PACKAGED SOFTWARE: Keep it Simple, Keep it Quick

It’s been a year since the wand was waved, but the magic is yet to work.

For too long, enterprises lived with a multitude of software appli cations,

waging a daily battle to make one talk to the other. Against this backdrop, the

promise made last year, of a single software suite that would solve all problems

of the enterprise, sounded like a godsend. But the cry of simplify and integrate

to wage the war against complexity ended in a whimper–people who used ERM

(enterprise resource management) solutions found that it didn’t always

deliver.

People are once again going in for best-of-breed solutions, albeit with a

systems integrator in tow. As a result, the ‘end-to-end’ e-business suites

launched last year are lying low. And there is increased usage of middleware and

EAI (enterprise application integration) to integrate the different applications

implemented in organizations. Enterprises have also found to their distaste that

conventional ERP can turn out to be too expensive, take far too long to

implement, and not be flexible enough to deal with changing market conditions.

And the hype about e-commerce has gone to a simmer, given the limitations of

selling exclusively through the Internet. Not surprisingly, application software

witnessed a slow growth given the enterprises’ reluctance to upgrade.

RoI is key Openness and interoperability in software apps Back to using best-of-breed solutions Customers dictate terms Heady growth for CRM solutions

System infrastructure software also suffered heavily, with their being little

activity on the networking front. The sale of software development tools,

largely dependent on exports, also slipped. However, it isn’t that enterprises

suddenly decided not to spend on IT. Awareness about the importance of using

software packages increased among SMEs too, but given the cost-cutting measures

at most organizations, spending was often restricted to low value point

applications. For instance, low-value accounting packages weren’t affected,

but big apps were. Nevertheless, these are likely to pick up in the ongoing

year.

Customer focus pushes CRM



The total size of the packaged software industry in India in FY 2001-2002

was pegged at Rs 1,900 crore, a marginal slide of 2% against the previous year.

As was the case across the IT industry, system infrastructure tools, application

development/deployment and application software were impacted by the overall

slowdown. Given the somber mood, enterprises insisted on checking out RoI

figures from existing IT investments. Resultantly, there was a reluctance to

upgrade, with the focus being more on customer-centric software like CRM.

Therefore, while ERM sales stagnated, fiscal 2001-02 saw CRM emerge as the

fastest-growing IT segment. The panic that the slowdown brought in, saw

companies going all out to woo the customer. And sure enough, even in times of

cost-cutting, solutions that focussed on customer relations evoked more than

mild interest. Interestingly, this trend extended across verticals. Infosys, for

instance, launched its banking specific Finacle CRM solution this year, for

"working seamlessly and integrating with the core banking and e-banking

software solutions of a bank".

The slowdown, meanwhile, meanwhile had its positive effect as well–as the

customer became stronger, he began dictating the market and technology trends.

The days of long implementation periods, with vendors and integrators squeezing

the most out of customers before the application actually got rolling, were

over. Given the shrinking growth rates of software across the board, a drop in

prices and discounts were inevitable. Customers, realizing that their bargaining

power was high, negotiated hard for terms that would have seen vendors turning

them down earlier. And the new booty for customers was not just price discounts,

but cost-free value-adds and unbundling of product bunches, leaving them free to

buys only what they wanted, and not what the vendor wanted them to.

Unbundling the bundle



The last quarter of the previous fiscal, 2000-01, had signaled the onset of

the slowdown and sent vendors scurrying to boost sales, bundling complimentary

products. As the situation worsened in FY 2001-02, customers consolidated their

position further–they were soon being offered a choice of bundled as well as

unbundled software.

Changing business needs have led to the evolution of a technology cycle in enterprises. This software market adoption cycle moves through three stages. Stage 1 More and more business activities dependent on IT lead to the development of point solutions (typically application software). As a result, the share of application solutions is high and continues to grow. Stage 2 As the networking increases, the point solutions get integrated in the second phase, resulting in more investments in system infrastructure software. This eats into the spend on application solutions and the growth in the applications solutions market starts stagnating. Stage 3 When the ad-hoc process of integrating point solutions is replaced by a larger, complete, integrated point-to-point business solution, it results in a better and wider application solution. Similar to stage 1, but the growth rates are much slower. There is growth in the relative share of application solutions.

iFlex Solutions, for one, bundled diverse products with its flagship Flexcube

Suite, a high-end software product aimed as a solution that meets most banking

transaction needs. This bundling could be in the area of environmental or

complementing software. Flexcube needs a set of environmental and report

generation software for its functioning. i-Flex was armed with alliances with

Oracle and IBM, among others, to provide such a choice. Depending on

country-specific and client-specific requirements, there may be a need to supply

allied systems, which complement the Flexcube suite’s functionality. Such

systems could be in the areas of card and cash management.

