Business Application: Engines of Growth

Nothing measures the maturity of IT usage in an organization better than the pattern on investment in business software. The very fact that as much as 18% of software investment goes to vertical applications means the market is maturing for sure. Add to that the 7% spend on business intelligence suites, one can conclude that Indian IT companies are becoming smarter users of IT. 

The total business applications software marketthat is the total package software market excluding system software, security, and storage software that we have estimated separatelyrecorded sales of Rs 7,093 crore. The packaged software market in DQ Top 20 last year, which included system software, was Rs 5,887 crore. Adding the system software revenue of 2006-07 to the business applications revenue, the total market size of what comprised "packaged software" last year is, hence, pegged at Rs 8,053 crorethat is a growth of 36.8%, significantly more than the average industry growth, meaning software is increasingly accounting for a larger part of IT spend.

What needs to be explained, however, is some of the categories like CRM and engineering tools have seen large revenues, partly due to the fact that Indian services companies in BPO and engineering services have significantly invested in them.

Another interesting trend was that middleware finally got to be noticed as a segment by itself and is likely to make an impact as Indian users become serious about service oriented architecture (SOA).

ERP: Spreading Out

It is perhaps the most popular of the business applications available today; not just large enterprises, even SMBs consider ERP adoption as hygiene for their businesses. Result: the Indian ERP market pegged at Rs 1,056 crore in 2006-07 constituted a healthy 15% of the overall business applications pie. Not surprising, considering India Inc has traditionally looked at ERP as the panacea for all its operational ills.

Interestingly, however, the ERP implementation record in India (and this includes even large enterprises) often tells a different story; where reality often falls short of matching the hype generated. A Gartner survey found that while the average cost overrun in Indian ERP implementation was a staggering178%, the average implementation time overrun was 230% of original expectations; combined, the two led to an average 59% decline in productivity.

Nevertheless, the momentum of ERP implementation showed no signs of abating in 2006-07. The reason being in todays competitive environment organizations across all sectors had to battle declining prices and a squeeze on their margins. These challenges had driven most enterprises to realize that business decisions should be based on real-time information, resulting from synchronized business and production processes. Result: Implement ERP solutions to ensure that decision makers have the required information visibility across the value chain.

The benefits of increasing ERP implementation, however, did not percolate uniformly across all vendors. It was the case of big ERP vendors getting bigger. The combined shares of the two largest ERP players, SAP and Oracle reached close to 60% of the overall market; no windfall, however, awaited other vendors who struggled to enhance their market shares. Indian ERP vendors like Tally (its fortunes dipped this year), 3i Infotech, and Ramco have their niches, but were squeezed hard by the biggies.

While SAP has been the de facto ERP king in India for years now, Oracles increase in market share in 2006-07 owed much to its successful integration of Peoplesoft and JD Edwards. However, the jury is still out on the merits of a virtual two-horse race where others lined up to make the numbers. On the flip side, niche players like Infor (formerly Baan), Intentia or QAD tended to lose out to the marketing muscles of the two big daddies of ERP. With more M&As in the space likely to place, further concentration of the market share among these larger vendors is a distinct possibility.

SAP consolidated its position, with close to 500 new customers, including 260 enterprises across verticals, the rest being SMBs. Traditional weakness in telecom started getting addressed as it bagged new accounts like Reliance Communications and Aktel in Bangladesh. Retail (Provogue, Khazana, and Reliance Retail), construction (Oberoi Constructions, K Raheja, and Hiranandani), and airlines (Kingfisher Airlines and IndiGo) were the sunshine sectors where it made inroads.

SAPs two tier structure of distribution and implementation partners paid offwhile IBM (new signing), HP, eSys, and Wipro Infotech helped address the enterprises, the likes of OBTGlobal, Spectrasoft, and Seal Infotech took care of the mid-market organizations. The New ERP 2500 rebuilt on the Netweaver platform was launched during the year; it heralded the beginning of the shift from ERP to SOA. Clearly, SAP was trying to build a passage to shift its customers to ESOA, not just as a new technology but as a different business process platform.

