SOFTWARE PRICE DISPARITY: Vendors under fire

With many vendors selling their products at a price rate, which is
sometimes higher by almost 30 percent vis-à-vis the international market, the
partner community is looking at resolving this price disparity by monopolistic
companies. However, the partners are a deeply divided lot with some partners
openly backing the vendor companies and their pricing policies

Of late the channel community has been questioning the pricing policies of
certain software vendors. This price disparity between India and international
markets is becoming an issue among the channel. India is a price sensitive
marketplace where deciding the price of products is a crucial decision. It doesn't
help that today's custo­mers are increasingly becoming knowledgeable about
different software and their prices. The channel partners are at the receiving
end of the questions raised by customers regarding this disparity and are
looking at the vendors for answers.

However, a few vendors who have monopoly in the products they offer in India are
making the most of their upper hand positions. Using their monopoly these
vendors are selling their products at a price rate of sometimes up to 30 percent
higher than the price the same software commands in the international markets.

This situation exists despite the fact that most vendors feel that India is a
very lucrative market because of the enormous potential of growth. In fact
McAfee's India policy seems to back this view. Kartik Shahani, Director-Sales,
India and SAARC, McAfee commented, “Since India is a price sensitive market,
pricing of our products is relatively in comparison with our international
prices. For India the price sensitivity is the sole factor that drives the
pricing policy.” Shahani also pointed out that India figured high in its list
of potential markets.

In the past few months DQ Channels has regularly made an effort to highlight
this price disparity that exists in the market. Many channel partners have also
shown a keenness towards bringing this price disparity to light but the issue is
far from resolved as the vendors are unwilling to change their policies due to
their monopoly in the market.

The channel community is also divided in their fight against the unrealistic
pricing policies. While most blame vendors, there are some who blame the
distributors, while others genuinely feel that the high tax levied on software
goods and the shipping and delivery costs among other reasons are to be blamed
for the unrealistic pricing.

“Vendors are black marketing their own products. They appoint sole dealers and take advantage of their monopoly in the market” Alok Gupta CEO, Softmart Solutions

Recent issues

Adobe, Autodesk, Sybase and Mathwork among others are some of the major vendors
whose pricing policies have been under scanner. The biggest offender in this
scenario is Adobe. Channel partners' feedback states that difference between
listed prices of products sold internationally and in the Indian market was more
than 30 percent. Not to mention, once the company acquired Macromedia, it shot
the price of Macromedia products up as well. Many vendors like Adobe, who have
their R&D facility in Noida, develop products in the country. As a service
to the country the vendor, who benefit from the low cost of production that
India offers can at least look at offering their products at a lower price.

Adobe has justified their price disparity to the channel calling it a 'marketing
strategy' however company officials were not keen to speak to DQ Channels
about the issue. When contacted for his take on the whole pricing issue Sandeep
Mehrotra, Country Sales Manager, Adobe declined to speak citing a busy schedule.

Mathworks sells its pro­duct-Matlab through Crane Software, its disti in
India. Crane has appointed only five or six dealers across the country and hence
enjoy a monopoly. While vendors are obviously raking in the moolah because of
the higher price it is the partners who have to bear the brunt of the uneven
pricing policy of the company. Recalling a similar experience Nityanand Shetty
of Essen Vision Software recounted, “We lost an order because the customer
decided to source the product from USA directly. When we confronted the vendor
they couldn't come up with a justifiable reason for the price disparity.”
Shetty also added that the potential of the Indian market is high due to that
fact that the economy is booming and it is not yet a developed nation. “To tap
the market properly the pricing has to be right which means that at times it
should be lesser than the global prices,” he elaborated.

“For India the price sensitivity is the sole factor that drives the pricing policy” Kartik Shahani Director-Sales, India & SAARC, McAfee

Explaining it's increased prices in the Indian market vis-à-vis the
international market Sybase said that the hike was because of localization and
the tax policies of the Indian government. “There is a difference in the
software pricing for India and international markets. But there are many factors
that contribute to the price difference such as the cost of doing business in
other countries, local market pricing pressures. Products are priced according
to local practice and value provided to our Indian customers,” said Terry
Gellerman, Director-Corporate Pricing, Sybase Inc.

