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.
Packaged Software Revenues |
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Microsoft continued to remain in a leading position in |
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 | 1999-00 | 1998-99 |
Microsoft | 450 | 333 |
Oracle | 195 | 140 |
SAP | 142 | 109 |
Baan | 100 | 82 |
Lotus | 64 | 56 |
QAD | 39 | 35 |
DQ estimates |
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.