Key Players in Packaged Software Packaged SW Industry: Stagnant
	TCO slipped, vendors cut deployment cycles, scalable solutions held the key
	The application software segment was the largest component of the packaged software industry—and ended up contributing an impressive 45% of total sales
	Upheaval in the global enterprise software space, piracy remained a big issue
	Microsoft remained the top player, by far—notching up revenues of Rs 711 cr

Cocking a snook at lofty concepts like value on investment (VoI) replacing return on investment (RoI) on information technology and expensive end-to-end software, Year 2002-03 saw enterprises demanding that IT step in only when their businesses needed it. User companies refused to overhaul existing IT infrastructure and buy big. In fact, software vendors bent over backwards to offer modular products that could scale according to various business needs.

However, 2002-03 was also a year that saw an increasing number of enterprises shedding their preference for cheap, customized and often messy versions of enterprise software for sleek packaged versions. The year saw an increasing number of organizations opting for packaged software. The trend of in-house development of software was clearly on the decline. Software vendors focused on specific verticals and incorporated the needs of these verticals while designing products. There was also a clear and conscious effort on the part of vendors to cut down deployment cycles. Organizations demanded open packaged software that could function across platforms—they got them.

Large vendors targeting high-end enterprises with large requirements dominated the Rs 1,996-crore packaged software market, according to DQ estimates. The application software segment was the largest component of the packaged software market with a contribution of about 45%. Application software is likely to continue to be the largest part of this market in the coming quarters as well.

The SME potential
According to IDC India, over 70% of enterprises in India fall into the small and medium enterprise (SME) segment, while the remaining are large organizations that have significant IT investment and usage. Though IT deployment is low in most SMEs, the segment has a strong need to implement IT systems in order to increase efficiencies.

Indian SMEs have typically been using customized enterprise applications developed by smaller software companies in order to keep costs low. Now, companies have realized the benefit of implementing standard, off-the-shelf but proven applications rather than customized applications. Vendors have also realized the potential of this segment and are increasingly launching lower-end versions of packaged software to capture the SME market.

While the SME market is a hub of activity, and investments in software for the segment by companies like SAP, Oracle and Microsoft bear witness to the fact, it must be noted that competition is extremely fierce since the differentiating factors are very limited. It is in this context that factors like operational efficiency and time-to-market become important and hold the key to determining the winners. SME markets demand software that is less expensive, easy to deploy and use, and which has flexible architecture. Moreover, the segment expects quicker implementation and faster RoI.

However, according to IDC, though there’s been a lot of talk about vendors targeting the SME segment, in reality, not too much of market penetration has taken place. The reason is that high-end vendors have found it difficult to scale down high-end software to offer it at lower price points to the SME sector. The other challenges are to understand the unique IT needs of the players in this sector and to convince them of the advantages accruing from IT.

The needs of this sector are different from those of large corporations and, in many ways, unique to them. For instance, the SMEs’ buying behavior and needs present some unique challenges, as they neither have overflowing coffers and nor are they bristling in combat gear, ready for one-upmanship. In view of limited budgets, they are willing to pay for functionality and not for the frills. They are more likely to select an application suite with "must-have" features and not lay emphasis on "best business practices".

Piracy continues to niggle
Piracy, the old bugbear of software product companies, continued to raise its ugly head in 2002-03, triggering off focused action from the companies affected most. India’s track record with regard to software piracy is relatively better when compared to other countries in the Asia-Pacific region like China, Vietnam, Indonesia and Pakistan. Continuing efforts by Nasscom, Business Software Alliance and the software vendors have led to an increase in awareness about the effect of piracy on both the local and national economy. In a recent study conducted for BSA, 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 could go up by more than $1.6 billion. Under some of the initiatives undertaken by vendors, Modular Infotech has been operating an in-house anti-piracy department that has conducted more than 340 successful raids in the past three years. The company’s flagship product—Shree-Lipi—is a popular DTP software in Indian languages, and unfortunately for Modular, also one of the most pirated ones.

The Big M: Giving just a little
Microsoft—the biggest player in the packaged software space in India—continued to dominate the desktop software space and it seems that it will be a good while before open source software can encroach on this space. On the enterprise side, however, for the first time, probably due to the increasing popularity of open source, Microsoft conceded to sharing software code with certain governments and key customers. April 2003 saw the launch of Windows Server 2003. Another launch is expected some time this year.

The Open Source uprising
Open Source software is rapidly shedding its "techies only" image to emerge as the OS increasingly being used across industries. Yet, troublesome issues with Linux have made sure that the unsettling of proprietary systems, if ever, is a distant possibility. A joint report by Dataquest and MAIT presented in January 2003 found that most Indian organizations are either exploring or already using Open Source systems, predominantly Linux. Furthermore, user companies approached by Dataquest-MAIT stated cost savings ranging from 40% to as high as 70% as a result of using Linux. However, the use is restricted to the file-and-print and communications level and though mission-critical applications are currently not run on the Linux platform, they could be in the near future. However, Linux deployment at the desktop level is a long way away.

While IBM has traditionally been a supporter of open source, companies like Oracle too have started aggressively advocating the use of Open Source. All Oracle products are now available on Linux. In March 2002, Oracle announced that it had joined the UnitedLinux consortium. Oracle provides the first level of support to all customers who deploy Oracle products on Linux. Virtually all leading IT vendors in India including Oracle, HP, IBM, Sun, Tata Consultancy Services and Wipro have developed products for the Linux platform.

So who’s using Linux?
In India, the Indian Railways Catering and Tourism Corp is using the Oracle E-Business Suite on Linux.

i-Flex is in the process of getting its products Linux-enabled. Even local language software vendors like Modular came up with Linux-based offerings. Modular’s Shree-Lipi Linux is a script processor for Indian languages, which can be used in any of the Windows applications. Web Samhita, a toolkit for the development of Indian language interactive web sites, can be used on Linux as well as Windows servers. Other major users included Reliance and the Tatas.

Topsy-turvy year for vendors
It was a year of upheaval with several global developments in the enterprise software space altering the dynamics of the industry. In June 2003, global enterprise software vendor PeopleSoft acquired J D Edwards and, in the same period, Oracle made a $6.2 billion hostile bid to acquire PeopleSoft. At the time of going to press, Oracle had upped its offer to $19.50 per PeopleSoft share from the original offer of $16. PeopleSoft has vociferously rejected Oracle’s bid and added "poison pills" to the potion—that is, agreeing to a $1.77 billion merger with smaller rival J D Edwards and creating new contracts that would require any PeopleSoft buyer to refund clients up to five times the value of their license agreement. Then, in June 2003, Baan, an enterprise SW company focused on the manufacturing segment, announced that its parent Invensys had agreed to sell it to an investment group consisting of two of the world’s leading private investment firms. Over the next few months, the group, which also owns SSA Global Tech, intends to combine Baan with SSA GT. The latter is a leading provider of enterprise solutions for process manufacturing, discrete manufacturing, consumer, services and public companies worldwide.

The future
The government and the banking, finance services and insurance (BFSI) sector drove growth in 2002-03. Linux software vendor Red Hat, for instance, says that 50% of its revenues came from the government. Microsoft, Oracle and PeopleSoft also indicated strong support from the government and expect it to continue. The year ahead is likely to see the emergence of niché players with domain expertise. As in the year gone by, increasing demand for products from verticals such as BFSI will be a major driver for the development of software products.

Manjiri Kalghatgi