There are some partners who agreed that taxes and other issue were to blame
for this price disparity. “One of the reasons for disparity in price is that
the vendors want to make up for the shipping, delivery and other related costs,”
said Ashok R of Bangalore-based Future Businesstech India. Sybase follows a
standard channel policy worldwide in which price of their products are reviewed
often. Kumar Mitra, Head-Channels, Sybase India was quoted as saying, “We
review our pricing policy regularly. We have increased our India pricing by 30
percent after the January review. Earlier it was 10 percent.” Adding further
Gellerman said, “Sybase product pricing is evaluated on an on-going basis.
Factors taken into consideration may include market demand, competition,
customer requirements and major feature changes.”

A few channel partners however do not see this disparity as fair game. But
they too are in a catch-22 situation with customers demanding for the very
products that are offered at higher prices in the Indian market. “These
vendors don't feel the need to give a justifi­cation for the price increase.
They call it their marketing strategy,” said Alok Gupta, CEO, New Delhi-based
Softmart Solutions.

Autodesk is another company that enjoys a product monopoly in the segment
that they cater to. Two of its pro­ducts-Discrete and AutoCAD are offered in
India at a higher price when compared to the global price list. While earlier
these software vendors were putting the blame on the various taxes and shipping
costs today most of them are openly selling at a higher price without offering a
justification. “Vendors are black marketing their own products. They appoint
sole dealers and take advantage of their monopoly in the market. The disparity
happens in segments where there is no competition. For example why does this
price disparity not happen in anti-virus products? For the obvious reason that
there are so many options available to the buyer,” reasoned Gupta who has been
among the crusaders in the fight to bring fraudulent pricing to an end. A big
regional software reselling company-Softmart-was at one time an authorized
Autodesk reseller. Softmart was sidelined by Autodesk and its distributor,
Ingram Micro in an effort to 'safeguard the interest of the companies small
reseller community'.

While Gupta fights against these unfair price practices there are people like
Rishi Khemka of Delhi-based Aditya Infotech who are very happy with the channel
strategy of Autodesk. The company has been the sole distributor for Autodesk
Discrete division products in India since the last four years. Discrete deals
with 3D animation and desktop visual effect software. According to Khemka the
vendor is offering its Discrete products in the India market at a comparatively
lower rate. Max is offered at around Rs 1,50,000 while the international price
is $3,495, similarly Combustion is available for Rs 53,800 and $995 respectively
while Maya is pegged at Rs 1,36,000 and $1999 respectively. “We also offer
value added software. In fact in India there is an 8.16 percent duty on import
of software products, which is being taken in by the vendor so that the end
customer does not have to bear the cost. We have worked out a special costing
for this,” said Kemka.

Another partner of Autodesk-Nitin Aggarwal of New Delhi-based Trifin
Technologies is also content with the policies of the vendor. Trifin is the
distributor of AutoCAD products (Platform Technology Division). “AutoCAD
products are steeply priced and the products undergo price revision every month
or so. But this increase in price is justified due to the dollar fluctuation,”
reasoned Aggarwal.

Ruling the roost

In a scenario where disparity is causing quite a ruckus among partners how do
the vendors hold on to their channel partners to sell their products? As a
policy, many software vendors are resorting to making their partners sign a pact
that they will not sell competing products. Some partners are clear in their
stance regarding this subject. “Autodesk does have a policy where in we cannot
sign on competitor brands. I have not signed up any and don't feel the need to
either,” said a rather content Aggarwal. Even Khemka agreed that backing
Autodesk was a good decision, “Autodesk understands the Indian market. We have
joint discussions with them and make decisions based on market observations. The
company does have a policy, which restricts us from selling competitor products.
Though even if they didn't we would not since I feel it is ethically wrong.
But we do offer complimentary products.”

Often partners are given a highhanded reply. “When we confront the vendor
with this price disparity issue we are told to sell if we want to else not to,”
rued KK Jha of New Delhi-based KK Software. Vendors like Sybase believe that the
end user is not affected by the price disparity in their products. “The effect
of the price differentiation is little to none on the channel and eventually the
end user community. The end users have budgets and regardless of whether you are
distributing via a channel or directly, you still have to offer pricing within
the parameters stipulated by the end user,” said Gellerman of Sybase.

