Packaged Software: Packing More Punch

Anti-piracy campaigns and services based on Linux have increased the
growth of packaged software. Resellers foresee the JAS quarter showing better
growth than AMJ. Enthused by business in the JFM and AMJ quarters, partners are
beginning to focus on services, consultancy, training and support

Anti-piracy campaigns and services based on Linux have increased the growth of packaged software. Resellers foresee the JAS quarter showing better growth than AMJ. Enthused by business in the JFM and AMJ quarters, partners are beginning to focus on services, consultancy, training and support

Packaged software vendors and partners finally have enough reasons to celebrate. A review sales in JFM and AMJ 2003 quarters indicates a healthy growth of 25-30% over last year. The current market size for packaged software is estimated to be Rs 1,996 crore (Source: DQ Top 20). 

Another reason to bring out the champagne is the increased distribution of legal software titles. This does not mean that the menace of piracy is receding. But end-users these days are displaying a growing inclination to go for legal software. 

Buoyed by these developments, vendors firmed up plans to create a strong network of value-added partners. Some big players who have great plans for software resellers are Microsoft, Adobe, CA, Oracle and Autodesk. Also, the trend of ‘scaling up the value chain’ has caught up several software resellers, which has become their new mantra for survival in times of shrinking margins. 

Happy days are here again Overall, 2003’s JFM and AMJ quarters registered growth over the same period last year. “There was an increase of 10% in the first half this year as compared to H1 last fiscal,” says RR Joshi, MD of Pune’s Modular Infotech. Mumbai-based PH Teknow too had good business in the AMJ. A prime reason for this is is Microsoft’s year ending sales programs. “The company comes up with lucrative incentives and channel programs, which helps push software products in bulk,” says Paresh Shah, Proprietor, PH Teknow, adding, “We expect business to increase by 20% in OND over JAS.” 

Tricom Multimedia’s revenues in the H1 2003 increased by 30% over the previous fiscal. “The entire economy on the whole has picked up. Also, vendors like Adobe and Macromedia are putting in good efforts for anti-piracy drives, which has seen the genuine sales increase,” informs Harinder Salwan, Proprietor, Tricom Multimedia.

On the vendor front, revenues had a sunny look. Computer Associates recorded a significant growth over corresponding quarters in the last few years. “Our fiscal year ends in March and first quarter sales for 2003 grew by over 40% as compared to the AMJ of 2002,” says Pravir Arora, Channel Head India & SAARC region, Computer Associates. Even anti-virus company, Trend Micro had a good sales run. “We saw our JFM and AMJ 03 revenues grow by 100% over the same period in the previous fiscal,” reports Ajit Pillai, Channel Manager, Overseas Business Unit, Trend Micro Inc. A relatively new entrant in the software business, Trend spent the past two years here in creating awareness for its products and services. This got translated into the above-mentioned three-digit revenue growth. 

SMEs drive business

The application software segment was the torch-bearer for the packaged software industry, contributing 45% to total software sales. SMEs were the major buyer for packaged software growth and according to Nasscom, this segment grew by 10-15% in 2002-03. The key requirement in this segment is high productivity software tools, which are extremely cost effective. The SME segment is highly price-sensitized and have typically been using customized enterprise applications developed by smaller software companies to keep costs low. Standard, off-the-shelf packages, with proven applications, find favor with this segment, rather then highly-specialized customized products. Partners need to provide simple, yet cost-effective solutions, which are easy to deploy for this segment. Selling to this buyer community is easier vis-a-vis large companies, as the decision cycles are much shorter. 

Penguin power

In a market caught between piracy and an aggressive licensing policy from Microsoft, all eyes are turning to Linux. The three key factors driving the popularity of Linux based software solutions are flexibility, reliability and affordability. Also, because the source code is open and available, there is an ocean of opportunity for partners to customize features and programs for their customers. With programmers the world over working on the code and posting their creating online, partners can easily use this as a research bank and then build sturdy applications using resources from this knowledge bank. 

Another factor supporting the acceptability of Linux-based software solutions is low system crash rates. In fact, its uptime is reported in months and years in many cases, as opposed to days and weeks. What does this mean for the VAR? To put it simply, happy customers. Customers who don’t have to worry about system crashes are certainly going to be happy with a reseller solution, which will likely lead to repeat business.

As for affordability, the software itself doesn’t have any licensing fees. However, tech support can be purchased at reasonable prices. For the OEM or system builder, this translates directly into higher margins on their current systems, or the ability to market lower cost solutions to their customers. This is primarily the reason why biggies like IBM, Sun or HP are pushing in Linux as a pre-loaded OS in some of their systems now. 

Sops for partners

By positioning Linux as a technology with a tremendous price/performance solution to any IT manager, partners stand to gain instantaneous acceptance as they address critical concerns of enterprises like costs, robustness, scalability and availability of universal technology. More importantly, the customer will accept the channel partners as a consultant, which is more fruitful association.

Most distys stress that Linux is a service business, not merely a sales one. Partners can earn handsome margins offering support like implementation, migration, AMC, incident-based support, 24x7 support, remote-managed support, high-end consulting and corporate training. 

Bangalore-based GT Enterprises has earned Rs 10 lakh in the past two and half years through its Linux support and services division. U Taranath of the company says the popular solutions include those for mail servers with security features, web servers and for online transactions.

Piracy remains flat

Software piracy has always been the top-of-mind issue for major desktop software vendors, since it eats into their revenue and shrinks the size of the addressable market. This is especially relevant for growing markets like India where close to 60% of PC sales are assembled.

The Market at a Glance Application software segment highest contributor to packaged sales at 45%  SMEs demand standard, off-the-shelf but proven applications over expensive, customized versions IDC estimates that if piracy were brought down to 60% in 2006 from the current 70%, local software business revenues could go up by over $1.6 billion  Most organizations either exploring or already using open source systems are predominantly Linux Government, banking, finance and insurance sectors were major drivers for businessÂ

Though official figures for software piracy in India are unavailable partners report that piracy growth during in 2002-03 was about 30% in home and SOHO segments alone. 

Nasscom and BSA’s combination of education and enforcement and initiatives undertaken by individual software vendors, like Microsoft, has definitely led to increased awareness of the effects piracy has on the local industry and national economy.

The BSA study for 2001 indicates that the total revenue lost due to software piracy in India is approximately $365 million and worldwide revenue lost due to software piracy is close to $12 billion. 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 can be boosted by more than $ 1.6 billion. This in itself presents the kind of positive impact that a check on piracy would entail for the growth of the local software industry. 

The going gets better

AutodeskThe software products market can prove to be a high-growth opportunity for partners. Newer opportunities are emerging with multiple choices for market entry. 

However, to succeed, partners must develop specific capabilities, particularly in marketing and sales. They should aim at the scaling up the value chain rather than getting into the number-crunching game. 

SUNILA PAUL in Bangalore with inputs from
VINITA BHATIA in Mumbai and DQCI News Bureau in New Delhi