Voice recognition software Bathina VoiceAuto (version 1.2) came bundled with

a general knowledge application–SmartKid.

Version 1.3 too is bundled with several freebees from third parties. Infosys

too offers its products Finacle (core banking solution), BankAway multi-channel

solution (Internet banking and mobile banking) and Finacle CRM in two options–independently

or as together, whichever the client prefers. These products work seamlessly

when used together, but work fine independently too.

The solutions’ open messaging architecture ensures interoperability and

hence can be interfaced with other third party complimentary and supplementary

solutions effortlessly. So banks can choose best of breed solutions in areas

where Infosys does not have products to offer and these can be integrated

seamlessly with the company’s products. In fact Infosys has already started

bundling complementary products with its own.

And apart from specifying the products they would need, enterprises have

started demanding assurances like ‘money-back if the solution does not provide

value within six months’. Apart from the boom in CRM software, knowledge

management (KM) software too is picking up. Though attrition is low as a result

of the slowdown, organizations have realized the need to cull and conserve

knowledge from existing employees. However, KM being a very new market in India,

companies like Ajax are currently doing a lot of concept selling but expect the

market to peak by the end of 2002.

The bankable best



Among the verticals that have contributed significantly to the growth of

software in FY 2001-2002 are BFSI (banking, finance, services and insurance) as

well as oil and gas. The growth in the manufacturing and SMEs segment has been

slow. Microsoft mentions an increase in sales in the government and telecom

verticals.

Despite the high-profile launch of Microsoft XP (Office as well as Windows)

in India, the product has been affected by the market’s overall reluctance to

upgrade. However, Microsoft maintains that the Indian market’s response has

been in keeping with the "seven million copies of Windows XP sold

internationally within a fortnight of its launch" and that "out of a

total number of 60 million licenses worldwide, more than 12 million Microsoft

Office XP licenses have been purchased in the Asia Pacific Region". Nine

months into the market, Windows XP customers in India include TCS, the

Department of Posts, Orange, ABM Amro bank and NIC. Some of the companies that

have purchased Office XP include Tata Consultancy Services, the Government of

Gujarat, American Express, National Informatics Center, HCL Infosystems, and the

Indian Army. The company states that the Office XP Proofing Tool kit has seen a

good uptake in the government vertical.

Stiff competition, a strong focus on convenience of customers as well as the

well-documented productivity gains by the use of right technology ensured that

IT decision in banks were not greatly affected by the slowdown. Infosys for

instance, recorded over 100 % growth in this segment for the second consecutive

year. The stress however, is on web based, centralized software which is based

on open systems and not proprietary. Software packages however have to

demonstrate sufficient flexibility as well for no two banks have the same

requirements. Hence the need to offer the ease of customization without

tampering source code.

The bottomline of course is the need for packaged software to demonstrate a

significant reduction in the Total Cost of Ownership (TCO). Proprietary systems

and mainframes could be on their way to extinction and modular yet integrated,

open systems based banking software packages will rule the roost in the days to

come.

An area, which is emerging as the new sweet spot across verticals, is

storage. Most Indian enterprises now appreciate the need of implementing a

storage solution, to bring down the cost of managing their data, and also to

prepare their IT Infrastructure for a disaster. The DR policy, which includes

Business Continuity and Data Protection Plans, now plays an important and

integral part of the IT Policy for an enterprise. But before the storage

software market picks up in a big way, the market will need some education on

this count. Besides, storage software will not be restricted to large

enterprises alone but will include the vast untapped SME segment as well. Legato

for instance is firming up plans to partner with a distributor to tap this

market.

Still strong on SMEs



Viewed as the large organizations of the future, SMEs form a crucial market

for packaged software products. By nature, they are extremely cost conscious.

