In 2001-02, when software import was exempted from customs and excise duty, it literally killed the home-grown software products market. Almost 30 companies disappeared in 2002-03. While the policies benefited the software services industry, it killed the product story. Years down the line there hasnt been much change in the policies or incentives, but the Made in India story refused to die down.

In FY 07, the market took a leap in the direction of accelerated growth as three companiesTCS, Polaris, and Subex Azureamong the top 10 Indian software product vendorsmanaged over 100% product revenue growth as compared to none among the last years top 10. The trend doesnt stop here: many companies including i-flex, 3i Infotech, Cranes and, Tally bettered their FY 06 performance. Sniffing new global and vertical market opportunities, Indian software product players are not just learning to survive but also thrive. Oracles acquisition of i-flex stands testimony to the global acknowledgement of the Indian software product strength.

Product Landscape
The product development industry in India has the potential of generating revenues to the tune of $7 bn and creating 1 mn jobs by 2010, according to a report by IIM Bangalore. And, if industry experts are to be believed, this estimation is not way off the mark.

The Indian software products landscape is dotted by three types of players, who have different set of reasons behind getting into this area: Larger services firms like TCS and Infosys see products as a means to satisfy twin objectives of improving margins and getting deeper into a client relationship. Services have by and large remained as a labor arbitrage game, with revenues having a direct relationship with number of people. Though Indian firms have improved the productivity and processes, products on the other hand are IP-led and hence revenues are not a simple multiple of manpower cost. With margins under pressure due to rising wages and a stronger rupee, products are being looked at as an effective way of bettering margins.

The next tier and new players see products (or IP-led play, as it is often called) as their differentiation from the labor-intensive services game, which already has established big names. Companies like 3i Infotech and Ramco are examples of this category.

Then there are the vertical-focused players who see products as a very natural extension of their services, or vice versa. This segment accounts for some of the most well-known product names such as i-flex, Polaris, and Subex Azure.

In fact, most of the products meant for global markets are largely vertical applications. That is natural to come out of a services destination like India. Core banking ranks top among areas where Indian products have been globally successful. In fact, in addition to well-known names like Flexcube, Finacle, and IntellecT, products from smaller companies like Infrasoft and CashTech have made their presence felt.

Of late, even telecom is seeing a slew of Indian products, led by companies like Aricent, Tech Mahindra and SubexAzure. It is no surprise that BFSI and telecom also happen to be two of the top three verticals for Indian services firms.

The debate half a decade back about services versus products is becoming increasingly irrelevant with most services companies getting into products and vice versa.

The Warriors
There are around 300 product players in India that have applications, technology products, and embedded software products. These players have reached the stage where they can survive independently. The top 10 companies together touched Rs 3,777 crore, up from Rs 2,330 crore in FY 06, a 62% growth.

TCS made a 133% jump as its revenues spiraled from Rs 257 crore in FY 06 to Rs 600 in FY 07: the acquisition of Australian banking platform vendor, Financial Network Services (FNS) seems to have worked. Central Bank of India and Bank of Maharashtra were its key customer wins for the Core Banking System in FY 07. It launched a strategic business unit, TCS Financial Solutions, to consolidate its suite of financial products.

Another big name, Infosys, more or less maintained last years growth momentum in the products business. From Rs 356 crore in FY 06 to Rs 538 crore in FY 07, the companys product business grew at 51%. Its core banking product, Finacle registered a key win with a large nationalized bank in India to power the banks front- and back-office operations. Finacle also won new clients in the Middle East, Latin and North America.

But it is comeback kid Polaris that ultimately stole the show, growing a whopping 148% in FY 07 from 37% the previous fiscalwith revenues of Rs 184 crore. This, to a large extent, was due to the stabilization of Polaris Intellect suite (the Orbi suite was re-branded as Intellect in 2004) and its accelerated acceptance.

There was, however, little to shake i-flexs dominance in the banking products space. It led at Rs 1,096 crore, a 45% growth in FY 07 as compared to 29% the previous fiscal.

Subex Azure, another of the over 100% growth companies, basked in the glory of several successes in the EMEA (Europe, Middle East, and Africa) region this year apart from the business strength that the Azure acquisition added. The company touched Rs 239 crore in revenues, up from Rs 117 crore in FY 06, growing at 104%. Some of the customer wins during the year included MCel in Mozambique, Bahamas Telecom Company in Bahamas, and Cell C in South Africa.

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