Packaged Software: Simplify, Integrate and Step Around the Dot-com Puddle



VOICES across the packaged software industry spell reassurance and quiet
confidence in the future. And why not? Despite the slowdown in Q4, the industry
has seen a healthy growth of 37%. Between April 2001 and March 2001, Indian
companies launched over 92 new software products and upgrades in the domestic
market, while MNCs launched another 152.

E-biz solutions emerge winners

An SME typically grows from a single computer to a couple of computers till it reaches the stage where there’s a computer for every employee. By this stage, the installation of servers, ERP packages and other back-end infrastructure is complete. After this, there is a plateau in the growth. IT buying is then restricted to upgrades and occasional replacementsGiven the slowdown in the economy, even traditional non-IT companies are
bound to cut back on IT spending. However, the gloom has not been infectious.
Plans to overhaul the entire digital structure or commence selling online may
have been axed, but essential upgrades, streamlining internal processes and
ramping up customer-facing operations remain top priority. Not surprisingly,
e-business applications are expected to grow 15% this year.

According to DATAQUEST estimates, in 2000-01, e-commerce software solutions
worth $1.2 billion were exported. This number is expected to increase to $1.8
billion in 2001-02. From a back-end database that cannot talk to the company’s
interactive Website to users who swear by the company’s legacy system–”the
new SCM is too complex”. Technology has often wreaked havoc on unsuspecting
clients. Given the high investment in e-business packages, users find it
extremely frustrating to deal with complexity and non-compatibility among
different platforms. The year 2000-2001 has seen some of these key issues being
addressed.

Simplicity: The buzzword

Non-IT businesses have traditionally used standalone solutions for back-end, internal and customer-interaction processes. The year 2000-01 saw the emergence of e-business suites that integrated all these processes. By the end of the year, most Old Economy companies were adopting these packages “Oracle is waging a war on complexity,” declares Somesh Bhagat,
head of marketing, Oracle Software India. “We want to help organizations
concentrate on doing business instead of spending 50% of their time and effort
in integrating technologies, platforms and versions,” Bhagat adds. Oracle’s
11i, mySAP, iBaanERP, QAD’s eQ–all launched this year–are collaborative
e-business solutions addressing the issue of complexity with varying degrees of
success. These indicate a clear move away from ‘point solutions’ that tackle
just one aspect of e-business. The thrust is towards more comprehensive and
integrated solutions that are Web-enabled and support hardware from almost every
major vendor.

While it is simpler to integrate versions from the same vendor, the challenge
lies in cross upgradation. The year 2000-2001 was projected to usher in the
application service providers’ boom. Client server applications were to
swiftly give way to application servers and thin clients. Typically, ASPs
deploy, host, manage and rent access to the software from a centrally managed
location. They provide substantial benefits to companies–reducing software
maintenance costs, minimizing installation time, providing full product lines to
customers… However, the ASP revolution failed to take off due to bandwidth and
infrastructure issues.

CRM software

Today, CRM is being defined as ranking customers profitably. Here too, the
trend has been in integrating CRM solutions with the Internet as well as the
back-end systems of the organizational structure. For instance, using mySAP,
Villeroy & Boch sales representatives can access as well as upgrade current
customer and product data, orders, customer service records and information on
showrooms anytime and anywhere on their laptop computers. Other products from
Peoplesoft, Onyx, Oracle, Pivotal and Siebel also support browser-based clients.

The bundling strategy has worked only in cases where target users have been identified accurately. However, if the strategy works, the growth in revenue far outweighs the combined expenses of shipping, brand promotion and advertising

One of the most important aspects of CRM strategy lies in answering customer
queries promptly and correctly. This is usually done by providing automated
responses using keyword matching or else in person–the most effective but
expensive option. The California-based YY Software provides answers to
text-based queries using what it calls knowledge-based linguistic processing, or
KBLB. KBLB combines patented linguistic processing with industry-specific
knowledge bases. The solution’s linguistic processing engine deals with
language much the way it is processed by humans–it understands sentence
structure and phrasing. Instead of charging a traditional software license fee,
YY charges by the correct answer at a rate that is below the typical
cost-per-answer in a CSR-based service situation.

However, a good CRM strategy lies in integrating voice, fax, Web as well as
face-to-face interaction–not just point solutions. For instance, PeopleSoft’s
CRM ‘Mobile Sales’ for wireless access protocol is designed to let field
sales representatives access customer service databases from a cellular phone.

Voice, fax and hand-held devices

As with PeopleSoft’s CRM 8, a pure Internet solution is now seen as a
shortcoming that needs to be upgraded instantly to integrate with mobile
connectivity. “Once software is Web-enabled, it is just a question of
transformation and does not involve cumbersome technology. A PDA or a mobile is
treated like yet another thin client,” explains Oracle’s Bhagat. In
February 2001, Onset introduced Metamessage, a wireless service that displays
Web pages and more than 25 different file types on wireless e-mail devices by
converting Web pages, faxes and attachments into textual e-mails.

There are similar offerings by Equinox and Astata, and PDA software
applications such as ‘Documents To Go’ from DataViz, which let you view and
edit attachments on a Palm. These, however, have shortcomings like garbled text.

