business by expanding
marketing opportunities, increase profits by covering important business
expenses, incentivize teams or individual performers and even offer their
customers with extras," says Ananth Lazarus, Director-Channels, Microsoft
India.

The company also rolled out another significant initiative in form of
Microsoft Assurance Circle, where in it roped 20 SIs from across the country,
and provided for various marketing and branding activities for partner’s
organization.

For its partners’ benefits, Veritas made available sales tools, training,
and authorization across various platforms. "We also continued to offer our
partners an opportunity to be officially recognized through the Veritas
Certified Professional Program as a highly regarded industry expert in the area
of storage management," says Agendra Kumar, Country Manager, Veritas.

Another software major Oracle, defined some key areas for its partnering
focus. "The Oracle E-Business Suite Special Edition is a 100%
partner-centric product targeted at the mid-market/SME space. We are also
exploring exciting new areas with partners, like Linux, grid computing, and
mobile/ubiquitous computing, where partners will play an important role in
helping drive the business," informs Sukhdeep Singh, Director, Alliances
and Channel, Oracle India.

SMEs: THE NEW SAVIOR

With SMEs occupying over 70% Indian enterprise space, the attention showered
on it by the vendors is only understandable. Not only did the software companies
roll out a number of schemes and offers for this segment, they went to the
extent of customizing many of their products to suit SME needs.

"40% of our business already comes from the SME segment. Oracle sees
great opportunities for packaged offerings like Oracle Database Standard Edition
One and Oracle E-Business Suite Special Edition in the SME space," reveals
Sukhdeep.

For Symantec, 25% of its last year revenues came from sale to SMEs.
"This year, we are looking at SMEs contributing nearly 35% to our overall
sales," says a confident Ambarish.

According to Javed Tapia, Director, Red Hat, channels played a significant
role in taking Red Hat’s offering to the SME space. "Channels guide SME
customers as regards the ideal solution for their needs. They do the hand
holding, provide services and support and take the customers through the entire
process of Linux adoption and implementation," says he.

With vendors realizing that SMEs today are also looking at concept of IT
infrastructure consolidation and high return on investments, they began offering
products made specially for this segment.

"We have introduced a packaged solution for small and medium
enterprises. This way not only they save a lot on implementation cost but also
get a reliable solution to address their business needs effectively,"
informs Pravir Arora, Director-Marketing (India and SAARC), CA.

Companies like Microsoft, Symantec, Veritas and many others too came up with
products meant exclusively for the SMB segment. "We introduced products
like Netbackup 5.0 for the SME space and also extended our channel partner
network to ensure their presence in this segment over the past one year,"
says Veritas’ Agendra.

Microsoft also launched Windows Small Business Server 2003 and Office System
Small Business Edition 2003 to specifically cater to the SME segment. "Our
SMB strategy includes training our partners to handle SMB-specific queries,
provide consultancy and build customized solutions for customers in this space.

To give a further fillip to its SME focus, the company also kicked-off a
four-city small business CEO convention.

Explaining the rationale behind rolling out such an initiative, Punit
Vanvaria, Manager-Business Development, Microsoft India says, "Our research
shows that in the face of increasing competition, CEOs of small businesses are
increasingly realizing the need for integration of IT in the overall business
process to build competitive advantage. Keeping this need in mind, we designed
these multi-city conventions for small business CEOs."

Realizing the high-growth potential that this segment holds, even companies
like CA and SAP, which was typically associated with high-end, high-priced
solutions have now come up with customizable and piece-meal solutions. SAP
introduced an all-in-one SMB solution and even went on to appoint
industry-specific channel partners to serve the SME segment.

"We have started offering our Unicenter range of products as piece-meals
so that they can be afforded by SMEs," informs Pravir.

Even companies that are not too big in size are also gearing up for a new and
aggressive thrust on the SME customer space. "Trend Micro has expanded
its scope and started penetrating the large SME segment. Being leaders in
the enterprise segment, we would also like to extend our best of breed
technology and service/support to the SME market in India," says Niraj
Kaushik, Country Manager, Trend Micro.

However, vendors put in a word of advise here for partners. They believe that
any approach to an SME client should

be adequately complemented by a strong service offering. Being cost-sensitive
the way are, product sale alone would hardly yield sustainable profits. Hence, a
strong service proposition will alone help partners out.

SERVICE IS SHINING

Ever since hardware players recognized that the only way to make some decent
money was to get into services, it was only a matter of time that the same
realization set into those dealing with software as well. So unsurprisingly,
most in the business of selling software have now started talking of services
being an active revenue stream for them.

"We in fact have formed a separate profit center, which only deals with
providing software services. And it not only offers services on the software
sale that we do but takes up independent service opportunities as well,"
says Prabhakar. His firm Kinfotech now boasts of over Rs 1 crore coming from
pure services.

Lauren Information sees high value proposition in offering high-end storage
management solution, mailing solution and implementation of other
infrastructure-related software. "Our infrastructure services group has
recorded a 100% year-on-year growth, of which a large chunk comes from software
services," informs Sushant Panda, Director, Lauren Information Technology.

While Fiona has so far been a product-selling company, it is now ramping up
its resources to offer services as well. "We are getting equipped with more
technical people to help increase our service offerings to our customers,"
says Vikas.

And to show how services alone can be made into the single-most important
profit factor, SecureSynergy has productized many of the services it offers.
Patch management for example. The company now offers this facility as a product
with SLAs clearly defined and priced as any other product.

"We see this trend of service productization fast catching up and
customers also seem to appreciate it more," says Anil.

Softcell’s Ujwal is looking at services contributing nearly 40% to company’s
overall profitability. "We intend doing this by getting into specialized
services around storage and security," says Ujwal.

CA’s Pravir too has similar advise for its partners. "In a time when
the trend is of companies shifting their focus from topline to bottomline, it
only is sensible for partners to enter the software service business," says
he.

In order to explore the growing service opportunities, many companies have
even taken the lesser-known path of having a small but efficient in-house
software development team. "Having such capabilities ready at our end helps
us meet various kind of customization needs. Also implementation of many
high-end software solution require us to have such expertise at our end,"
explains Sushant.

GOLDIE with inputs from SHWETA KHANNA
AND NANDITA SINGH