PACKAGED SOFTWARE: Brighter Days Ahead

Fiscal 2001-02, with a sales of Rs 1,900 crore, saw a marginal decline of two percent over FY 2000-01 in packaged software sales. However, with good sales being reported in AMJ 2002, partners are optimistic about a healthy JAS quarter, both in terms of revenue and margins.

When the going seemed to be good for the pac-kaged software industry, the
year 2001-02 came as a dampener with a negative growth of two percent. The DQ
Top-20 figures show a revenue of Rs 1,900 crore for the last fiscal against Rs
1,944 crore for 2000-01.

But IDC and Nasscom have a different story to tell. IDC estimates that the
Indian market for packaged software was about Rs 1,750 crore in calendar year
2001. This is expected to increase to Rs 4,170 crore by 2006, displaying a CAGR
of 19 percent.

The Nasscom annual industry survey reveals that the domestic software
industry, which includes packaged software as well as services, clocked a
revenue of Rs 11,500 crore in 2001-2002 as compared to Rs 9,890 crore in
2000-2001. The domestic market is expected to grow to Rs 13,200 crore in
2002-2003.

PARTNERS SAIL SMOOTHLY

Software resellers in the country are a happy lot. Infotechnics India
recorded a turnover of Rs 8 crore in 2001-02, up from Rs 6 crore in the previous
fiscal. Says Sanjiv Bhavnani, MD, Infotechnics, "The JAS quarter is
expected to be good and we expect to close it at Rs 3 crore. We have already
done Rs 1.5 crore business in July alone."

Comp-Mart doubled its revenues to Rs 20 lakh in 2001-02. Says company’s CEO
Anuj Ahuja, "The efforts put in by us in AMJ are beginning to bear fruit in
July. September is expected to be good."

Microsoft dealer Naresh Nagpal of Automation Systems, which clocked Rs 45
lakh in 2001-02, too has great expectations from the current fiscal. "We
have already done over Rs 25 lakh in the first six months this year. The next
few months are expected to be better because of Microsoft’s aggressive
anti-piracy efforts."

Logix Microsystems expects its annual growth to be 40 percent over the
earlier year’s Rs 3.5 crore. Mumbai-based Aladdin Mulitmedia’s revenue for
2001-02 was Rs 2 crore, which is poised to touch Rs 3 crore this fiscal.

Bangalore’s Cranes Software gathered Rs 11.93 crore from packaged software
in 2001-02. Says . Pradeep Kumar - Sr. Vice President for the company, "Our AMJ
revenues for 2002 grew by 476 percent to touch Rs 6.60 crore, as compared to the
same period last year."

OPPORTUNITY AREAS

With the growing complexity of networks, organizations are fearful about the
security of data as well as the network. Says V Shekar Avasty from IDC,
"The data that resides on the networked environment is much more valuable
than the network itself." So, protecting the network from various hazards
like virus and hackers requires special expertise that end-user organizations
find themselves incapable of handling internally.

This
has given rise to increased sales of security software. Says J Prasanna, CTO,
Technovator - Team Blue, Prudente Solution, "We work only on security and
we know it is a very fast growing area." However, he adds that
opportunities lie more in servicing customers than in selling a plain vanilla
box.

Rajeev Warrier, Channel Manager of Aladdin Multimedia adds that firewalls are
also good selling propositions. "Checkpoint, which has been in India for
the past three years, was targeting only the top 500 companies till recently.
Now, their solutions are sought even by companies with 50 PCs," he beams.

Which are the other key areas in software business that spell good business
for the channel? As per the Nasscom survey, there are a number of opportunities
emerging in the domestic sector, which will help catalyze growth in the next two
to three years. These include the energy, insurance, financial and banking
services, e-governance and the manufacturing sector.

Realizing this, companies like Vikas Microchip have started shifting their
focus towards other vertical segments like financial institutions, health and
hospitality, educational institutions, which still offer opportunities for
companies more focused on services. It is also making a foray into niche areas
like embedded applications.

SELL WELL WITH HARDSELL

Overall, in the packaged software market, anti-virus and OS packs sold well.
Says Anuj, "In OS, Microsoft is the leading brand, while Norton leads in
anti-virus. Trend Micro and McAfee also sell well."

Sanjiv, on the other hand finds that Novell is their strongest brand followed
by Microsoft and Oracle. CA and Network Associates lead in security. Automation
Systems’ Norton sales are encouraging, followed by business in McAfee.
Anti-virus packages contribute 75 percent of Aladdin Multimedia’s overall
business.

Some new names have also appeared on the scene. One of them is Matlab, which
caters to mathematical modeling and simulation solutions. In fact, it was one of
the most prominent brands sold by Cranes Software.