Channel stance

So in this pricing polity, with the vendors unrelenting about change in price it
is the channel partner who is left to fend for their interests, when it comes to
either retaining or getting new business. Many partners are taking part in the
campaign that encourages the use of other similar competing brands like Cadian
and Smartdraw. But here too partners face a problem due to monopoly of products.
“We tell customers about the disparity and offer them a cheaper substitute
with same features but its difficult to change a customers mind,” opined
Gupta.

Agreeing with Gupta, Jha commented that conversion of customers was difficult
and eventually they offer the customer what they require although he does make
it a point to offer customers an alternative. He pointed out that Adobe had
complete monopoly in the converter software (converts doc files to PDF) market.
Adobe Acrobat is available for $20,000 while another software called Solid
Converter offering the same features is available at $5,000. In the business of
selling various software products since the last nine years Jha agreed that many
of the software products he dealt with were offered at a higher price then that
available in global markets. But he asserted that among all the products
available with him Adobe was the one vendor, which offered its products at
approximately 15-20 percent higher rates. “Earlier Ingram Micro and Neoteric
were the distributors of Adobe products. At that time the disparity was not so
high because one disti did not have the monopoly but now the situation is
different with just Ingram,” lamented Jha.

In fact he also pointed out that vendors like Microsoft have just about one
to two percent variant in their prices, which according to him was due to the
vendor keeping its customers in mind and having a proper setup that keeps a
check on pricing of products. Microsoft also sells its products in huge
quantities to large OEMs like IBM and HP hence revision of price is not very
viable. “At times we do absorb the loss but most often vendors inform us in
advance so we try and liquidate our stock. In the case of Microsoft, the vendor
even gives us version protection while Adobe doesn't. Hence we don't stock
Adobe products due to a lot of turbulence in its pricing, only in the case when
there is a customer requirement do we offer it,” said Jha.

Hemant Chabria of Kolkata-based Chabria Infotech agreed that it is due to the
monopoly that vendors have in the market that they are able to sell software at
higher prices. But Chabria also blames the distributors for the disparity. “I
think it is the distributor who fixes the prices in the market and they are
responsible for this gap.” The company claims that it is compelled to push
software products, which have an increased pricing in Indian market if it is a
monopolistic product.

According to Ashok of Future Businesstech India, price is hardly the issue
with them. When asked if they sold software that were more expensive in India as
compared to their international price he said, “For us, our focus is more on
meeting customer requirements. We sell products based on solution requirements
and features instead of pricing.” In fact he also went to the extent of
defending price disparity in international and national markets saying, “This
phenomenon definitely exists but it is variable. Sometimes the international
markets can get to be quite expensive as compared to Indian market and vice
versa.”

Giving his view of the effect of price differentiation of the channel and
eventually the end user Shahani of McAfee said, “The margins of the channel
remain intact whenever there is a price change. But if the price hike is not
acceptable to the customer and it has a direct impact on the sales, with the
sales declining, that is when the partners raise their concerns.”

Despite the disparity, according to a study by New York-based Access Markets
International (AMI) Partners Inc, business is projected to grow at a rate of 25
percent. Small and medium businesses (SMBs) in India are expected to spend up to
$576 million on packaged software this year. Most of the vendors are using the
channel route to distribute their products but do the channel get a say in this
crucial decision of pricing of software? In almost all cases the vendor plays on
their monopoly and dictates prices. “It is the vendor and the national disti,
is some cases, who decide the price. It is only in the case of Symantec that I
have seen a vendor taking feedback from partners and then actually implementing
it. No one else is actually bothered about the issue,” said Chabria.

Sybase too agrees that pricing of products is an important decision. Speaking
of the marketplace, which is becoming more price competitive and how they plan
to hold on to their marketshare Gellerman said, “Price in relation to
marketshare only becomes an issue when the products in the market become 'commoditized'
so the only way to differentiate is via price.”

One thing that channel partner's want is of course a uniform pricing
strategy. While today the scene is such that the channel is dependent on the
vendor to set the prices, with the Indian software market growing price
disparity may soon be an issue that vendors will have to rethink.

Ruth Samson

(With inputs from Subbalakshmi BM in Bangalore, Piyali Guha in Kolkata, Snigdha
Karjatkar in Mumbai)