The Party Has Only Begun

maint.jpg (32940 bytes)It’s not just
core technologies that develop and change fast in the amazing world of information
technology. Even some of the so-called non-challenging or mundane or routine aspects of
this field such as maintenance are undergoing interesting changes and throwing up new

In the year that went by, maintenance has become an even
more significant component of the overall IT industry. Compared to the financial year
1996-97, when maintenance revenues were about 12.5 percent of the total revenues generated
from the sale of hardware, peripherals, and networking products, last year maintenance
revenues went up to 15.75 percent. However, scoring far better than the hardware industry
(including peripherals and networking products), which should a negative growth in 97-98,
maintenance revenues grew by about 21.5 percent.

TPM Momentum
What is noteworthy is the remarkable growth in the Third Party Maintenance (TPM) market.
While one of the main planks of big IT vendors continues to be after-sales support and
service and maintenance, the latest market trends indicate that the shift towards TPM is
gaining momentum. From 3,65,420 machines in 96-97 the number of machine under TPM has gone
up to 5,53,979-a solid growth of 51.6 percent. In terms of revenues TPM has gone up by
almost 30 percent. In sharp contrast, the number of machines under maintenance under
hardware vendors has gone down, though revenues have gone up by 13.75 percent. Share of
TPM in total maintenance revenues has risen from 49.2 percent in 1996-97 to over 52.53
percent in 1997-98. A major reason for this is the sale of PCs to individual buyers and
the SOHO segment. For these buyers, not going in for a one-year warranty or after that an
Annual Maintenance Contract (AMC) for an entry-level Pentium MMX system costing about Rs
35,000, saves about

Rs 3,000-Rs 3,500 thousand. Most of these users prefer to
go to TPM houses on a need basis. But more importantly, in the context of low hardware
growth last year, the shift of many users from the system vendor to the TPM service
provider, once the warranty period or the AMC is over, has also contributed to this jump
in TPM business.

The latest DQ Customer Satisfaction Audit had indicated in
no ambiguous terms that users are increasingly getting dissatisfied with original vendors
for maintenance. Not just individual and small users, but even corporate users. This is
especially true as far as PC maintenance goes. According to the survey, over 50 percent of
users, particularly PC users, do not want to go back to the vendor, but prefer a TPM once
the warranty period is over. Further, there is a growing tendency to get multi-vendor
maintenance, so dependence on a single source is reduced. The year 1997-98 has once again
a message for big vendors. They will have to pull up their socks; otherwise, maintenance
of volume products will be taken over by smaller vendors and TPM agencies. In the long
run, TPM services from small outfits might even be actively sought for low-end servers and

Experts, however, see this rapid growth in the TPM segment
as a result of financial crunch in the market where users preferred to continue with old
systems (either by having them upgraded or going in for further maintenance) instead of
buying new machines. It means that once the crunch eases, one might see a drop in TPM.
Another factor that needs to be considered here is that from the year of PC price crash in
1996-97, a lot of systems sold by established players were still under warranty, and were
thus not getting reflected in their maintenance revenues. In the coming year, they will be
due for AMCs, and will thus show maintenance in a better light.

Top Revenue Earners (1997-98)

(Rs Crore)
1.CMC Ltd83.52
2.Wipro Ltd71.30
3.HCL Corp Ltd61.10
4.Digital Equipment (I) Ltd54.92
5.Tata IBM Ltd35.68
(Figures include revenues from own
maintenance, TPM, and facility management)

However, it’s not just bouquets for the TPM service
providers. Another interesting phenomenon that emerged in 1997-98 was that many users,
typically individual and small, are not even going in for TPM. The reasons cited by them
range from deteriorating service from established TPM agencies, as their operations grow,
to perceived high cost of AMC charged by the TPM company. Many individual users find the
small TPM agent in the neighborhood more viable than a big TPM company.

Another interesting observation of the TPM market is the
quiet entry of many big players into it. Apart from the very big names in the Indian IT
industry, which take up TPM of usually high-end machines at their big clients’ sites,
other IT majors like PCS, Allied Digital, Accel Automation, Tata Infotech, DCM DS,
MicroLand, Zenith, and CMS are already at it in an aggressive way. PCS, for instance, got
Rs 11 crore from TPM. While CMC, which is into high-end TPM, continues to be the biggest
TPM service provider in the country, the fact is that its growth in this segment has been
very poor. While nationally TPM business grew by over 51 percent, CMC’s TPM revenues
increased by a mere 6.8 percent. This could be indicating CMC’s loosening grip over TPM
market in the face of the entry of a lot of big vendors into high-end TPM business.
Without TPM, on the basis of maintenance of its own systems, Wipro has emerged as the
biggest maintenance revenue earner, followed by HCL and Digital. Also interesting is the
point that maintenance realization per unit of hardware varies between companies.
Obviously, considering hardware vendors dealing in high-end machines have a much higher
per unit realization compared to those dealing in low end.

New Areas
While the smaller players are building pressure on the big vendors in the area of
maintenance, the big vendors are looking at newer areas or are enhancing their activities
from just maintenance to customer support. One of these areas is facility management where
vendors like IBM, Digital, PCS, Wipro, Melstar, MicroLand, DDE-ORG, apart from CMC, are
already active. Several companies are even into exporting of facility management services
to clients abroad. Then there are other services like network management, IT asset
management, site planning, environmental engineering, structured cabling and so on. It
might not be apt to call them new opportunities, but considering the way many IT majors
have started focusing on these activities, it is worth taking note of.

Maintenance : Numbers And Value

Numbers GrowthValue (Rs
Vendor Maintenance4,26,5434,29,923-0.81379.11333.2713.75
Third Party Maintenance5,53,9793,65,42051.60419.54323.5529.66
Note: Facility Management revenues
are not included here.

Lastly, what is most important for the users is the impact
of maintenance on total cost of ownership. The cost of keeping the machines running in
1997-98 has gone up from 12.5 to 15.75 percent of the expenditure on hardware. While the
average amount spent on maintenance is about 15 percent of the total money spent on
hardware, peripherals, and networking products, for the PC user it’s about 8-10 percent,
and for higher-end machine users it’s anywhere between 20 percent and above. According to
estimates, the total number of machines under maintenance in 1997-98 were about 9.8 lakh,
which means average maintenance cost per unit hardware was about Rs 8,314. This is more or
less the same as the figure of Rs 8,200 in the previous year. Out of these total machines
under maintenance, about 5.53 lakh were under TPM, and the remaining with the original
vendor. Therefore, for TPM the average annual maintenance cost has comedown significantly
from Rs 8,800 in 1996-97 to Rs 7,575 in 1997-98. And maintenance from vendors on an annual
average risen sharply from Rs 7,700 in 1996-97 to about Rs 8,900 in 1997-98. Clearly, TPM
has proven to be much more cost-beneficial.

Challenges Ahead
Compared to international trends maintenance in India costs less, but the relative
satisfaction level among users here is lesser. DQ Customer Satisfaction Audit had revealed
that Indian users are ready to pay more if quality of service improves. But, again, it’s a
chicken-and-egg story-the maintenance service providers are waiting for users to be ready
to pay more and the users are waiting for quality of service to go up. Unfortunately,
maintenance, whether of hardware or software, has traditionally been considered to be an
area where the bright and ambitious IT professionals do not seek a career. And the end
user always had to bear the consequence of the resultant lack of good people in support
and maintenance. But with maintenance and support growing up both in terms of
opportunities as well as technical challenge, things might be changing for the better in
the near future.

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