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Bharat Goenka, managing director, Tally says, "ERP is a bad word," batting an eyelid, forcing a smile. It is no mystic grin. The three-letter word is still aspirational. And still, Tally is one of the few Indian successes, in the accounting software space.

The demystification is in the numbers. If we take all the ERP companies considered successful, all their customers wouldn't account for even 1% of the market-considering there are 200,000 businesses in India who are potential ERP patrons, according to industry sources.

A sea of opportunity is there, but rafting in rough waters is no fun. Goenka is willing to risk it as Tally finds inspiration in a 'bad word' to move to the next level of growth.

This looks like an obvious thing to do. Tally closed FY 2005 with revenues of Rs 229 crore, had 600,000 legal customers-mostly in the small enterprise and single-user space, and has over 60% market share in the SMB segment. It grew 118% last year, reducing licensing costs, battling piracy, and introducing VAT-compliant solutions.

However, this kind of growth may be difficult to sustain under the one big mast of accounting software. It cannot outgrow the market. Two, the traditional Indian small market, which till sometime back had probably not felt the need for an ERP solution, is undergoing a silent change. Enterprises in this segment (let's say companies in the Rs 5–50 crore range) had automated their accounting practices but nothing beyond that. Where this had been done, the solutions came mostly from local, unorganized vendors who implemented 'homegrown ERP'. With many enterprises in this segment now competing internationally, they need better processes in place. Some of Tally's traditional customers, it is said, were keen on upgrading to an ERP, leaving the company little choice.

Right choice it may be. But it will be a battle where babies of the industry will meet the elders. The aspirations of bigger vendors like SAP could earlier be satiated by mid and large enterprises. However, there are very few large enterprises without an ERP. The mid market cup has started to fill. There is growth to be had here, but people are looking at the next level-the small market.

There are varying theories on what constitutes the small business space. Frost & Sullivan says companies with less than Rs 3 crore annual turnover comprise it, and there are two kinds of ERP companies wooing them. One, vendors who were earlier focused on the top and middle of the Indian enterprise pyramid-SAP is a good example, considering its recent focus on the companies at bottom of the pyramid. The second kind is more interesting. Traditionally, there were no players who rose from the bottom and saw opportunity here.

It will happen now, with Tally moving in. It has a good number of existing customers, many of whom use pirated copies. "Since you cannot grow more, being the number one already in the accounting business, it is logical to upgrade functionality and add more features in the suite. Besides existing legal customers becoming a prospect, people using pirated software might also be brought into the fold because ERP is about implementation and less about pirated copy use," says Alok Shende, director, ICT Practice, Frost & Sullivan.

Also, many people are very comfortable using Tally. It has great degree of stickiness in terms of menu and logic of applications, among other features. So, chances are, Tally would not change the front end of the ERP package. However, the back end, which has the business logic, databases, etc, will need to be made stronger.

It will thus be an interesting battle to watch. On one side you have a traditional ERP player who has been successful in all tiers of its market, versus a homegrown company with a huge base of customers. The success, initially, will be in giving the existing users an easy migration path. "We will have our hands full trying to keep them happy," Goenka quips. Happiness for the customer will be featured in Tally's ground-up design.

Speed Matters
Why have so many ERP companies failed in penetrating the Indian market? That's because most focus on implementation and not on the lifecycle of the implementation, says Goenka. Speed matters. Every organization changes in approximately 2.5 years-in scale and type of activity, and the type of customers it addresses. So, there is an ongoing effort in modifying the systems, rather than effectively utilizing them.

Tally will play on the speed factor which is a problem for the MNCs too. Can SAP deploy 10,000 solutions in one year in India? "In 18 years, they have 3,600 customers all over the world. Let's assume a company is able to do 1,000 installations a year. Then it will take 200 years for it to reach the figure of 200,000," Goenka reasons.

On an average, 15 people are required for an ERP implementation. It takes six months to one year to implement. Assuming that it happens in 6 months, with 15 people it will take 7.5 man years. So, 200,000 implementations in say four years means 50,000 per year. If 7.5 people are required per installation-about 400,000 people would have to be mobilized, including the SIs. Where are that many people?

Goenka claim that it should not take more than 6 to 9 man months to implement Tally's solution. In doing so, it expects to mobilize about 7,000 people.

That involves enabling a significant ecosystem of trained SIs. Tally already has an ecosystem of 14,000 people, who are selling its small-enterprise products. Out of that, around 200 are capable of, or are already, delivering solutions to the mid-enterprise and large-enterprises. They will automatically become part of the company's new ecosystem. "In the next six months we hope to engage another 100-150 SIs. We should be creating an ecosystem of 400 SIs," says Goenka. He is not talking to the big SIs yet. That will happen after a formal entry into the market is announced in January.

Micro Verticalize
D Kalyanaraman, managing director of Tally's partner company JL Infomatrix, says, the solution has potential to usurp the entire mid-market space because of its robust and simple-to-use characteristics.

January will, therefore, be crucial to the competition. But vendors like 3i Infotech say they have nothing to fear since they are already positioned in the mid-sized market for the last two years. RK Kanthi, group head, Enterprise Solutions, 3i Infotech, says, they are not in the tier-one market. It is SAP and Tally that are now coming in their area. And adds, "Our advantage is our approach."

The approach is micro verticalization. All enterprises in the Indian scenario are worried about cost-buying a software, implementation, and postimplementation maintenance support. Besides, they want to know how vendors can reduce the cost? A user friendly and easy to maintain ERP, as Tally claims about its solution, is one answer. The other comes from 3i Infotech that says, goes with having all ERP micro verticalized. "For example, we have a product called Orion Advantage Auto Components. This ERP is only for the auto component manufacturing segment. So, there is no need for business study, mapping, no need for customization. Only the specific functionality for the specified vertical is available," Kanthi says. The company has such micro veticalizations for auto components, the process and chemical industry, and textile and apparel industry. Their implementation time for the SMEs is typically 45 days.

The company's hope: Tally will take a long time to settle in-by the time it comes out with micro-verticals, 3i Infotech would be way ahead with 8-10 verticals. It could be in for a surprise though as some of Tally's partners have already developed or are developing for verticals. JL Infomatrix, for example, is building vertical solutions for the apparel and the jewelry industry. Kalyanaraman says, it would take a maximum of two months for Tally's partners to build for one vertical.

SAP, on the other hand, says it has stood the test of time against all kinds of competitors. "If you look at the number of new wins in Q3 of 2005, there were 27 in the SMB space-more than all the competition put together. We have a value proposition, which is very sound," says Nagaraj Bhargava, director marketing, Alliances and Sales Operations, SAP.

He predicts a resource problem for the startups. "Let us take just one example of the underlying technology-you will have to be available on multiple databases; on multiple operating systems, which means that you will have to put resources behind each one of these if you want to deliver on a constant basis," he says.

"Customers buy business solutions to use over many years. This means that all parts and modules of your product can be upgraded. It just requires a lot of resources, money, and sustained involvement. It is not about building a fantastic product today. It is about building it on an everyday basis," he adds.

Shende, however, opines that Tally will remain untouched by money crunch: "Tally is not starting from scratch. It has been in the market for nearly two decades, and has amortized the software development costs for its accounting solution long time ago. In fact, it should be very profitable by now. They can afford to pump in enormous money into ERP development."

The fine line is that building an ERP product for a large enterprise is very different from doing so for a small company. The difference mainly is in complexity. So, the R&D resources Tally has pumped in to build and maintain the product, have not been enormous.

Knowing more about the company's RoI from its ERP arm will have to be a long wait though.

Goutam Das in Bangalore

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