PACKAGED SOFTWARE : Good Things in Small Packs

DQI Bureau
New Update
TCO slipped, vendors cut deployment cycles, scalable solutions held the key
The application software segment was the largest component of the packaged software industry–and ended up contributing an impressive 45% of total sales
Upheaval in the global enterprise software space, piracy remained a big issue
Microsoft remained the top player, by far–notching up revenues of Rs 711 cr

Cocking a snook at lofty concepts like value on investment (VoI) replacing

return on investment (RoI) on information technology and expensive end-to-end

software, Year 2002-03 saw enterprises demanding that IT step in only when their

businesses needed it. User companies refused to overhaul existing IT

infrastructure and buy big. In fact, software vendors bent over backwards to

offer modular products that could scale according to various business needs.

However, 2002-03 was also a year that saw an increasing number of enterprises

shedding their preference for cheap, customized and often messy versions of

enterprise software for sleek packaged versions. The year saw an increasing

number of organizations opting for packaged software. The trend of in-house

development of software was clearly on the decline. Software vendors focused on

specific verticals and incorporated the needs of these verticals while designing

products. There was also a clear and conscious effort on the part of vendors to

cut down deployment cycles. Organizations demanded open packaged software that

could function across platforms–they got them.

Large vendors targeting high-end enterprises with large requirements

dominated the Rs 1,996-crore packaged software market, according to DQ

estimates. The application software segment was the largest component of the

packaged software market with a contribution of about 45%. Application software

is likely to continue to be the largest part of this market in the coming

quarters as well.


The SME potential

According to IDC India, over 70% of enterprises in India fall into the small

and medium enterprise (SME) segment, while the remaining are large organizations

that have significant IT investment and usage. Though IT deployment is low in

most SMEs, the segment has a strong need to implement IT systems in order to

increase efficiencies.

Indian SMEs have typically been using customized enterprise applications

developed by smaller software companies in order to keep costs low. Now,

companies have realized the benefit of implementing standard, off-the-shelf but

proven applications rather than customized applications. Vendors have also

realized the potential of this segment and are increasingly launching lower-end

versions of packaged software to capture the SME market.

While the SME market is a hub of activity, and investments in software for

the segment by companies like SAP, Oracle and Microsoft bear witness to the

fact, it must be noted that competition is extremely fierce since the

differentiating factors are very limited. It is in this context that factors

like operational efficiency and time-to-market become important and hold the key

to determining the winners. SME markets demand software that is less expensive,

easy to deploy and use, and which has flexible architecture. Moreover, the

segment expects quicker implementation and faster RoI.


However, according to IDC, though there’s been a lot of talk about vendors

targeting the SME segment, in reality, not too much of market penetration has

taken place. The reason is that high-end vendors have found it difficult to

scale down high-end software to offer it at lower price points to the SME

sector. The other challenges are to understand the unique IT needs of the

players in this sector and to convince them of the advantages accruing from IT.

The needs of this sector are different from those of large corporations and,

in many ways, unique to them. For instance, the SMEs’ buying behavior and

needs present some unique challenges, as they neither have overflowing coffers

and nor are they bristling in combat gear, ready for one-upmanship. In view of

limited budgets, they are willing to pay for functionality and not for the

frills. They are more likely to select an application suite with

"must-have" features and not lay emphasis on "best business


Piracy continues to niggle

Piracy, the old bugbear of software product companies, continued to raise

its ugly head in 2002-03, triggering off focused action from the companies

affected most. India’s track record with regard to software piracy is

relatively better when compared to other countries in the Asia-Pacific region

like China, Vietnam, Indonesia and Pakistan. Continuing efforts by Nasscom,

Business Software Alliance and the software vendors have led to an increase in

awareness about the effect of piracy on both the local and national economy. In

a recent study conducted for BSA, IDC estimates that if the rate of software

piracy is brought down to 60% by 2006 from the current 70% in India, then the

local software industry’s revenue could go up by more than $1.6 billion. Under

some of the initiatives undertaken by vendors, Modular Infotech has been

operating an in-house anti-piracy department that has conducted more than 340

successful raids in the past three years. The company’s flagship product–Shree-Lipi–is

a popular DTP software in Indian languages, and unfortunately for Modular, also

one of the most pirated ones.


The Big M: Giving just a little

Microsoft–the biggest player in the packaged software space in India–continued

to dominate the desktop software space and it seems that it will be a good while

before open source software can encroach on this space. On the enterprise side,

however, for the first time, probably due to the increasing popularity of open

source, Microsoft conceded to sharing software code with certain governments and

key customers. April 2003 saw the launch of Windows Server 2003. Another launch

is expected some time this year.

The Open Source uprising

Open Source software is rapidly shedding its "techies only" image

to emerge as the OS increasingly being used across industries. Yet, troublesome

issues with Linux have made sure that the unsettling of proprietary systems, if

ever, is a distant possibility. A joint report by Dataquest and MAIT presented

in January 2003 found that most Indian organizations are either exploring or

already using Open Source systems, predominantly Linux. Furthermore, user

companies approached by Dataquest-MAIT stated cost savings ranging from 40% to

as high as 70% as a result of using Linux. However, the use is restricted to the

file-and-print and communications level and though mission-critical applications

are currently not run on the Linux platform, they could be in the near future.

