PACKAGED SOFTWARE - Emerging Maturity and Stability

Software companies in India are moving up the value chain and

playing a far more significant role in shaping the industry than in the past.

Though the internet and PC penetrations have a long way to go before they reach

critical mass, promising efforts are being made both by the public as well as

the private sector to add required bandwidth and backbone. And the internet is

increasingly becoming the epicenter for future strategies of software companies.

The growth would continue across four broad sectors: IT services, IT-enabled

services, software products and ebusiness.

Today this has to be seen in the context of the entire

software industry in India having matured and a whole industry of partners,

channels and resellers having evolved. The year 1999-2000 was in fact extremely

challenging for the software industry as a whole–the primary reason being the

realization by companies that without an integrated information system with

specific and appropriate software tools, they could not manage their businesses

efficiently.

At the same time, the outlook for 2000-01 looks positive

because of three factors–the underlying strong fundamentals of the

manufacturing economy, latent demand released following Y2K, and a further

fillip to enterprise applications as ebusiness applications grow.

As the Indian economy becomes truly integrated with the world

economy, the industry in India will see a shakeout of both domestic and overseas

companies. Fundamentally, software companies that do not provide their customers

with quality products and services will see their installed bases dwindle.

Without the revenue to invest in new product development, these companies will

go out of business, or have their products acquired by a higher net worth

company. Ultimately, only companies–whether based locally or overseas–that

provide value to their customers will survive.

Also, software companies in India need to nurture, invest and

maintain their positions in key areas. These include investments in retailing to

allow easy access to products, consistently provide better products with

affordable prices, innovate and bring the latest technology into India, invest

in IT infrastructure to provide better access, and focus on value-based

solutions.

The software products market can prove to be a high-growth

opportunity for Indian companies where new opportunities are emerging with

multiple choices for market entry. However, to succeed, Indian companies must

develop specific capabilities, particularly in marketing and sales. They should

aim at the global market for software products, which is expected to grow at 18%

a year and reach close to $800 billion by 2008–a lucrative pie indeed.

On the economic front, cheap and effective modes of

communication are driving the growth of ecommerce and the need for more

communications-oriented software. Market demand is shifting from the back office

to integration with customers, suppliers and partners. Complete solutions

providers such as application service providers, who address the needs not only

of large corporations, but also of small and medium enterprises and individual

consumers, are becoming prevalent. The use of software-enabled devices such as

cellulars is also becoming widespread. Software products are growing across the

board.

In enterprise computing, there is significant demand for

ecommerce applications, ERP-type applications and decision-support applications

that allow corporations to better aggregate, analyze and use information. This

type of software needs to be reliable and scaleable, and should allow high

transaction-oriented performance.

In desktop computing, typical applications include personal

productivity tools like word processors and spreadsheets, and a host of ‘client’

applications that retrieve, manipulate and store data from large repositories.

Companies like Microsoft and Lotus provide such software and are also

continuously innovating with ease-of use, low-cost and enhanced technical

support offerings.

In mobile computing and embedded devices, ranging from

cellulars to personal digital assistants (PDAs), a variety of general purpose

and industry-specific applications are emerging. Microsoft and HP have emerged

as major competitors in this market, with younger companies also trying to

establish a foothold.

In the desktop environment, where until recently companies

sold ‘shrink-wrapped’ packages of software on disks or CD-ROMs, there is a

revolution afoot. Many of the applications that until recently were bought and

installed can now be replaced with similar offerings on the web. Some of the

leading shrink-wrap software companies are themselves leading the charge in

providing web-accessible products and services. This trend will leverage the low

barriers to entry, a lack of the need for a large sales and marketing

organization and the ability to create software that is platform independent.

Mobile and embedded devices are proliferating across various

dimensions, from automobiles with over 30-40 microprocessors or microcontrollers

to handheld PDAs. This trend will continue and devices will become more and more

intelligent. As their ‘intelligence’ increases, the demand for associated

software to provide this intelligence will increase proportionally.

Since each opportunity can have alternative strategic

development approaches, each opportunity has to also have a different and

structured approach, based on the competitive intensity and maturity of specific

product categories within each opportunity. In more mature segments, companies

can develop ‘wrapper’ products for established items. The wrapper strategy

has a lower risk-reward profile as it leverages an installed base and the

marketing of other companies. Indian companies can profit from a wrapper

strategy since it will allow them to make the best use of their implementation

and service expertise, as well as relationships with vendors and customers. In

the near future there will be only limited ‘garage’ start-ups in India, as

the research and development budget dedicated to software development is small,

there is limited exposure to commercialization of research, and little high-risk

venture capital. Indian companies should also focus on developing wrapper

products in the mature segments and innovative start-up products that are not

based on cutting-edge technologies.