Oracles #2 position was sealed, courtesy its license renewal with few marquee customers and new wins like LG, Maruti Udyog, and Cummins India among others. Like SAP, Oracle too looked at making ERP available on its open standards based SOA; Godfrey Phillips India, Indias second largest tobacco company decided to automate and integrate its internal business processes by this technology.

That Oracle not only countered the SAP domination, but carved out and expanded its own turf was a testimony to its success in not just acquiring other vendors, but in managing multiple brands in a maturing market. While both the PeopleSoft and Siebel brands were maintained, Oracle took over the provision of customer support for and development of India-specific features in its JD Edwards EnterpriseOne applications. This move reflected Oracles increased focused on the JD Edwards customer base in India, especially in light of SAPs move to woo JDE and PeopleSoft customers.

In fact, customer win backs was a common phenomenon during 2006-07; it was a scenario of mutual quid pro quid between the two protagonists in the ERP drama. While MRF Tyres, JK Tyres, and Godrej Industries were SAPs competitive winbacks from Oracle (it won back Havells from Infor), the latter returned the compliments by winning Tata Motors and ITC back from SAP.

The SMBs turned out to be the ultimate objects of desire; they were courted aggressively by all ERP vendors, biggies, and others alike, though each tasted varying success. The likes of SAP and Oracle seemed to have bagged the maximum attention: SAP acquired more than 200 mid-market customers that included the likes of Kajaria Tiles, Greenply, Century Ply, Rupa, Sa Re Ga Ma, and Tata Sky; Oracle bagged the likes of Sonic Biochem (Indore), Auto Clutches (Goa), Noble Grains (Jaipur), Indian Copper Complex, Apex Auto (Bhubaneswar), CMA CGM Logistics Park (Lucknow), and Bihar Education Project in Muzaffarpur. This also showed their expansion into B&C class cities.

Even Microsoft with its Dynamics range of ERP solutions made strong forays into the SMB space. Thanks to the 500 customers it bagged (included the likes of Vishal Megamart) during 2006-07, Microsoft could climb to fourth in the ERP pecking order. Not just in business terms, recognition also came in the form of Microsoft being awarded the Frost & Sullivan Growth Strategy Leadership Award for Mid Market ERP in 2006.

SCM: Another Duopoly Regime

Like ERP, this was another market marked by the duopoly of SAP and Oracle; together, they garnered 60% of the market, leaving other vendors to fight out for their niche individual turfs. One reason for this domination could have been the large sizes of deals inked by the likes of Maruti Udyog and Tata Motors; it was not possible for the smaller players to handle deals of such magnitude. Baans traditional presence in manufacturing helped its new avatar Infor to at least secure the third position, though it too lost on not only new accounts, but existing clients like Havells switched allegiance to SAP.

As market technology shifted and SCM product offerings matured at the same time, the user enterprises during 2006-07 sought a better price/performance ratio. A key requirement in achieving a higher ratio was vertical-specific software patterns. Again the biggies like SAP and Oracle scored on this front, as the likes of Take Solutions, Intentia or QAD lacked the wherewithal to achieve multi-vertical expertise.

No wonder therefore that both SAP (Neyveli Lignite, Anchor Electricals, JK Industries) and Oracle (Hindalco, Godfrey Philips, Cummins India) tasted SCM success across diverse verticals. Pharma, textiles, electronics, and consumer products were the major new industries to invest on SCM during the year.

Factors such as globalization, leaner supply networks, and heightened customer expectations also affected the SCM market. New business pressures ensured renewed corporate spending in supply chain initiatives for sectors like automobiles. The prices of four-wheelers in India increased in 2006 on account of the rising costs of steel and other inputs. Despite this, the market has seen a flood of new passenger car models. The complex product life-cycle of an automobile with thousands of suppliers and sub-contractors necessitated that an OEM must have complete visibility into its supply chain to reduce costs and stay innovative.