Nucleus was a new entrant in the real time operating systems market this
year. Since its launch less than six months ago, it has garnered five percent
marketshare. This product, which is ideal for embedded software applications, is
efficient in code execution and code size to bring the maximum in robustness and
feature support.

Logix Microsystems did fairly good business in Hummingbird’s Exceed
packages. The Exceed family of products for Windows-based PCs includes the
Exceed X Server software, Exceed XDK - the X Window system development kit and
Exceed 3D-support for the advanced graphical computing power of OpenGL. Says
Sanjay Soni of Logix, "This brand owns 62 percent marketshare worldwide and
is becoming rapidly famous in India too."

MARGIN BARGAIN

Sales
margins in software are comparatively higher than in hardware business. This is
because hardware selling often amounts to selling boxes. But software comprises
a gamut of services. And this is a recurring source of business. Explains Sanjiv
of Infotechnics, "Margins largely depend on whom we sell to. Since we
largely deliver comprehensive solutions, margins are healthy."

In a software box sale, margins depend on whether the sale is being made to
an OEM or an end user. A reseller like Prudente Solutions can earn 10 to 15
percent margin on the product value for end-users. Says Naresh Nagpal of
Automation Systems, "We primarily sell to corporates and government
segments and our margins range from seven to 10 percent."

Rajeev Warrier of Aladdin states that margins for sales of retail software
products like Microsoft would be four to five percent. Though the margins are
low in this product segment, the volumes are very high. "For other software
that need installation, implementation and post-sales support, margins are
almost 20 -30 percent," he says. Sanjay of Logix too concurs that margins
are typically in region of 15 percent, which includes post-sales service.

PROMOTIONS BRING IN SALES

Like in the hardware industry, promotions play an important role in boosting
software business too. And vendors keep shelling out innovative schemes to help
their channel achieve sales targets. With the festival season around the corner,
Symantec is working on launching special offers for its 100 retail outlets.

Adobe, on the other hand, would continue focusing on end-user events to keep
customers updated on benefits they can derive from technologies like Indesign
2.0, Acrobat and FrameMaker 7.0. Says Sandeep Mehrotra, Channel Account Manager,
Adobe India, "We would also continue to enhance our partners’ skillsets
so that they understand our products better and are able to handle customer
queries much more efficiently."

	"We provide support to users through mail and a toll-free number which terminates at our Philippines center"
Sandeep Mehrotra, Channel Account Manager, Adobe India

Vendors have struck on seminars as the ideal way to keep in touch with
partners and buyers. Macromedia conducts seminars in four cities every quarter
for different market segments like education and government. This is in addition
to direct mailers and e-mail blasts for customers in their database. Says
Shriram Krishnamachari, Country Manager - India, Macromedia, "For the
channel, we have an alliance partner program for dealers, solution partners,
ISVs as well as training partners."

And the channel truly appreciates these vendor initiatives.

Says J Prasanna, "Promotions like advertisements, seminars and awareness
programs are very useful and essential to sell products."

Besides education drives, vendors also allot marketing funds to performing
partners to improve their business. Explains Rajeev, "Every vendor offers
sales targets to its partners and if the dealer achieves that target, it grants
a certain marketing allowance. So dealers can decide on the local
promotions." Aladdin, for instance, bundles informative CDs with the
software packs.

STRESS ON SERVICE

Service is an integral component of packaged software business. In fact,
several partners make more money on services than actually selling packages.

A case in point is Prudente, whose consultation and services division makes
at least thrice as much revenue as its packaged products.

Vendors understand that empowering the channel to provide services is very
imperative. One way of achieving this objective is by having periodic technical
seminars for the service personnel of the dealer as well as devising
certification programs.

Macromedia, for instance, gives collateral support, access to their Extranet
and shares sales leads with their dealer network of 26 preferred and three
education resellers.

Besides empowering the channel, it’s also important to provide end-user
service support. Sandeep of Adobe says, "For people who use our legal
software, we provide support through mail and a toll-free number which
terminates in our support center in Philippines."

Dealers have also wised up on providing service packages in addition to
selling products. Majority of them sign up customers for AMC aggrements, which
is renewed year on year.

Rajeev Warrier of Aladdin says, "Our customers have the option of
signing an annual AMC with us, which costs 25 percent of the order value. This
contract includes onsite, e-mail and telephone support. If customers do not wish
to take this package at the time of sale, they can go for it at a later period
too."

Aladdin Multimedia also has symbiotic service agreements with partners in the
other cities. "If they service our customer, we give them a certain
percentage of the cost for every support call and we do the same for their
customers in cities where we have our offices," explains Rajeev.

