PACKAGED SOFTWARE: The Going Gets Better

Packaged software business in the country has reported a healthy growth of
around 15 percent in JAS’02 over AMJ’02. Resellers are confident of at least
25 percent growth in the current fiscal. Also, there is an increasing trend of
resellers doing value-selling by offering solutions and services, which has
become their ultimate mantra for survival in times of shrinking margins.

The going was tough for the packaged soft- ware business last fiscal with it
registering a negative growth of two percent (Source: DQ Top 20). This decline
was largely attributed to the overall economic slowdown and alarming piracy
levels.

However, if the sales figures of the first two quarters of the current fiscal
(AMJ and JAS) are any indication, the year may well end up painting a rosy
picture for the packaged software business in the country. Both vendors and
partners have reported a growth ranging between 20 and 30 percent in the first
half of FY 2001-2002 as compared to the same period last fiscal.

This growth goes well in sync with IDC’s prediction that packaged software
will have a CAGR of 35 percent till 2002. The current market size for packaged
software is estimated to be in the region of Rs 1,900-Rs 2,000 crore.

JAS SCORES OVER AMJ

Though
individually, partners report of varying quarter-on-quarter growth, they are
unanimous in affirming that JAS’02 has been a better quarter compared to AMJ’02.
On an average, they feel that the business has increased by 10-15 percent. Says
Sanjay Parnandiwar, CEO, Datapro Infoworld, "JAS quarter by and large
performed better than the AMJ. We were able to meet 70 percent of our targets,
which in the current market scenario is a good sign. September was so far the
best month in the current fiscal."

Many partners feel that a quarter-on-quarter growth in packaged software
business may not be remarkable but the cumulative effect reflects at the
year-end. "The growth has been marginal for us in JAS where we did a
business of about Rs 11.5 crore as compared to Rs 10 crore in AMJ," informs
Premal Nanavati, Regional Manager, Fiona Infosystems. Premal adds that though
the growth has not been as expected, he is confident that by the time year ends,
sales would have happened to meet the set targets.

Aladdin Multimedia, another software reseller reports that it has witnessed a
small but significant growth in JAS over AMJ. "Our business for the AMJ
quarter was Rs 30 lakh, which increased by over 10 percent in JAS," says
Rajiv Warrier, MD, Alladdin Multimedia. And Rajiv has his reasons to feel good.
"The combined revenues of the last two quarter indicate a 25 percent
increase over a similar period last year," informs he.

Vendors too have given away optimistic figures touting as much as 35-50
percent half-yearly growths. Says Pravir Arora, Channel Head, India and SAARC
Regions, Computer Associates, "Our packaged software business has grown
significantly over corresponding quarters in recent times. The distribution
business has grown by over 50 percent in the H1 of FY 02 as compared to H1 of FY
01." Other companies including Network Associates, Macromedia and Borland
too have reported good growth in the last two quarters.

Says Shriram Krishnamachari, Country Manager, Macromedia, "Sales has
increased this AMJ and JAS over corresponding period last year by 36
percent." Though official figures from Microsoft and Adobe were not
available, market sources feel that the business from these vendors too have
increased by at least 25 percent. Among other fast-moving products, sales of
those from Network Associates too went up. "We have recorded a growth of 22
percent in the first half of 2002-03 as compared to the first half in 2001-02.
Also JAS as usual has been much better than AMJ," says Vishwajeet Deshmukh,
Country Manager, Network Associates.

THE GOING GETS BETTER

However, all this visible growth has not come by itself. Vendors attribute a
large reason behind this growth to the increased IT spending across
organizations, awareness about separate budgetary allocation for software needs
of the enterprise, increasing e-governance initiatives and appreciable
permeation of IT in the education segment. And most importantly what has
impacted directly resulting in this growth is clamp-down on piracy. With
aggressive efforts undertaken by Nasscom, BSA and several vendors, piracy rates
has come down from what was 90 percent plus couple of years to ago to about 60
percent today.

And it is the combination of all these positive factors that has triggered
optimism among vendors and partners for a decent OND quarter and a healthy JFM
quarter. Though business in October and first half of November is rendered slow
on account of festivities, partners are hopeful the remaining period especially
the month of December will bring in good business.

