With great power, comes great responsibility, Uncle Ben warned Spiderman. In the enterprise world, there is a similar analogy: With great growth, comes great responsibility-to manage cost, risks, and innovate to survive-in short, to manage growth profitably.

They were some of the key drivers that fuelled the packaged software applecart in FY 2005-06. Phenomenal growth in the automotive, manufacturing, services, and the construction industry had enterprises looking for 'total applications' or end–to-end solutions in certain cases, as they became more and more demand driven. They refused to take the complexity of buying their own components and then integrating it, thus tilting towards the solution providers. Many packaged software players, thus moved towards a solution approach. As customers continued to demand more value for money and looked for less complexity by not talking to multiple vendors, there was some interesting news from the point of consolidation. Veritas merged with Symantec. Oracle picked up 51% stake in i-flex.

The year saw increased demand for back-end system support, because many enterprises started to differentiate, both from a service and product perspective, in their attempt to retain and win newer customers now used to a lot of choice. Add to that the fact that many of these firms are getting integrated into the global supply chain and there are compliance issues such as Clause 49 and Sarbanes-Oxley to contend with. This was what fuelled the demand for applications and most of the biggies in this space had growth in excess of 30%. 

Packaged software tools from HP, IBM, and CA saw traction because of the IT Service Management (ITSM) best practices framework. And even though initially confined to companies offering infrastructure and service management, it has gradually begun to see adoption within non-IT companies as well. This, because of technology shifts like processes and content being transformed from physical and static to digital, mobile and virtual. Two, the demand for simplicity, manageability, and adaptability are changing how customers work and organize as well as how they buy and use technology. Finally, because the move is towards a horizontal, heterogeneous, and networked world-ITSM helps manage business horizontally, which is why it has become critical to anyone who has an IT infrastructure.

Top of the Charts
So where did the growth come from? On the face of it, the top end of the Indian enterprise pyramid looks saturated, particularly from the enterprise application point of view. But companies such as Oracle and SAP had discovered greener pastures.

Functions such as finance, HR, payroll, and purchasing are largely done. Value-added applications such as supply chain management or planning are the areas where the current move is. People had implemented a manufacturing solution, but not necessarily a supply chain planning solution, a supply chain management solution or a solution that integrates their customer relationships along with the supply chain, as the two get closely linked with each passing day. A lot of companies investing in big projects and capacity expansion needed to manage projects effectively-and the application growth came exactly here. In FY 2005-06, Oracle for example, implemented full-blown solutions in Maruti and LG.

SAP added 250 new customers in FY 2005-06 as compared to 120 new wins in FY 2004-05 across all the segments and around 65 of this came from the large enterprise space; from banking (SBI is the latest), consumer product companies (Dabur), retail, the government, professional services, telecommunications, and utilities.

SAS, with its biggest customer win of the year in ICICI Bank, saw a triple digit growth on its number of licenses (had grown 38% in FY 2004-05) and added about 45 installed sites. Both SAP and Oracle saw CRM adoption increase with the latter got into the automotive space seriously with wins such as Tata Motors and Daimler Chrysler. HP's two buckets of products–OpenView and OpenCall-also showed remarkable growth. There is a lot of interest in OpenView because a lot of IT companies in India are setting up remote NOCs to manage the infrastructure of their clients' abroad. Wipro and TCS for example, are big implementation partners for OpenView. The suite, which is basically the company's network management service tool, today, encompasses a much broader scheme of things such as configuration, change, and performance management amongst others.

Besides talking about products around compliance, a huge number of enterprises also looked at outsourcing requirements for back up, automation, and disaster recovery. As they demanded one way of negotiating license fees as opposed to many and fewer vendors rather than multiple ones, Symantec's range of anti-virus, anti-spam, coupled with the back up products from Veritas, did well, some products showing twice the growth from the previous year. In the consumer marketplace, the Norton brand exceeded expectations and saw near monopoly.

Infosys, which leverages India more from a resource perspective rather than as a market, has an extensive domestic focus for its core banking product, which did Rs 138 cr in FY 2005-06. To do products, it needed to be in a repeatable space, as products have multiple buyers for the same product. India has a big banking sector, a client base to fine tune and hone the product.

A bifurcation in the consumer business was noticed during the year-one was going up market, like Microsoft's Windows XP Media Center, which far outpaced any estimation the company had from the sales perspective. It sold more than 80,000 during the year, hinting at the trajectory in the Indian consumer's sophistication levels. The company says it had to continuously revise India estimates throughout the year because it kept selling more and more and now, it is the fourth largest Media Center country in the world!