Price erosion and the availability of tailor-made solutions ensured mid-market organizations increased interest in SCM solutions. OyzterBay Jewelers, Chiron Pancea, Pure Pon Chemicals, Purvankara Builders, and Mitsubishi Electric Automotive India were few of the SMBs who went for SCM.

In the ultimate analysis, the Indian SCM story in 2006-07 could be divided into two trends that prompted businesses to invest in structuring their supply chainDemand-Driven Supply Network (DDSN) and collaboration between subcontractors/tier II/tier III suppliers and OEMs. DDSN had four driving factorsorder accuracy, forecast accuracy, inventory management, and new product development. Collaborative forecast models involved a forecast starting from the bottom of the sales hierarchy and moving up to the apex level.

BPO: CRMs New Market

CRM fired on all cylinders during 2006-07 primarily driven by contact management, marketing and email campaigns, service requests, response to proposals, and order management. As SMS and the Internet gained mainstream acceptance as channels for customer service, the number and complexity of interactions that needed to be managed exploded. Companies started to use personalized customer service and hence CRM was being increasingly looked as a strategic differentiator.

CRM was the area where SAP and Oracle did not rule.

The Indian BPO industrys explosive growth and its special

needs meant other CRM vendors flourished. The top two CRM players during 2006-07, Avaya and Aspect, owed much of their successes to their strong presence amongst call centers and BPOs.

Avaya had a strong focus on both the domestic BPO sector as well as international call centers; its partnership with Nice enabled it to bag customers like Allsec, Accenture, American Express, Aviva, Citibank, Daksh, Dell, JP Morgan, Morgan Stanley, Standard Chartered Bank, Tata-AIG and Wipro BPO among others. Aspect focused on outbound contact center solutions and had clients like Bajaj Allianz in its kitty.

The leadership of Avaya and Aspect did not however slow down the growth of Oracle and SAP, and they very well might usurp the top two positions in 2007-08. Oracle focused strongly on SMBs with its micro vertical solutions and its strong partner network started paying dividends during 2006-07 both with enterprises and mid-market organizations. The acquisition of Siebel CRM too helped boost Oracles CRM presence. Bharti, Tata Motors, UTI Bank and ITC were few of its flagship customers during the year; for SAP, the marquee names included KLG Systel, Smilesys and Apollo Health Street (won back from Aspect Software).

SAP also hosted CRM on demand at Zydus Cadila during the year itself underlining the growing acceptance of software as a service model. The result was fewer large new license deals and a transition to recurring and variable revenue models where maintenance was driving growth. SMBs offered succor to the likes of Sage and Talisma too bringing in customers like Cox & Kings, Blue Dart (Sage) and Bharti AXA Insurance, Franklin Templeton, Kingfisher Airlines and Pantaloon (Talisma) to the table.

RDBMS: Oracle and the Rest

For years the Indian RDBMS market has been the story of Oracle and the others, and the scenario did not change much during 2006-07. With a 64% market share, few would argue against the Oracle hegemony; in fact, for years it has been the question of who would head in this "others" category. By 2006-07, that answer too was pretty obvious with Microsoft SQL Server firmly ensconced at #2 in the RDBMS pecking order with 19% market share.

Oracles reign at the top was bolstered by the apparently broad acceptance of the 10gR2 release, both amongst large enterprises as well as SMBs. Therefore, it could boast of RDBMS wins ranging from Genpact, Centurion Bank of Punjab, ICICI Prudential Life Insurance, Gujarat Ambuja Cements, and Department of Income Tax to mid-sized organizations like Sonic Biochem, Auto Clutches and Noble Grains among others.

Microsofts elevation to #2 in the RDBMS space was heralded by the significant dents it made in the Indian database market with SQL Server 2005, growing at a rate of 25% in the enterprise and at 50% in the mid-market segment. Overall, this allowed SQL Server revenues to jump by 30% over the previous year without including revenues coming from the MS Access product line.

