PACKAGED SOFTWARE : Good Things in Small Packs

Key Players in Packaged Software Packaged SW Industry: Stagnant
	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
practices".

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".