Hottest Microverticals: The Magnificent Seven

Between 2009-10 to 2016-17, Indias domestic air passengers number is going
to swell from 105 mn to 321 mn. During the same time international air
passengers number is expected to go up from 40 mn to 101 mn. Similar kind of
growth is expected in cargo movement too, according to Airports Authority of
India. Consequently, there has been a tremendous focus in development and
modernization of airports. The 11th plan (2007-2012) itself estimated an
investment of Rs 30,968 crore in development of airports, with as much as Rs
21,630 core coming from the private sector. However, going by the recent
experience of modernization of Delhi and Mumbai airports, the actual cost is
significantly higher than what was estimated. In Delhi alone, DIAL, the GMR-promoted
company that is modernizing the airport, has done significant upward revision to
the final cost, taking it up by almost 42% to Rs 12,700 crore. Same has happened
with Mumbai airport with final cost rising to Rs 9,802 crore from Rs 5,826 crore
or 68%. With greenfield airports planned at Goa, Navi Mumbai, Pune, Greater
Noida and Kanpur, and plans for thirty-five non-metro airports being modernized,
the investment in this segment is going to be huge.

But unlike the earlier phase of infrastructure development, where it was all
brick and mortar, the new infrastructure development is happening with keeping
the customer experience in mind. And hence IT has become an integral part of the
modernization. New airports are expected to spend anywhere between 2-3.5% of the
total investment in installing/upgrading IT systems.

Not surprisingly, airports feature on top in our list of seven micro
verticals to watch out for the IT industry.

So, what does that mean? Does it mean that these are the sectors that would
spend the highest amount on IT? Does it mean that these segments would record
the highest growth in IT spending?

Strictly, the answer is neither. And to some extent, the answer is a
combination of both.

These seven micro verticals, our editors believe, are the areas where most IT
vendors should focus their market development activities. So, they may not be
the highly mature segments like PSU banks or existing telecom operators who are
already the cash cows. At the same time, they are not so small that they will
probably grow in the next six to seven years.

These are the segments that would increasingly spend significant amounts on
IT in the next two to four years. All the three italics are important, we
believe, for the IT vendors to develop specific market development strategies.

So, according to Dataquest, beyond business as usual, if there has to be
significant marketing/market development activities by IT companies, then it
should be in these micro verticals.

That, in short, is what these seven micro verticals stand for. But that too
must come with a few qualifiers. This does not mean that the ease of market
development in each of these are similar. This also does not mean that each of
these segments, by themselves, would be very heterogeneous. Take cooperative
banks, for example. Some of them have deployed core banking solutions much
before many large PSU banks did. Some others do not even have basic branch
computerization.

And one disclosure: one of the micro verticals is actually not, in the strict
sense of the word: greenfield telecom operators. It is just a subset of a
vertical, not a micro vertical. But we believe from market development
perspective, the IT vendors would do better to treat it as a micro vertical.

Why & How We Did It

One of the most common complaints that we hear from the sales guys in many
IT vendors is that a vertical is too heterogeneous to develop a selling strategy
for it. And we discoveredquite accidentallythat most vendors who have done
well in a segment have, in a tactical way, taken a micro vertical approach. In
some cases, it is organization-wide. In some cases, some smart middle level
sales managers have done that and succeeded. We formed that into a hypothesis
and tested it by talking to both vendors and users. In more cases than not, the
hypothesis was proved to be true.

That is when we decided that a micro vertical approach is a tactics that
could be turned into a strategy. And that is when the idea of this story was
born.

The next challenge was to identify the micro verticals. This is where we
followed an informal process of just creating a shortlist of more than fifteen
micro verticals which came from our panel discussions, informal discussions, as
well as by following the general macroeconomic indicators and government
policies. For example, if infrastructure is a thrust of the government, there
has to be growth in that sector. But does rapid growth and higher spending
automatically lead to higher IT investments? Not always.

That is when we decided to follow a formal filtering process. We identified
four important parameters to judge the hottest micro verticals.

The growth potential of the segment: This was the most important parameter.
The assumption here was most businesses today consider IT to be strategic and
the growth of business and investment means growth of IT. We assigned the
highest weightage to this parameter.

The importance of IT to business: While all businesses today consider IT as
strategic, some of them are far more dependent on IT than others. Some may run
without significant IT investment. For example, even in one of our identified
micro verticalshospitalsIT is still not that strategic, as compared to say,
telecom, which runs on IT. We assigned the second highest weightage to this
parameter.

Size of the segment: This was more of a filter than a parameter. If there is
a completely new segment with lots of IT deployment potential but is too small
to make an impact, does it make sense to invest marketing time and effort on
that at this time? Probably not. That was the reason behind introducing this
filter.

Applicability of generic IT solutions: This was another parameter that we
decided to introduce after much debate. Strictly speaking, we could have done
without this. But since we wanted our story to appeal to a larger section of
vendors, we wanted to exclude micro verticals with closed/dedicated solutions.
The reason is not to undermine their importance but treat them separately as
stories. Introduction of this filter resulted in one immediate casualtyfilm
productionthat is included in the table as the eighth micro vertical. This,
naturally, had the lowest weightage.

Then we assigned scores to each of the short-listed micro verticals. This
required some primary and secondary research. Based on the score and weightage,
we arrived on the seven micro verticals to watch out for (See Table 1).

We also present (Table 2), the individual ratings of each micro vertical.

End Note

At the end, it is a subjective list done by the Dataquest editors. And we
would state that in no ambiguous tones. The effort has been to identify micro
verticals that the vendors can be proactive on for market development. We would
love to hear any endorsements or disagreements.

Team DQ

maildqindia@cybermedia.co.in