Office software

A 51% growth in PC sales has cascaded on to the office software segment. Not
surprisingly, the Microsoft office suite continues to occupy over 80% of the
market. The obvious reason for this is Microsoft’s business acumen. But for a
user, comfortable with any suite, switching to anything else just seems too much
of a bother. This is despite the fact that Corel’s WordPerfect, Lotus’
SmartSuite, and Sun’s StarOffice all offer some features that Office lacks.
For instance, Corel WordPerfect Office 2002 is a terrific word processor,
especially for long and complex documents, but import filters for Microsoft file
formats end up removing fancy formatting. As against this, Sun StarOffice 5.2
handles MS Office files well. And even more important, it can be downloaded
free.

Effect of piracy

Concerted efforts at checking piracy on the part of Nasscom and other
agencies have succeeded in curbing piracy to a certain extent. There has been a
50% growth in sales of branded PCs due to bulk purchases by larger organizations
and MNCs. Branded PCs are usually bundled with genuine operating systems. Users
have accepted that pirated software is often of inferior quality and are
gradually investing in genuine packages. Despite these buffers, it has been
found that software piracy has actually increased by 51%.

Where
Did the Sales Come From ? 
Packaged Software Description Marketshare in %
1999-00 2000-01
Application
Software  
Collaborative 65  Constant

System Infrastructure Software

Networking,
OS, Security, Software, Firewalls
19  12-14 

Application Development and  Deployment
Tools 

Graphic
Design, Design Applications 
Development and Deployment Tools
17  8-6
Market
size (in Rs crore) 
1,600  2,100
Despite
a slowdown in the fourth quarter, the packaged software industry saw an
overall growth of 37%. Design applications were affected by the slowdown
in the engineering and automobile industries. The dot-com bust was
reflected in retarded demand for graphic design and Web tools

Bundling software

It is a buyer’s market and software vendors have been bundling diverse
products in an attempt to woo customers. The bundling strategy has worked in
cases where target users have been identified accurately. The cost of overheads
certainly goes up in such an exercise. But if the strategy works, growth in
revenue far outweighs the combined expenses of shipping, brand promotion and
advertising. For instance, SAP bundled complementary software like security,
implementation services and hardware in its CRM solution. Oracle launched a
performance bundle with 9iAS and DB. Customers today can purchase
out-of-the-box, pre-integrated, pre-installed Compaq systems with Oracle9i real
application clusters, resulting in faster-time-to-deployment and less risk.

While SAP and Oracle have exhorted the effects of bundling, Microsoft India
Managing Director Rajiv Kaul does not agree. “We do not bundle diverse
products from our company. We also do not bundle outsourced complementary
products. We often package our software applications together to provide the end
consumer with a complete solution. For instance, we launched the BackOffice
Server 2000, a suite of server products designed to address the needs of medium
to large enterprises. The suite comprises Windows 2000 Server, Exchange 2000
Server, Microsoft SQL Server 2000, Internet Security and Acceleration Server and
Host Integration Server 2000. In addition, the product also includes special
tools that make it simpler and more cost-effective for businesses to build,
deploy and maintain their information technology infrastructure” says Kaul.

Targeting SMEs

Another example of bundling, Microsoft’s Small Business Server 2000 also
corroborates the fact that software is increasingly aimed at small and
medium-sized businesses. The SBS 2000 includes Windows 2000 server and a suite
of Microsoft’s .NET Servers, including the Exchange 2000 Server for e-mail and
collaboration. Oracle 9i too was aimed at SMEs. Besides, about 48% of all Linux
server-based installations are in small companies. Looking to boost Linux-based
productivity among small businesses, IBM too launched its server-based Small
Business Suite. This spurt can be explained by plotting the IT lifecycle of an
organization (as explained in box).

The future

The Big Guns: Revenues

 

1999-2000
 (Rs in cr)

2000-2001

Microsoft 450 660
Oracle 195 251
SAP 142 182
Baan 100 128
Lotus 64 82
QAD 39 48

The growth in software exports is likely to be retarded by over 10% this
year. As a result, application development and deployment tools will be severely
hit. With dot-coms down and out, the demand for Web tools will be affected. As a
RedHat representative explains, “Due to the economic slowdown, the trend
observed last year would remain more or less the same throughout the major part
of 2001-2002. However, the slowdown has also provided an excellent business
opportunity to open source software companies. With more and more commercial
software available on Linux, enterprises are taking open source software more
seriously.”

Microsoft chief executive officer Steve Ballmer had predicted, “Software
will no longer be packaged and sold to customers on a CD. Applications will no
longer be static programs that sit on a desktop or run off a server. They will
be delivered over the Internet as services that allow customers to interact with
them dynamically.

Fields like biotechnology and bio-informatics have shot up the demand for
robust, high capacity and intelligent databases. The biggest commercial systems
available today are 300 terabytes. The size of computing power needed to fully
analyze the human genome data will be measured in petabyes (1,000 terabytes).
Systems are required to capture and disseminate data and information involved in
target identification, assay development, screening and lead optimization, and
pre-clinical development.

Globally, computational tools like DoubleTwist, CANTAB, Blast and Neurotouch,
among others, have already made inroads into the biotechnology software sector.
In April 2001, Oracle entered into a joint venture with Utah-based Myriad
Genetics and Hitachi for the creation of a proprietary database by 2004. The
project involves the compilation of information on proteins and their
interactions within human cells. The software will be licensed to pharmaceutical
and biotech companies for use in drug and therapy development. Oracle and
Hitachi’s combined contribution for the project includes $85 million in cash
and $18 million in products. None of this has seeped into Oracle’s India
segment yet. Oracle assures us that it soon will…

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