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Bake the Cake

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DQI Bureau
New Update

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.

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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.

Shyam

Malhotra

The

channel partners look at the vendors as the market creators

and expect them to do all the market development work

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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.

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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.

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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. 



(This article is based on the keynote addressed delivered by the
author at Let’s Imagine More channel meet organized by Ingram Micro.)

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