They try to optimize their productivity levels by using least expensive

automation tools. They prefer packaged software products (where pricing is based

on volume sales) as against deploying high budget customized ERP, CRM etc. For

packaged software vendors, the SMEs form an attractive target segment since

penetration in large enterprises is already high. For SMEs, vendors need to

provide ‘simple’ solutions, which are easy to deploy and offer innovative

pricing models (such as monthly payments) and demonstrate RoI to users.

According to Nasscom estimates, the SME segment is projected to grow by about

10-15% in 2002-03.

For vendors, it is at times, easier to sell to an SME as compared to a large

company. Large companies have very long evaluation cycles. They also cut back on

packaged software first when it comes to cost cutting. Another key driver is

that business owners in SMEs are more entrepreneurial and make faster decisions,

as the younger generation is conscious of the need to use IT to be competitive.

It is however, important to note that the volumes in the SME segment are high,

the revenue generated is far lower compared to large enterprises. Even emerging

packaged software segments like ‘voice recognition’ are viewing SMEs with

keen interest.

Nasscom too has been hosting brainstorming sessions with its members to

understand the problems faced by the SME segment and to device initiatives to

successfully combat these issues. Based on the input that SME companies lose out

on lucrative government and defense contracts that usually go to larger ICT

players, Nasscom has decided that it will take up policy initiatives to ensure

that SMEs get a percentage of contracts emanating out of this segment.

As part of its initiatives to improve the SME standing with the government,

Nasscom has also decided to catalyze software development for Indian languages.

This is in line with the government stand that it would compulsorily spend

around 5% on development of software for Indian languages. SAP India today has

three hundred plus customers and more than 50% of these are SMEs. Microsoft too

views this segment as a potential target market but cautions that the escalating

rate of software piracy in this segment calls for education on the benefits of

using genuine software and the legal penalties associated with software piracy.

Piracy, which has acutely dampened revenues in the past, especially for

companies offering point solutions, remains a key concern for the packaged

software industry. It is extremely difficult to translate the revenue saved due

to the anti-piracy education and enforcement efforts of Nasscom and BSA. A

Nasscom-BSA study, however, pegs the total revenue lost due to software piracy

in India, at approximately $215 million and worldwide revenue lost due to

software piracy close to $12 billion.

Pirated software accounts for a staggering 61 % of the software sold in the

country, according to the latest estimates for 2000-01 by Nasscom. The loss to

the software companies during the year is estimated to be Rs 1,110 crore. In

Nasscom’s estimates, pirated software gained sizeable marketshare during the

year. The year before, 1999-2000, its share of the software market was 55% and

the loss to the software companies was put at Rs 900 crore. Publishing software

company Adobe Systems has one of the highest piracy levels at 90%. Even a 2%

reduction in piracy levels would increase the company’s revenues by at least

20%.

Things can only get better



The optimism apart, India is better known for the quality of its software

professionals than the software packages they develop. Even as more packaged

products come into the market, there are certain lacunae in the software

engineering expertise at Indian companies. This is especially so in areas like

planning and designing, keeping end-user requirements in mind, using the right

development tools, in-house testing, third-party testing, independent software

validation, maintaining compatibility with multiple versions of operating

systems and any applications the product depends on.

With the entry of reputed software testing labs into India, such as NSTL,

developers of software packages will follow these methodologies and become

successful in both domestic and international markets. Apart from the question

of quality, the packaged software industry has been demanding the introduction

of proper policies for promoting technology and packaged products companies.

There are other issues regarding export of packaged software such as the need

for a warehousing facility for Indian products abroad and the need for an RBI

process to reconcile product returns.

But the most important concern across enterprises in the large-sized as well

as SME segment, is the need for interoperability of packaged software solutions.

Web services, adaptive supply chains, integrated CRM, e-procurement, and private

exchanges - they all involve collaboration in various degrees, and integration

to even greater extents.

Technology vendors supporting a fully integrated approach must be careful not

to dictate standards, but enable choices. The technology solution must be open

enough to give customers the agility and flexibility to work with discrete

applications.

Perfect knowledge with zero latency, attained through self-service portals

connected seamlessly to efficient and dynamic marketplaces, enabling global

collaboration, and true virtual integration. That’s a package worth waiting

for!

TEAM DQ