Mid-Market Dreams
The middle is also what most other packaged software players are focused on because of the presumption that 50-60% of market opportunity in IT today, exists in the SME segment. The traditional Indian small market, which till sometime back had probably not felt the need for applications such as ERP, is now undergoing a change. Companies, mostly 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, the need for having better processes in place has been felt.

Tally delayed its ERP launch for the bottom of the pyramid companies and the immediate beneficiary seemed to be Microsoft, whose suite grew more than 50%. The company made sure it is priced appropriately-just above Tally. Two, it works well with SAP, so that when SAP is in the middle, it is at the spoke. That's very attractive from a cost perspective for the small to mid-size enterprise because many companies don't want to deploy SAP everywhere. Asian Paints is an example.

Rival Oracle also has almost 40% of its business coming from the mid market space. There are automotive industries, or even suppliers to the industrial manufacturing companies or small construction companies (like in SAP's case), which aggressively adopted its solutions. In the big enterprise space, some needed to have systems in place to be part of the global supply chain.

The mid-market, therefore, saw surprising growth in servers. Microsoft's small business servers grew 80%. MS also took a share away from Linux on the desktop side. Of the Linux that ships on desktop PCs, only 2% actually stays as Linux–the rest of it is mostly pirated to Windows within 24 hours. On the server side, Linux maintained its share in two areas-high performance computing and Web applications. On the Web, it has mostly been a cost issue. In areas such as messaging and security, MS is maintaining share.

As buying shifted from large enterprises to the small ones, IBM witnessed a growth of 20% from the SME segment over the previous year. But it was still the large enterprises, who were driving standardization. A vendor to a major automotive company for instance, will demand data in SAP from a smaller player. IBM also made solutions affordable by introducing a reasonably priced Express offering, especially for the segment. Second, it made sure that SMEs could buy applications built for them.

CA too focused on the SMB segment with a modular suite of products. Its network management product is now stronger than ever before.

Autodesk, which has a big SME focus worldwide, announced the formation of a new geo - the APac Emerging Geo - encompassing India and Greater China (China, Hong Kong and Taiwan) during the year. This reflected the company's growing focus on India.

India's accounting success story Tally remained committed to the low end of the enterprise pyramid, where it grew its customer base significantly but registered negative growth in terms of revenue because the company almost halved its prices to combat piracy, make its product more affordable.

Vertical Thrust
From the vertical perspective, IBM's market share from the government sector was traditionally very low. The company's focus on this area for the last couple of years finally paid dividends in FY 2005-06, as it grew in triple digits, starting from a small base. The Government of India chose 12 mission mode projects (e-governance), which were more of  citizen services. Some states also went in for agricultural portals, where commodity prices can be monitored and shared among farmers. The computerization of district courts was a big growth leap last year.

IBM also focused on the ITeS vertical. The sector was experiencing a huge growth in terms of the number of people hired and as a result of that its infrastructure needs–mailing requirement, collaboration, security, network–spiralled. Big Blue grew over and above the market growth rate here.

For Oracle manufacturing, retail, distribution, travel and transportation, IT and ITeS, were the other segments that showed phenomenal growth along with the traditional strong grounds of telecom and BFSI.

For BI vendor SAS, BFSI contributed the maximum, about 52%, pharma stood at 18% and ITeS at 15%.  The financial sector was the cash cow for Microsoft, but the growth for the company was more greenfield, because of branch automation. Two opposing trends have been noticed in the sector. One is branch automation, where people are going out hub and spoke. Second, consolidation–banks are taking IT away from the branches and putting it into an integrated data center. Microsoft had a good story to tell when one looks at its server side products where it reportedly took away some market share from Oracle and witnessed good wins. Moving on from a small base, the BizTalk server saw 80% growth and the ISA, about 50%. OS Database grew in the mid twenties and the overall server growth for Microsoft stood at 33%. 

On the government side, the growth has been below expectation (20%). Education grew at 34% and the IT and the ITeS verticals remained promising as ever. As these sectors add more developers, good times promise to stretch longer for MS. Not to forget manufacturing, where it is looking at making some investments in clusters. It is going to the National Manufacturing Cluster Council to help them make IT literate. That's a sizeable opportunity, to be cashed on in the long-term.

PS: A punch on the industry's face was this year's new taxation: 8% duty was imposed on packaged software sold over the counter. This will have its toll in FY 2006-07 as price increases and greater piracy further discourage India's software product buying behavior. Projected earning to the government's coffer in case FY 2005-06's growth rate is maintained this year: Rs 635 crore.

Goutam Das
goutamd@cybermedia.co.in

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