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Software Products: The competitive edge - Views on News from Equitymaster
 
 
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  • Mar 24, 2001

    Software Products: The competitive edge

    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.

     

     

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