PIRACY TAKES ITS TOLL

Ask about the biggest problem faced by the packaged software industry, and
vendors and partners unanimously say "Piracy"! According to IDC
estimates, the money lost in 2001 from pirated software is estimated to be close
to $245 million in India, which is almost half of the legal packaged software
market.

Talking about how piracy affects the industry in general, Sanjeev Mathur,
Head-Marketing, Microsoft India says, "Indian and foreign software
companies who invest in local employees, research and local business partners
cannot compete with those selling illegal software at a fraction of the
cost."

The legitimate software industry creates thousands of highly skilled jobs,
generates millions in tax revenue, opens up entry into the global marketplace
and provides the foundation for a knowledge economy. On the other hand, software
piracy, contributes to revenues of organized criminal enterprises that
manufacture the illegal software and ultimately results in thousands of jobs
being lost in the genuine channel in local economies which acts as a deterrent
for economic growth.

Shriram says, "There is 80 percent piracy of several Macromedia products
like Flash and DreamWeaver.

Nagesh of Automation explains how the whiplash of piracy affects members of
the channel fraternity. "Our major investment is in buying software from
our principals and then it’s never sold because of pirated products being
readily available in the market. We don´t get proper returns from our
investments and it affects our bottomline."

FIGHTING PIRACY TOOTH AND NAIL

In
a bid to fight the piracy menace, vendors have affiliated themselves to Nasscom
and Business Software Alliance (BSA). In addition to this, vendors like Symantec
conduct awareness programs and seminars to educate customers on why they should
refrain from buying pirated copies. Macromedia periodically educates users on
licensing policies and asset management through mails and meetings.

Says Sanjeev, "As India moves towards knowledge-based economy, the
protection of knowledge capital is essential for future growth and therefore it
becomes essential that the industry and Government join hands to eradicate
software piracy."

Instead of relying merely on vendors to take piracy by the horns, dealers too
are going that extra mile to educate customers.

Says J Prasanna, "We have taken steps like giving better value adds like
support, launch alerts, security patches and concentrating on the mass market to
improve our bottomline."

Naresh Nagpal has noticed a positive shift in the market with assemblers too
promoting legal software. He adds that several buyer segments are waking to the
realization that though priced high, genuine software offers better performance.
"This buying mentality exists largely in software development centers, as
they prefer the full version of a particular software and do not mind paying for
it," he says.

SOFTWARE CHANNEL PROBLEMS

Besides piracy there are other issues that affect software dealers. One of
them is getting stuck with inventory of out-dated versions, when newer ones are
introduced. Says Sanjiv of Infotechnics, "Presently we are stuck with
stocks of MS, Novell and Network Associates." Anuj seconds this problem
saying that holding inventory of outdated versions kills margins.

But Rajeev Warrier of Aladdin says this is not true. "There is a global
trend that new versions are usually launched in the month of September. So
dealers can make their inventory projections accordingly." He adds that
distributors also offer buy-back policies when a new version is announced. But
to avail of this partners have to inform distributors about the stock of earlier
versions lying with them immediately. "I doubt any distributor will
entertain buy back claims a month after the latest version has been
launched," he quips.

Explaining warranty to customers can be another touchy matter. Customer
expectations about warranty are very high. One must remember that a software is
not a product but a program, so there can really be no manufacturing defect per
se. Laments Nagesh, "If the software fails to perform, it could be due to a
file deletion or corruption. Even then, the customer expects free onsite support
and reloading of the software." He urges that vendors need to educate
end-users about this aspect too.

Rajeev elucidates another unique problem which was faced by dealers – that
of the Weights and Measures Act which stipulated that the weight of the product
be mentioned on the MRP label on the cover. "We had to change the packaging
of all our products when the MRP rule came into effect. And our problem was
compounded by the fact that we could not mention the weight of the
software," he adds. Dealers approached trade associations, which took up
this issue with vendors and it was later resolved. Now only the name of the
software vendor and the price is mentioned on the label.

Pradeep Kumar lists out another problem faced by Cranes Software. "Due to the
fallout of the 1998 sanctions, scientific software packages could not be kept as
inventory. Each and every order had to be processed as per laws in the US,"
he says. "This in turn reduces our turnaround time and thus effects our
revenue inflow."

These problems aside, packaged software dealers are optimistic of what the
future holds in store for them. In fact, like one dealer pointed out, hardware
resellers too have realized how lucrative selling software can be and have
joined the legion of software dealers.

The increase in PC penetration, falling rates of PCs and gradual
computerization of processes only means that the market will continue to grow.
Essentially, it means more profits and better business for partners.

VINITA BHATIA in MUMBAI with inputs from MOHIT CHHABRA in NEW DELHI and
SUNILA PAUL in BANGALORE