Software Products: The competitive edge - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Software Products: The competitive edge

Mar 24, 2001

The demand supply situation for the software industry globally seems to be tipped in favour of the Indians. At least it is till now, but as the Indian software industry gallops at pace much faster than at a global level the gap has started to close in. Once this happens, the competition will get intense. Therefore, as the Indian software sector continues to grow the next imperative is that of sustainable growth. Products could be an avenue for the Indian companies to achieve sustainable growth. Products that can be bought "of the shelf" offer a wider clientele reach to the company as products are of a general nature and can be used across industries or within an industry by many clients. But the main advantage with products is in terms of costs. Since duplicating a product costs almost nothing for the software industry, the operating margins for software product companies are quite high compared to others in the software development industry.

Characterised by higher margins
Company Operating
Margins
Sales
/employee
(Rs m)
Profits
/employee
(Rs m)
Microsoft 48% 0.19 0.08
Oracle 31% 0.06 0.02
Adobe 32% 0.09 0.02
Visualsoft 53% 0.02 0.01
Hughes 36% 0.02 0.01

However, all is not rosy with this business, there are some inherent disadvantages. Firstly, the nature of the business is very risky. If the product fails all the costs that are incurred for the development, marketing and promotion of the product are sunk costs. The marketing efforts required are more for products than for customized software.

The product players
Company Products
Microsoft Windows, MSDN, MS-Office etc
Oracle Oracle
Adobe Acrobat
Visualsoft VisualSoft
WebProject,
COM/DCOM components,
Java Beans etc
Hughes RightServe, SwiftBill
What makes the entry barrier into the segment high is the fact that products are very general in nature and they should in an ideal scenario operate across platforms with the least amount of customization. This requires a very deep understanding of the business or workflow. Business rules change with time products have to be constantly modified to meet the changing user requirements. The reliability requirements from a product are very high and a critical factor in its success. As the product might be sold to the remotest of parts of the globe and it would not be possible for a company to provide services in these remote areas. Not all companies can meet up to these kinds of requirements.

The very critical factor that is and will continue to drive software companies towards products is the customers demanding shorter times for implementation. With time to market decreasing in the knowledge economy the clients are giving lesser and lesser development time to software companies. The pressure is to implement projects as quickly as possible.

The software companies at home in India too have realized this and there is an effort seen in the software sector to move towards products. Surprisingly, infotech majors are not leading the way this time. The effort is evenly spread across the industry. On the one hand we have the likes of TCS, Infosys and Hughes and the on the other hand are the smaller companies like Polaris, Ramco, Visualsoft creating a strong product portfolio.

But again within the products domain the Indian industry has been mostly concentrated to the less technology intensive segments. The software products space can be divided into sub areas like Operating Systems & Systems Software (OS&SS), Office Automation, Application development tools and Languages, Communications & Networking, Database and Industry Applications. The technology intensive areas like OS&SS have been and continue to be dominated by the Western countries. The Indian software products are mostly seen in the Industry Applications arena. A good example is Finacle from Infosys in the area of Banking. Some Companies like Hughes have developed products in the area of Communications & Networking and Visualsoft in the area of Application Development Tools.

Looking in retrospection the year 2008, irrespective of the growth rates achieved by the industry, the Indian software industry should be recognized as one that started at providing cheap labour but then matured to create strong brands and products that did not merely automate but were turning points in the time line of technology.

Equitymaster requests your view! Post a comment on "Software Products: The competitive edge". Click here!

  

More Views on News

If You had Invested Rs 1 Lakh in TCS in 2011, this is how Much You Would have Today (Views On News)

Nov 30, 2021

Did TCS perform better than the market and its peers?

India's Top 4 IT Companies are Struggling. Here's Why... (Views On News)

Oct 22, 2021

As attrition rates are unbelievably high, top Indian IT companies are going for big-ticket raises, and much more hiring this year.

Infosys had an Exceptional Quarter Buoyed by Huge Deal Wins. Revenue Guidance Boosts Stock (Views On News)

Oct 14, 2021

Infosys raised its forecast for annual revenue growth to 16.5-17.5% from the earlier 14-16%, predicted in July 2021.

Info Edge: The Anatomy of an Indian Internet Behemoth (Views On News)

Oct 2, 2021

Info Edge is very popular in the Indian startup ecosystem due to its active participation in funding events.

This Indian Company is Tapping into the Huge Autonomous Driving Opportunity (Views On News)

Sep 14, 2021

Despite many challenges, Indian companies and startups have not shied away from entering this space.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

India's Top 5 Monopoly Stocks to Watch Out for (Views On News)

Nov 30, 2021

These 5 companies dominate their sectors with a huge piece of the pie.

The Biggest Winners and Losers in India's Transition to Electric Vehicles (Profit Hunter)

Nov 26, 2021

How India's EV transition could be a major headwind for the incumbents.

More

Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE IT


Dec 7, 2021 12:19 PM

S&P BSE IT 5-YR ANALYSIS

COMPARE COMPANY

MARKET STATS