RDBMS have matured by 2006-07 to be more than just pure database offerings to data platforms. The likes of Oracle, IBM, Microsoft and Sybase offered a wide range of services in this area. Apart from these paid services, free ones were also available on Open source platforms. From a transaction point of view, the most important considerations for enterprises choosing a particular RDBMS were performance and reliability. Another key differentiator was the ability of the RDBMS vendor to provide data services within the database platform, so as to be able to disseminate information within different applications without requiring additional consulting efforts.

SOA attained great relevance from the RDBMS perspective during 2006-07. As more companies moved to adopt SOA, delivering consistent information to business processes emerged as a new challenge. Some organizations found that inconsistent views of data and even inconsistencies in how data is derived can put their SOA projects in peril. In order to keep SOAs up and running, databases needed to avoid any such inconsistencies.

Oracle JDeveloper, a component of Oracle Fusion Middleware, was a complete platform for SOA that was optimized to run with Oracle Application Server and Oracle Database. Built on open standards and platforms, JDeveloper supported all major J2EE application servers and databases.

BI: Intelligent Business

The BI market in 2006-07 was driven by the maturity of todays applications, be it core banking or ERP. These applications had created silos of data and decision makers were not able to get a unified view of their businesses. Lack of standardizationbe it amongst customers, suppliers, materialsresulted in poor quality data where multiple ways were used to record supplier or customer names or material details. Standardization was imperative for reporting, budgeting and forecasting and this directly led to a flourishing BI segment.

Indian enterprises viewed BI software as a strategic tool and the market witnessed investments ranging from pure reporting and analytics tools, to business performance management tools, balance scorecard, KPI tools, and so on. They adopted BI and analytics solutions in an effort to overcome the challenges of competition and globalization, and pave the way for increased revenue growth and profitability.

Unlike most other business applications, where it was either a one-horse or two-horse race, at least four players competed evenly on the BI front. The scales finally tipped in the favor of SAS, though the gap between Business Objects, Oracle and Microsoft (others in Top Four) was not too much. Various compliance regulations from the Reserve Bank of India on risk management in banks increased the relevance for BI during the year.

According to market analyst Datamonitors new report "Decision Matrix: Selecting a Business Intelligence Vendor," although the market leaders SAS and Oracle were well placed to maintain their positions, vendors like Business Objects and Microsoft could also seriously challenge the current leaders.

Middleware: On Middle Ground

The toughest thing about analyzing or estimating middleware market is agreeing on what exactly is middleware, with various vendors defining the way it suits them. Of course, there are the traditional middleware: application servers and portals about which there is a consensus. The messaging oriented middleware is also part of the portfolio now, and increasingly identity management is entering that area. From the products point of view, that means all BEA products; IBMs Tivoli, Lotus, Websphere l (but not Rational and DB2, which IBM defines as middleware); and those components from Oracles Fusion Middleware series. In our classification, we have excluded BI, which is taken in business applications; and the enterprise content management tools that often integrates with portals. But the big news in middleware is the advent of SOA. SOA, which brings in a large service elementthough we think some of that will get productized soonhas suddenly made middleware a familiar phrase for the enterprise IT managers.

Looking at the market in the way defined above, the whole middleware segment in India was fairly small at Rs 260 crore, with Oracle, IBM, BEA ruling the market (see chart). This includes only the investment made by Indian users or service providers to provide service in India and does not include some deals with global service providers from India with the product vendors for offering as part of their services to customers in other countries.

Surprisingly, in India, a comparatively nascent IT market, has seen a lot of interest (not yet translated to business in many cases) for SOA. That is partly because of the hype about the concept but also because some of the new generation companies want to build a scaleable, flexible architecture from day one, though the RoIs in SOA may not be as attractive for them as older firms grappling with integration issues.

Rajneesh De