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The recovery was well and truly back. Thanks to a generous dose of growth in
hardware shipments-everything from PCs and servers to storage and networking
devices-the software industry had good reason to end the fiscal with a smile.
With total revenues touching Rs 2,300 crore (DQ-IDC estimates), from enterprise
to the consumer class of software, the mood was clearly upbeat.
The Drivers
After multiple quarters of being in a wait-and-watch mode, with their
back-office applications firmly in place now, large enterprises finally decided
it was time to implement high-end business software. There were good deals
reported from vendors of tools like business intelligence, analytics, CRM and
SCM.
On the consumer's side, the booming growth in PC and notebook shipments (at
18-20%) pushed the demand for productivity software to Rs 225 cr-Rs 250 cr. A
sustained drop in prices of branded computers helped curb software piracy and
the net result was a significant jump in OS and productivity suite shipments
from vendors like Microsoft.
Another driver was the insistence of enterprises on shorter implementation
times. A blue-sky reengineering approach for package implementation gave way to
business flow accelerators, that significantly reduced go-live times to as low
as a few days in many cases.
This resulted in many users going in for off-the-shelf packages rather than
getting the software developed. A stronger manifestation of this trend was seen
in packages targeting small businesses-most of these packages, from vendors
like Microsoft, Oracle and SAP, offered a simple out-of-the-box functionality
with pre-configured applications bundled with requisite base software.
While spending was certainly up, customers demanded more bang for their buck-a
lot of conditions were demanded and added into the license contracts. This again
put pressure on vendors and CIOs to consider established and readymade software
packages.
There were other ramifications of the general economic upswing. For the last
few years, the industry promised increased efficiency and cost reductions as the
key driver for business software, while 2003-04 saw the focus returning back to
growing top-end for businesses. The business analytics vendors were the key
drivers-they proposed outright business and customer gains rather than cost
efficiencies with their software. In terms of architecture, 64-bit software was
still not happening and it is expected that it will be another two to three
years before a fully competent software ecosystem is developed around this
architecture.
Vertical Report
Among large enterprises, an overall mood of recovery, coupled with explosive
growth in verticals like telecom and BFSI added an otherwise missing thrust to
the uptake of enterprise-class software. A lot of focus was on consolidating
current deployments, and this took away the focus from basics like ERP.
Integration of applications was a major trend in the previous year exemplified
by Moser Baer, while ICICI and Indian Oil have already accomplished application
consolidation.
Like in every other segment last year, telecom companies pumped in huge
monies into software. The biggest reason was to manage a massive number of
subscribers-therefore everything from billing systems to network management
systems required additional resources and hence the demand for additional
licenses and new upgrades. Airtel, Tata Teleservices and Hutch lapped up
additional licenses.
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Linux Comes of Age
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The continuing maturity of Linux was visible throughout the year, as it made rapid strides to capture a 25%-30% market share in servers and a none-too-bad 4%-6% share in desktops in India. Market leader Red Hat reported a 100% year-on-year growth, thanks to a small base.
On the enterprise side, security and costs are given as the biggest driving factors for the growing adoption of Linux. Linux has a stable base in large enterprises and now the medium enterprises are willing to experiment and are hopping onto the Linux bandwagon. The big Linux deals last year were IRCTC (vendor management, using Oracle Apps on Red Hat Enterprise Linux), LIC (entire branch operations across 2,000 branches migrated from UNIX to Linux). Linux so far had been shipping on servers from all major vendors for a couple of years now, accounting for 10% of server shipments in Asia (excluding Japan in 2003), up from 7% in 2001. But one of the biggest trends of last year was the beginning of shipments of Linux on new PCs and laptops, particularly on low-end models from vendors as big as Acer, IBM and HP.
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The story was repeated on the banking side too as growth in number of ATMs
and branches combined with increase in assets under management forced the IT
teams of nearly all banks to implement everything from network management suites
to high-end analytics applications. Leading financial software players,
including Oracle and SAS profited. Oracle also sold its risk-management software
to banks like ICICI, HDFC, UTI and SBI. Explosive growth in the BPO segment
translated to genuine windfalls for hardware vendors. From basic productivity
suites like Office to unique business applications like transport and logistics
management, business process management and call management, all the software
pieces in the ecosystem grew with decent numbers.
An increased demand for end-user terminals in all these segments also drove
revenues for Microsoft's Windows OS and productivity suite, a business unit
that grew at a robust 25% over last year figures. With back-office applications
like ERP firmly in place, the manufacturing segment was a big consumer of
software in the domains of SCM and even project lifecycle management (PLM). But
it was the action in SMBs that dwarfed all that went into large enterprises-as
businesses of all sizes raced to tech-enable themselves. Mid-market ERPs and CRM
showed a tremendous jump and vindicated the strategies of players like SAP and
Oracle to enter the small business market, earlier left alone to small
independent software developers. IBM too jumped into fray and launched its 'express'
offerings for SMBs-including WebSphere Commerce Express to create and managed
e-commerce sites and WebSphere MQ-an EAI package to connect a variety of
different applications together so that small businesses could share data across
their IT infrastructure.
On Desktops and Laptops
Personal software market (productivity suites and OS for PCs) grew well last
year, riding piggyback on rising desktop and notebook shipments. But like
always, the action was limited to the market leader enjoying near-monopoly
status, whose biggest threat for growth was none other than software piracy
(above 70% as per BSA figures, 2002). Microsoft has reported growth in Windows
and Office software that is significantly higher than the growth of PCs and
desktops, thanks to increased segmentation of its product portfolio. The market
for productivity tools follows the trends of PC shipments to a large extent-consequently
a large chunk of business came from small businesses and BPO/IT services
companies. Government, particularly the education sector was another big driver
for revenues.