However, Linux deployment at the desktop level is a long way away.

While IBM has traditionally been a supporter of open source, companies like

Oracle too have started aggressively advocating the use of Open Source. All

Oracle products are now available on Linux. In March 2002, Oracle announced that

it had joined the UnitedLinux consortium. Oracle provides the first level of

support to all customers who deploy Oracle products on Linux. Virtually all

leading IT vendors in India including Oracle, HP, IBM, Sun, Tata Consultancy

Services and Wipro have developed products for the Linux platform.


So who’s using Linux?

In India, the Indian Railways Catering and Tourism Corp is using the Oracle

E-Business Suite on Linux.

i-Flex is in the process of getting its products Linux-enabled. Even local

language software vendors like Modular came up with Linux-based offerings.

Modular’s Shree-Lipi Linux is a script processor for Indian languages, which

can be used in any of the Windows applications. Web Samhita, a toolkit for the

development of Indian language interactive web sites, can be used on Linux as

well as Windows servers. Other major users included Reliance and the Tatas.

Topsy-turvy year for vendors

It was a year of upheaval with several global developments in the enterprise

software space altering the dynamics of the industry. In June 2003, global

enterprise software vendor PeopleSoft acquired J D Edwards and, in the same

period, Oracle made a $6.2 billion hostile bid to acquire PeopleSoft. At the

time of going to press, Oracle had upped its offer to $19.50 per PeopleSoft

share from the original offer of $16. PeopleSoft has vociferously rejected

Oracle’s bid and added "poison pills" to the potion–that is,

agreeing to a $1.77 billion merger with smaller rival J D Edwards and creating

new contracts that would require any PeopleSoft buyer to refund clients up to

five times the value of their license agreement. Then, in June 2003, Baan, an

enterprise SW company focused on the manufacturing segment, announced that its

parent Invensys had agreed to sell it to an investment group consisting of two

of the world’s leading private investment firms. Over the next few months, the

group, which also owns SSA Global Tech, intends to combine Baan with SSA GT. The

latter is a leading provider of enterprise solutions for process manufacturing,

discrete manufacturing, consumer, services and public companies worldwide.


The future

The government and the banking, finance services and insurance (BFSI) sector

drove growth in 2002-03. Linux software vendor Red Hat, for instance, says that

50% of its revenues came from the government. Microsoft, Oracle and PeopleSoft

also indicated strong support from the government and expect it to continue. The

year ahead is likely to see the emergence of niché players with domain

expertise. As in the year gone by, increasing demand for products from verticals

such as BFSI will be a major driver for the development of software products.

Manjiri Kalghatgi


The Business of Intelligence

Though still in its initial stages, business intelligence saw significant

activity in the Indian market. Among those offering BI solutions in India are

SAS, NCR, Tera Data and ICICI Infotech. Banking SW major i-Flex too launched its

BI product–Reveleus. These software vendors have, in turn, have tied up with

major service companies like TCS and Satyam to implement BI solutions.

According to a report by Frost & Sullivan and SAS India, BI revenue stood

at $10.5 million at the end of 2002, expected to grow at a CAGR of 33.9% to

$30.4 million in Year 2005. An interesting aspect–a bulk of BI activity is in

the CRM space. Such products are utilized by organizations with a high customer

base, largely dependent on improving services based on information gathered

through customer behavior. Thus, areas like churn analysis and credit scoring

are strong. This trend is likely to continue in 2003-04 as well.

The demand for BI solutions is mainly fuelled by large and medium-sized

organizations and multinationals. Finance, insurance, telecommunications,

pharmaceuticals, government, transport and agriculture are among the key

verticals being addressed by BI.

What really is BI?

BI is an umbrella term for a set of tools and applications that allow

corporate decision-makers to gather, organize, distribute and act on critical

business information. BI applications include activities of online analytical

processing, decision support systems, data warehousing and data mining. It was

felt that in order to derive benefits from the data, it had to be consolidated

and formatted according to specific needs. This realization gave rise to

applications that enabled organizations to convert data into usable formats.

With major IT development, new BI applications have come online and existing

products have been reworked to offer new functionalities. Initially, BI tool

sets could be broken down into two distinct categories–executive information

systems and DSS. They ran on mainframes–and considered the property of

top-level managers.

Roadblocks in BI

BI software needs to extract, assimilate and analyze information from

diverse systems to derive meaningful information. Due to unclean data in a large

number of Indian enterprises, integration, customization and upgradation of

technology are regarded as a major hindrance. The effectiveness of an

application such as BI is hampered if the information infrastructure of the

organization is not in place. Non-availability of data on key subject areas for

complete business analysis is the next big challenge. High implementation costs

and complexities in the technology are the other limiting factors.

In the current scenario, according to Gartner, forward thinking Type ‘A’

enterprises (10% to 15% of enterprises) understand the importance of BI at a

strategic level and are investing accordingly. They are building BI competency

centers and assessing the impact of information on enterprise and business

processes to use BI in a comprehensive and integrated way. Many Type ‘B’

organizations (50% to 60%) also seek BI, but in a less integrated way. Much of

this is driven at the departmental level in a discrete fashion.

Type ‘C’ enterprises (20% to 40%) are those that have either stalled or

dramatically reduced investment in BI and are trying to consolidate existing

systems and software to "save money".