"We are expecting to cross Rs 5 crore in the OND quarter," says JC
Chouta of Mumbai-based Technology Solutions Group (TSG). TSG reported sales of
about Rs 3.5 crore in the quarter gone by. Bangalore-based open source software
reseller GT Enterprises too hopes of a reasonably good OND. Says G Taranath, MD,
GT Enterprises, "The buying for these software products is expected to
increase during OND 2002 by about 20 percent. This growth would largely result
due to our participation at BangaloreIT.com."

LDS Infotech, another Mumbai-based software reseller has pinned his hopes on
the month of December. "We grew by 25 percent in JAS over AMJ. Though
traditionally, October and November are not great months in terms of business,
we expect sales to move northwards in December," says Amarnath Shetty,
Director, LDS Infotech. According to Amarnath, buying from SMEs and educational
sector will drive this growth.

Sanjay of Datapro too expects that OND should be at least as good as JAS if
not better. "Actually, the sales dynamics have become quite predictable
these days. What we observe is that we have alternate ‘good’ and ‘not-so-good’
months. November hasn’t been so good for us but December will get us the right
numbers," he adds. Sanjay feels that government buying would increase with
the turn of new calendar year and "JFM may well turn out to be the best
quarter in the current financial."

Similar optimism is echoed by Venkatchalapathi, MD, Vikas Microchip. Says he,
"OND quarter started off on a positive note. We are expecting at least a 15
percent increase compared to the previous quarter and a 30 percent growth in JFM."
Aladdin Multimedia too has set sights on a 25-30 percent growth in the ongoing
quarter.

STAR PERFORMERS

So, which are the products that are showing prospects of good times ahead?
"There’s no one product which is bringing about growth single-handedly.
Instead it´s the increased end-user buying across different product categories
that is propelling this growth," opine majority of the resellers.

However, if one were to look at products moving fast in the market, Microsoft
reigns as the unquestioned leader. Sources peg MS products to contribute between
70 and 80 percent to the overall packaged software revenue.

Says Premal of Fiona, "MS Office and Windows 2000 Server win hands down
in office suites and server operating system category. Also, anti-virus
solutions from Symantec would have an edge over its competitors."

Agrees Rajiv, "Out of every 10 anti-virus packages that we sell, five
are from Symantec, three to four from Network Associates while one or two from
Trend Micro." On the web-publishing and content authoring front, Macromedia
holds the lead with its wide range of product offering and a strong focus on its
target segment which largely comprises software development companies.

In the DTP software arena, Adobe, Corel and Quark Xpress are some of the
major players, in that order. "Adobe has a large acceptability as it widely
gets used in the publishing business. Corel on the other hand is primarily used
at a business level and may not necessarily be used at a production level,"
says Harindar Salvan of Tricom Multimedia. Tricom primarily deals in publishing
and video editing software packages. "Discreet’s video editing products
are gaining good acceptance in the market despite their high pricing,"
informs Harindar.

Another area which is slowly but steadily picking up demand is the gaming and
multimedia software. "We have witnessed a 200 percent growth in the sales
of gaming software," informs Rajiv. Players like Cyber Multimedia,
Milestone and Times Multimedia are aggressively promoting their products in this
segment.

But in all this if there is one software segment which presents a sorry
picture, it is the language software. When MAIT conducted a study way back in
1999 on the Indian language software industry, it pegged the potential size at
Rs 500-600 crore. Three years have passed since then and this segment
contributes no more than Rs 100 crore, speaking of a huge need to tap this
market.

Interestingly, most of the big IT players have so far shied away from
entering this arena. And none of those who are well-known players have revenue
crossing even Rs 10 crore. Ironically, some of these products are getting
shipped at as low as Rs 800-1,000 levels, leaving wafer-thin margins for the
players. And so it doesn’t come as a surprise that IT channels are yet to
adopt language software packages with the same gusto as they do for other
popular products.

