One distressing fact about information technology permeation in India has
been the slow rate of growth in PC numbers. In the year 2003-04 close to three
million PCs have been sold–a growth of about 30%. While 30% is a good number,
it still leaves the PC penetration in India at something like nine PCs for every
1000 people. Compare this with TVs that have a penetration of 95 sets for every
1000 people. Or with mobile telephones that have touched the 30 million plus
mark in no time.
One impediment to a faster rate of growth is the lack of organized and mature
channel players. There are a dozen odd brand vendors selling IT products through
another dozen odd major distributors through 25,000 plus resellers and partners.
That is a plateau with a tip at the top kind of structure.
Barring the large customers for other, the first–and last–point of
contact is the reseller. The customers in this spectrum are an extremely
heterogeneous bunch. For instance, the SMB segment is a bunch of two million
organizations of many different hues. Add to that the home and education
segments and you have more diversity. To fuel the fire a bit more add the
geographical and legal diversity over different states of the country.
Understanding and servicing this diverse set is a huge challenge–and one that
has been overcome in a limited manner so far. It is true that this is a huge
latent market waiting to be tapped. It is also true that latent markets call for
a major development effort.
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Is that Happening?
Like any other latent market, customers have to be made familiar with the
use of IT and its interface with the small businesses. The benefits of
spreadsheets, email, word processing, accounting packages have to be
demonstrated. There is a basic understanding and acceptance of the benefits–but
there is also lack of specific information that impedes decision making. This
needs road shows, product demonstrations and other marketing tools. That
obviously needs marketing budgets. The front-end resellers are by and large
small organizations–the average revenues per annum would not exceed Rs one
crore. The largest amongst these players–and there will just be a handful of
them–may gross Rs 50 crore a year. At these numbers, a vast majority does not
have the capability of putting in market development efforts.
Apart from money, the channels need trained manpower–sales and service
personnel who can communicate well. As you travel away from the cities, finding
and retaining such staff is an issue. Many of the channel partners are
essentially commodity traders who have had no exposure to IT even in their own
businesses. They entered the market in the boom years when selling a dozen
computers a month gave decent margins. What the customer–especially the small
one–needs today is solutions and not mere products. These solutions need not
be sophisticated technology but certainly include installation, basic
application software and post sales support. There are just a handful of real
solution providers who have the ability to provide these. The vast majority of
channel partners are mere distribution points. These are extremely useful in
matured markets and for pick and move products. They are not so effective where
markets have to be developed.
The exclusively price based selling strategies followed by the industry also
have their negative contribution. That wafer thin margin leaves nothing for
developing the market. Other expanding areas like telecom have large
corporations that are investing heavily into the market development. That kind
of investment is not seen in the IT area. Margins will increase if add on
products, solutions and brands become the selling points. To make that happen
needs investment. The chicken and egg problem has been replaced with the
investment and margin one. What has therefore emerged is a low price lower
support market.
Who has to make this investment? The big vendors and distributors need to put
their money where the mouth is. That is not to say that there is no marketing
spend. There is–but mostly tactical in nature. The vendors are happy to do
major branding campaigns. The channel partners look at the vendors as the market
creators and expect them to do all the market development work. They do very
little of mailing, advertising or customer contact programs on their own. And
offer virtually no help services, point of sale displays, purchase advice etc–things
that happen regularly in other industries. Visit TV show rooms, auto dealerships
and you will know what I mean.
Look at the spending patterns. Let us say that the domestic market is worth
Rs 40,000 crore a year. Since it is a developing market, it should be spending
near 2% of revenues on all forms of marketing activities. That makes it Rs 800
crore a year. That kind of money does not appear to be getting spent. Look at it
another way. Consider the 2 million odd SMBs in the country. Let us say that to
contact and develop each one of them, you need a budget of Rs 5,000. That totals
up to Rs 1000 crore again. Is that kind of money being spent?
There is a lack of application software to boot. While basic stuff like word
processing is freely available, there is nothing beyond that. It is
disheartening that for a huge diverse country like India there is one standard
package–Tally, that has emerged in the last so many years. The small customer
does not have huge IT departments who will develop software
for customer specific needs. He needs plug and play packages with plug and play
hardware. The more intensive use customer needs integrated solutions. Today a
‘solution’ needs hardware, software, networking, connectivity, security and
website
design and maintenance. It also needs pre sales advice and post sales support.
There are few who can offer the entire suite. Alliances between channel partners
who supplement each others strengths are not happening.
Obviously finance is an issue. So is the lack of innovative marketing
techniques. The Internet is grossly underutilized. It is a cheaper medium to use
today. But there is a limited utilization. Common forums like exhibitions happen
off and on but do not appear to be enough. The city I live in — New Delhi —
has not had a decent IT exhibition for years. Where does the customer go and
update himself on the new stuff? Vendors do have individual road shows but avoid
common forums. Do they expect the customer to have time to visit numerous
road-shows by different vendors? If a customer has to get a touch and feel of
IT, there are few places that he can go to and actually experience the stuff.
There is a growing need for product and service centers where the experiential
marketing can take place. Sadly they are missing.
If we want faster IT growth the following have to happen:
-
Prices have to fall
further. -
Distribution
channels have to mature with more serious and technology aware players coming
in. -
Alliances to be
formed. Channel players need to support each other. -
Trained manpower is
required. -
Investments have to be made by larger
long-term players for market development. -
More off the shelf
applications have to be available. -
Use of the Internet
has to grow with business being conducted through the web. -
Channel associations
have to a play a bigger and more active role.
Everyone cannot eat the cake. Someone has to bake the cake
too.
Shyam
Malhotra
The author is Editor-in-Chief of CyberMedia, the publishers
of Dataquest.Â
(This article is based on the keynote addressed delivered by the
author at Let’s Imagine More channel meet organized by Ingram Micro.)