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Software products: Indian IT's next destination? - Views on News from Equitymaster
 
 
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  • Aug 22, 2008

    Software products: Indian IT's next destination?

    The Indian technology sector has grown by leaps and bounds in the last two decades. The factor that has contributed to this growth has been export of software services. But there is another area of software product business which has not yet been exploited and which can emerge as major growth driver for companies in the future.

    What is 'Software product' business?
    Software product business refers to business concerning software that is developed and maintained by the companies themselves and in which the customer-oriented application work is limited. Software product companies own the software IP (intellectual property) which includes software IP owned through acquisitions and undertakes the packaging or selling of the software itself or through channel partners.

    Is software product industry poised to grow?
    Indian software companies have already made a foray into software product development but have been able to capture a very small percentage of global product industry till now. Indian software product industry size stood at around US$ 1.4 bn in FY08, accounting for just 0.2% of the global pie.

    Although Indian software product industry is young, this segment is growing at a fast rate and has carved a significant position in the national economy. The industry has grown at 44% over the past 3 years and is expected to reach a size of US$ 11 bn by 2015 (as per Nasscom Survey)

    The software product industry in India is expected to grow on the back of cutting edge end-to-end design and development services provided to global ISVs (Independent software vendors, which specialise in making or selling software products usually for niche markets) by captive and third party units in India.

    The software product industry in India has reached an inflection point with superior quality IP being created. India's R&D and innovation endeavor are also helping in developing software product landscape. At present there are 38 incubation centres spread across the country that are actively focused on assisting technology start-ups with funding and mentorship. Furthermore changing VC (venture capital) environment and support ecosystem is also contributing to the growth.

    In the last two decades, there have been a few focused Indian product development companies because there was limited market reach and low acceptability of a 'Made in India' brand. However, the strong domain knowledge and global exposure in service offshoring has provided the industry with a good stepping stone to look at developing software products.

    Conclusion
    There has been a substantial growth in the number of Indian companies engaged in software product development. As of now, there are approximately 400 companies operating in this space. At present the top 10 companies (including Infosys, i-flex, Subex and TCS) account for around 85% of the product industry revenue (FY08). They have been around in this business for a very long time and possess the required expertise in this field, which is the key to success in this business. However, there are over 200 mid-sized companies and start-ups that have started generating revenues and are contributing to the growth. These mid sized companies have carved niche for themselves and are expected to grow exponentially going forward.

     

     

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