BUT WOES ARE NO LESS

Even in the popular software arena, what seems like a rosy scenario is not
without its share of thorns. Shrinking margins, payment delays, inadequate
training from vendors and piracy still continues to bog the channel. Two to four
percent is the margin that majority of resellers claim to operate on especially
in the case of MS products. Even in other products, margins hardly reach
double-digits, claim partners.

"We earn not more than four percent in MS and ten percent in Adobe and
Autodesk products," laments Chouta of TSG. Amarnath of LDS Infotech has a
similar grievance. "Three to four percent is the kind of margin that we
manage on an average. It is only because of schemes and special pricing for the
educational segment, that we get to add to out bottomlines," confides he.

Datapro Infoworld, which is a distributor, has a bigger woe. "Being a
distributor, we are in a most disadvantageous position. Resellers can at least
claim back-ends and sell at better margins to end-users. For us such a
possibility doesn’t exist at all," says Datapro’s CEO Sanjay.

But even the leading resellers are not immune to such and other problems.
Fiona for instance grieves of payment delays apart from shrinking margins. Says
Premal, "Payment delays from corporate customers are making things worse
for us. In fact, we have refused orders on occasions because of liquidity
problems." Premal informs that Fiona is now keener on doing a very
selective business, one which helps strengthen its bottomline.

Vendors too are not untouched by problems. Says Satyen Parikh, MD-Indian
Subcontinent, Borland India, "Piracy is high in packaged software and this
is our major concern, as this hinders our revenue stream. Other concerns are
elongated decision process related to projects that gets delayed."

"Among other problems, differentiated schemes for different partners
create an issue. Vendors fail to realize that there is a high degree of overlap
between partner segments for which the schemes are being run," opines
Ashish Agarwal, Trifin Technologies. According to Ashish, multi-tier schemes
lead to discounting and offer no tangible benefits per se.

Training is another area where partners feel that a lot is left to be
desired. "Training from vendors is just insufficient. With newer product
launches and upgrades regularly taking place, training in a similar proportion
is not happening," complains Rajiv. A grouse that is also shared by
Amarnath of LDs Infotech and Chouta of TSG.

However, Macromedia’s Shriram counters these allegations. Says he, "We
do conduct regular channel training sessions and are very proactive in our
communication with the channel." Agrees Dr Nitin Paranjape, CMD, Maestros,
a Microsoft gold partner, "As far as Microsoft is concerned, their training
and support are quite satisfactory." However, he is quick to add that
proactivity is lacking at vendor’s end. "Indian software vendors today
are more reactive in their approach when it comes to provide support. Their
mindset is still that support is an added expense, which they want to
minimize," opines he. According to Nitin, vendors need to re-look at the
way they consider support in their entire business model.

THE THREE ´S´ FOR SURVIVAL

THE THREE ´S´ FOR SURVIVAL

So while vendors are left to re-look at their business approach, partners
are not the ones to sit down and let things go by. The woes which until some
time ago were synonymous with IT hardware business have now started inflicting
software business too. And this is something that partners realize just too
well. And so the obvious remedial measure that they have adopted for a healthy
survival is no less similar to what the hardware resellers did: Switch into
value-addition mode.

Today an increasing number of software resellers are moving up the value
chain by adopting the ´Three S´ mantra into their business model. The three
‘S’s here are: Service, support and solution. Partners realize that in order
to strengthen their bottomlines and get an edge over competition, they need to
place value over the product and then sell it together.

This addition can happen by providing services which includes activities like
installation and maintenance. One can even offer support which can be in the
form of a simple telephonic helpdesk to addressing customer queries through
e-mail, updating them on latest upgrades through mailers and escalating the
end-user problems to the right level at vendor’s end.

And lastly, one can do value-add by offering solutions. These could be either
end-to-end software solutions or can even extend to a mix of hardware and
software solution. Consultancy can be made a key feature while offering
solutions.

As rightly put by Nitin, the need of the hour is to indulge in value-based
selling. Explaining what his organization is doing in this regard, he says,
"What we have observed is that with every new software, the number of
features increases and so does the level of ignorance of end-users. Even the
most widely used softwares today are not optimally used. This is the area where
we have identified to make money. We convert software features into business
functionalities, demonstrate it to clients and prove it to them as to how this
would enhance their overall business processes."

