The Middlemen Mantra

Last year we called them Middleware-a term imme-diately
embraced by the rest of the industry. It is impossible to operate your system without
them; at the same time, they get much lower attention than they deserve. This year, the
Middleware companies 30lead1.jpg (34382 bytes)performed
admirably. In fact, the share of the Top 20 companies went down and that of the Middleware
companies actually went up. Even in terms of segment-wise revenues, few of the Middleware
companies suffered losses, and many, especially those operating in the software and
services export front, made impressive gains.

In a tough year, it is the mid-sized companies that feel the squeeze. The larger
companies are able to put their act together and are able to survive due to their sheer
bulk. The very small outfits are able to squeeze margins more, slash overheads (which in
any case are low), and even dabble outside their chosen area of operations to keep the
pipeline flowing. In the middle, the companies that are operating with not-so-low
overheads are hamstrung because while their operations are not big enough to warrant a big
structure, they are also not small enough to be changed at will. Besides it is these
companies which are already operating at the threshold of margins.

That they managed to hang in there and grow is a reflection of their resilience and
maturity. Many of them have made strategic changes which will reflect in the coming year,
and if luck holds, will even prove that their vision of a tomorrow can stand the test of

Another curious thing. With the intended opening out of the ISP policy and its expected
ratification by the courts, we are suddenly going to see a swelling in the ranks of these
companies. While many of them will be companies offering a cornucopia of services on the
Internet, some, perhaps a few, will even use these opportunities to get into the big
league. Given the nascent state of the market, their opportunity to grow will be limited
only by their imagination, panache, and grit.

Not that there are no issues. There are. For instance, many companies in this rung had
to be cajoled into giving information. While some of them were reluctant because they did
not want either competitors or the Income Tax officials to know how well they were doing,
some were reluctant as ‘they had not done well’. They seemed to forget that not just them,
but these were tough times for the entire country, and just as they would gain from
someone else’s experience, someone might gain from theirs! Many others that we spoke to
had incoherent strategies and could not justify some numbers that they had given us. Still
others are still in the early days of growth and need a lot more support from their
principals than what they are getting currently. Then there are issues related to
finance-availability and management thereof. Some companies are managed as efficiently as
others are not. Still availability of finance for growth remains a major crushing issue,
one that needs to be sorted out faster than we have imagined till now, or else the lack of
finance could well be the reason that chokes out growth, and therefore sustainability for
these companies.

The current year does not promise to be extremely good. In fact, the first six months
could actually turn out to be just a continuation of the problems that we have had for the
last 18-20 months. Our feeling is that if these companies are able to rough it out till
October, then they should be able to tide over the rest of the year. If that happens, the
next year could well be a boom year for the mid-sized companies. On that hopeful note,
Welcome to Middleware.

Leave a Reply

Your email address will not be published. Required fields are marked *