Packaged software: When Would India Catch Up?

The growth of packaged software in the country is miniscule compared to the
overwhelming growth shown by software exports. Perhaps, India’s strength in
software services has contributed to this anomaly. While the nation’s software
companies earn in dollars abroad, MNCs are raking in money in the country in
packaged software. When would Indian packaged software catch up?

The software industry, both products and services, has been one of the most
successful industries of the last half-decade in the country. According to a
McKinsey report, the sector today accounts for 0.6 percent of the country’s
GDP and generates 0.1 percent of the employment.

The industry, segmented into products and services, has been traditionally
tilted heavily towards services. According to estimates, services accounts for
82 percent of the employment and 75 percent of the revenue. However, even the
packaged software market is slowly but surely seeing a growth.

Slow growth for packaged software

The tilt towards services can be traced back to 1998 when the demand for Y2K
services began and India discovered its position as a cost-advantageous
destination. As a result of this skewed growth in the services space, the
packaged software segment has been plagued by a lack of focus.

According to a McKinsey study, the productivity of Indian software companies
is at 44 percent of US levels. While Indian service firms rate higher at 50
percent of US levels, the product companies are even below the industry average.

Product companies average at only twelve percent of the US average of
$3,05,000 per year per person. The growth of product companies has been further
limited by the lack of a developed domestic market for packaged software.

But things are changing now. A McKinsey analysis suggests that worldwide
packaged software sales (excluding services) stood at approximately $180 billion
in 2000 and accounted for about 11 percent of worldwide capital expenditure. And
the effects of the trends are visible in the country too.

Says Sandeep Mehrotra, Channel Account Manager, Adobe India, "As per our
year ending 2001, we saw a growth of 36 percent over the previous year."
This growth, at a time when the global economy is going slow, speaks volumes of
the latent potential lying in the software product market.

The packaged software market in the country is however dominated by large
MNCs. Products like Tally, Ex and packages in Indian language software have
undoubtedly made their presence felt. Yet Indian brands in packaged software
have a long long way to go.

Schemes galore

Software companies in an effort to grow and expand have been bitten by the
scheme bug. While schemes have become the mainstay in the hardware industry, the
software industry has also taken to them like a fish to water.

Says Sandeep, "Initially we ran schemes which were monetary in nature,
but starting December 2001 we launched a point-based ‘Great Indian Rodeo’
scheme." The scheme was devised with multifarious objectives of minimizing
discounting on account of back-end margins and incentivizing the channel. Adds
Sandeep, "The scheme also had certain provisions to ensure that we met our
revenue objective by keeping the channel motivated."

Autodeak has also been running schemes targeted at the end-customers. Says
Andre Pravaz, Regional Director, Autodesk Inc, "We have run several
promotions for the educational segment of the market. These included product
bundles as well as special price deals for customers. The schemes and promotions
have been successful in the commercial segment too."

The big daddy of the software industry, Microsoft is also running schemes on
Windows XP, targeted at the end-customer. Purchase of multiple licenses earns
the customer a number of gifts. These gifts include the hand-held computer–iPaq–with
purchase of 100 licenses and above.

The response to the schemes has been rather encouraging, especially from the
channel front. Says Andre, "The channel has responded very positively. In
fact most partners saw a increase of 30 to 50 percent in the business during the
last month of the promotion."

Even Adobe noticed that its dealers were enthused with the company schemes.
Says Sandeep, "The schemes are very well received by the channel and we
have seen a growth of close to 14 percent over last quarter."

Cost-effective reach

Unlike regular consumer durable and non-durable products, advertising in the
software industry does not yield results. Companies keep looking at cost
effective ways to reach the customer and the channel. Andre looks at email as a
cost-effective means of communication with partners. He adds, "Sometimes we
also use telemarketing to communicate new promos to the channels, especially
when their feedback is required on certain aspects of the promotion."

However, Satyen Parikh, Area Director, Indian Subcontinent, Onward Novell
India, feels, "Emails are a cost-effective way to communicate but they
surely aren’t the most effective method. A better way which we follow is
face-to-face interaction and forums or meets for partners."

Adobe too relies on direct contact, regular training and regular inflow of
material on the new technologies to keep their channel informed and charged with
the spirit to achieve better sales.

Piracy: A never ending bane

No discussion about the software industry is complete without the mention of
piracy. Companies have in the recent past stepped up their channel engagement on
this front too. Autodesk Inc organizes regular channel events to emphasize on
the urgent need to rid the market of pirates.

Adobe is also active in its efforts to reach out to the channel on this
aspect. According to its estimates, 90 percent of its products are pirated. Says
Sandeep, "We regularly train the channel on benefits of legal software so
that they can pass the same message to our customers."

Informing about Novell India’s anti-piracy initiatives, Satyen says,
"Novell is very active with Business Software Alliance and Nasscom in
promoting anti-piracy. We also work with a team of experts to educate customers
and partners about the benefits of legal software."

Some companies even suggest keeping a regular tab on the inventory and
corresponding number of users and licenses. Says GA Anand, Head - Sales and
Marketing Division, Ionidea Enterprise Solutions, "Piracy can be curbed by
keeping a log of inventory on the software copies with control on the number of
users and licenses on a regular basis. Also use of a friendly, easy-to-use and
attractively-priced licensing policy will discourage the use of pirated
softwares."

The losses on account of piracy in the packaged software alone in India stand
at $240 million according to industry estimates. And this is a compelling reason
enough for the industry to battle this menace.

New products

Software companies are no doubt under constant threat due to the higher than
average piracy rates. However, India has come to occupy a place of strategic
importance in the game plan of software companies. New Delhi featured
prominently on the Microsoft map for the Windows XP launch. Autodesk Inc is also
doing a launch seminar series covering the major cities in India in April 2002
to increase awareness of its Inventor Series.

Says Sunil Pathak, Manager - Anti-Piracy, Microsoft Corporation India,
"The investments we have made in localizing Office XP and Windows XP are
bound to take the benefits of IT to the masses. And it will also contribute
significantly towards bridging the growing digital divide."

Early next year, Microsoft will launch Windows .NET, which is the next
version of the Windows 2000 Server range. Stinger is next on its agenda. Stinger
is the codename for a next-generation operating system for cell phones, which is
currently under development at Microsoft in conjunction with leaders in the cell
phone industry.

Stinger will combine several personal information management services
normally associated with PDAs, with voice recognition technology to provide
users with an intelligent communication experience. Adds Pathak, "All in
all, a very promising year for all our customers." And of course, the
channel partners!

Mohit Chhabra in New Delhi with inputs from Vinita Suvarna-Bhatia in Mumbai
and Sunila Paul in Bangalore