According to Nitin, real challenge lies not in selling the product but in
making the client understand the scope of the product and offering a solution so
that the product could be used to yeild maximum benefits for the organization.

Understandably, it is this vision that drives Nitin’s optimism.
"Services alone contributed Rs 3 crore to our overall revenue last fiscal
and we are expecting a 70 percent growth in it this year. We hope to clock Rs 5
crore this fiscal and are aiming at Rs 9-10 crore for the next financial
year," says he.

And there are many such partners who share Nitin’s vision. Says Datapro’s
Sanjay, "Today customers need optimization in term of returns. And combined
with the fact that margins have heavily depleted in product selling, the only
way out is by selling solutions." Datapro today offers solutions in
server-based computing. Fiona too is increasing its focus on services.
"Currently, services contribute 20 percent to our overall revenue, which we
will increase to at least 30 percent by the fiscal-end," says Premal. And
it is not only the large software resellers who are treading the value-addition
path. Even a small organization like Aladdin Multimedia which has a turnover of
about Rs 2 crore is proactively offering support to its clients.

"We are offering e-mail and telephonic support for the anti-virus
products that we sell. However, this support is not restricted to only those who
have bought the product from us. We offer support to even those who are not a
client for our products," says Rajiv.

And how supportive are vendors towards the initiatives taken by partners?
"Very supportive," is the unanimous answer. "After all its the
image of their product that is at stake and they can’t be happier if we offer
service and support to make sure that the client is all the time happy with the
product," quips a reseller. Agrees Premal, "Vendors’ approach in
this regard is very good and we get good handholding." And vendors too
realize the importance of value-selling over product selling and are
synchronizing their efforts accordingly.

Giving an insight on CA’s approach in this regard, Pravir says, "There
is a significant amount of services component involved when selling our
products. The challenge for us is to equip our partners with the expertise
needed to handle both implementation services and product sales effectively. And
to augment their skills, we have a comprehensive training program for our
partners combined with a self certification process which we feel will enable
our partner community to effectively deal with the challenges of selling
packaged software."

On similar lines, adds Network Associates’ Vishwajeet, "Quality of
software, customer awareness and most importantly partner’s ability to
implement the solution and offer efficient after-sales service are the key areas
that need to be looked into in order to ensure your product’s success."

However, vendors also caution that not every reseller should attempt offering
services just because someone else is doing so. "In order to offer
efficient and comprehensive services, partners would need infrastructure and
technical expertise. Those who do not possess both of these should avoid getting
into services," advises Macromedia’s Shriram.

SHRINKING MARGINS...

Packaged software business is not without its own cup of woes and as is
obvious, it´s pretty filled up. Shrinking margins, low customer awareness,
negligible software expenditure, piracy, payment delays are just some of the
major issues hindering the business.

While some issues affect vendors directly, others affect partners. But
majority of the problems are a matter of concern to both of them. While there
may not exist an immediate and effective solution to all the problems, what does
hold true as put by someone, "In every problem lies an opportunity."
Similarly here too, the issues that ail the software business, with right vision
and effective approach, can translate into opportunity areas.

So if margins are shrinking, partners can better them by doing value-selling
in addition to product-selling. If there is low customer awareness, both vendors
and partners can organize seminars and educational camps for end-users. This
would give vendors a good mindshare and also subsequently help partners convert
queries into business. If budgetary allocations for software are low in
organizations, partners can offer consultancy to show how optimal results can be
derived from the existing set of software and how organizational efficiencies
can be improved. If piracy is a major bane for the software business, maybe
vendors need to re-look at their price structuring. Or maybe the partners need
to offer that ‘extra free’ thing with the product which would tempt users to
go in for legal licenses. As one partner rightly puts, it´s not the investment
that is a major concern with organizations today, it´s the return on investment
that shapes the policy decisions.

And not to forget, the goldmine of opportunities lying in Indian language
software. There’s a market of over 62 crore people, who communicate in
languages other than english, waiting to be tapped. May be its time that both
vendors and partners gave it a thought.

GOLDIE in Mumbai With inputs from SUNILA PAUL in Bangalore and MOHIT CHHABRA
in New Delhi