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Software Pirates Maintain Course
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The figure of 70%, of all software being sold as pirated software in India, is not a very pleasing one. And it affects the vendors of consumer/productivity software the most-the likes of Microsoft and Adobe. After years of trying hard to stop rampant piracy through raids, Microsoft shifted its battle plan and moved to what it calls a solutions approach to selling software, in combination with generating awareness about piracy issues. The solutions approach led to segmentation of its product profiles to suit different types of markets, and to make products affordable to target market, the most notable example being Office Student and Teacher edition. While almost all assembled PCs going to consumers were given with pirated software, another blow for Microsoft came with the launch of branded PCs shipping with Linux OS preinstalled, in September 2003.
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It was the consumer segment again which found noteworthy the launch of Office
Student and Teacher (S&T) edition, with a singular feature of halved price
compared to Office Standard. Microsoft is also betting on education as one of
the key drivers for PC adoption at home, and consequently working with education
boards like ICSE and CBSE for initiatives like electronic submissions of school
assignments. To increase its stranglehold in the government and PSU space, the
company launched Hindi versions of its Office suite in February this year, and
there are plans to launch more versions in local languages. PNB and the
department of I-T are some of the early adopters of the Hindi version.
Microsoft betted big on enhanced wireless and mobility features-to push its
software in the enterprise market. The launch of Smart Phones that could
exchange data with the latest versions of its back-end Exchange server also
roped in the top management of companies like ICICI Bank, Mahindra &
Mahindra and Infosys. In digital design and mapping business, Autodesk reported
a good year even as more and more companies in manufacturing, building and
infrastructure segments adopted digital design and mapping technology.
Highs and Lows
The lessons of the downturn were hard to forget and enterprises continued a
thrust on optimization of IT investments. The trend was more pronounced in large
enterprises which already have basic back-office applications like ERP in place.
It is estimated that more than 90% of all large enterprises (Rs 500 cr and above
in revenues) have ERP in place.
Consequently, the momentum for the ERP market shifted to medium and smaller
enterprises, a segment that did surprisingly well last year. CRM was another big
center of activity that grew rapidly in the low-end market, posting a growth of
approximately 50% over previous year. And it was not just big players in the
arena; even Microsoft played the ball aggressively with launch of its Office
Small Business Edition with tools like Business Contact Manager. Despite all the
hype, business intelligence was still not hot last year. There were some
high-end deployments in banking, for example IDBI Bank (risk management
software, SAS), Citibank (advanced analytics across Asia-PAC, SAS).
In messaging and collaboration software, Microsoft Exchange ruled the roost,
even as Sendmail (on Linux/UNIX) continued to creep up slowly in large
enterprises. It was something that prompted Microsoft to launch a campaign
featuring TCO comparisons.
How the Majors Fared
Business was better than good for most major software companies last fiscal.
Microsoft saw a good uptake of ISA Server (for managing network and security)
and BizTalk server (an enterprise application integration product). High IT
deployment sites like BHEL and government (Ministry of IT) were some of the
early adopters of the product, which is only beginning to gain a momentum.
Market for basic infrastructure software like Windows and Exchange server
experienced stable growth.
The software giant reported high growth for its database product, SQL Server
2003, launched in October 2003. Volume business from IT and BPO services plus
orders from BFSI, government, telecom and manufacturing were big drivers for
database growth. The company leveraged its clout and worked to tightly integrate
its business and back-office offerings with desktops and end-user devices. The
BizTalk server is again tightly integrated with the desktop-for example it
allows senior management to constantly monitor application integration projects.
Oracle saw its strongest overall growth in the last five years. In the large
enterprise space, the company launched its 10g suite with upgrades to its
database and application server. The new package can enable grid computing and
had built-in software for clustering, replication and file and volume
management. NSE is one of the few organizations to use grid-computing features
of Oracle 10g platform.
Huge business was reported from government (taxation), banking and telecom.
Oracle reported that it has captured above 90% of telecom and 80% of the BFSI
market in India. Last year Tata, Bharti, Hutch and Idea were the main drivers of
growth for Oracle. In the manufacturing segment, new niches like paper industry,
dairy and clinical research industry made up the focus for the company, while in
government a majority of deals emerged from the Department of IT, defense, and
state utilities and municipalities.
The company also tried to make a dent in small enterprises with the launch of
its Database Standard Edition One, which was priced lower than Microsoft's SQL
Server for a 5-user license. Another product targeted at the same market was
E-biz suite Special Edition with an out-of-the-box functionality for most
back-office applications, bundled along an Intel Linux Server for a minimum
amount of Rs 16 lakh (finance application). The two packages proved a winner for
departmental applications and found major takers in banking (branch level
applications) and government (gram panchayats, municipalities). The midmarkets
contributed 40% to Oracle's overall business. Oracle was a big supporter of
Linux and engaged itself to providing first level (code-level) support for Linux
to all its customers of database, application server and E-biz Suite.
What Lies Ahead
The huge untapped potential of SME segment is expected to keep inventories
turning at packaged software vendors' end. The continuing recovery will
provide a fair deal of impetus to large enterprises purchasing high-end business
software. The expected growth in PC shipments and lowering of duties will also
boost revenues of productivity application vendors. All in all, 2003-04 may have
just seen the beginning of a good phase, and the boom may be just ahead.
Rishi Seth in New Delhi
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