E-commerce: Down but not out

After the Y2K boom died down, e-commerce was all set to be the growth driver for the Indian software industry. And it was. However, The decline in revenues from e-commerce has been ailing the Indian software companies for the past two quarters.

Software companies quickly cashed in on the opportunity and in many cases sales from this area contributed to about 30% of the total revenues of these companies. But then the US economy slowed down and the global economic outlook turned bleak. Corporates froze their IT spend and e-commerce projects took a back seat.

Internet / E-commerce related	4QFY01 (Rs m)	% contribution to revenues	1QFY02 (Rs m)	% contribution to revenues	Change
Infosys	1,450	25.8%	1,409	23.0%	-2.8%
Satyam	870	22.5%	811	19.7%	-6.8%
Digital	455	72.8%	393	56.0%	-13.6%

While some companies that were agile enough managed to make up for the losses in revenues by taking up work in the maintenance area, others were left with a huge decline in their sales figures. But the e-commerce story is far from being over for the simple fact that the spending on this area has been delayed and not curtailed. According to a NASSCOM and BCG study, there lies an opportunity of the size of US$ 9 bn for Indian IT companies from global e-solutions services market by 2005. This accounts for just 1% of the total market share. The domestic market too is all set to grow at a swift CAGR (compounded annual growth rate) of 50% from a base of US$ 65 m in 2000 to US$ 500 m in 2005.

The worldwide market for e-solutions products and services is also expected to grow at a healthy CAGR of 29%. The market estimated to be of the size of US$ 180 bn in 2000, is expected to grow to US$ 640 bn by 2005. As per the study the areas that would dominate the demand for services would be Customer Relationship Management (CRM) and Supply Chain Management (SCM) solutions. These are expected to account for 70% of the spending on e-solutions. The biggest market is expected to be the US with over 50% of the market share.

The time to market for the software companies is reducing as clients demand faster implementation. Therefore, there is an increasing shift towards products. Therein lies an opportunity that the Indian software industry has left almost untapped. The markets for e-solutions products could translate to an opportunity of the size of US$ 1 bn for the Indian software companies. While many of the companies have alliance with leading products vendors in these areas like Siebel and Ariba, not many have product offerings and act only as implementers.

No doubt Internet is a very efficient delivery channel but the reasons why organisations could afford to delay adapting to the e-environment could be due to the fact that corporates and consumers are gradually adapting to this new way of doing business. Then there are the infrastructure (access to Internet) and security issues. Most importantly this channel would not, in many cases, replace the traditional methods but work hand in hand. Though the businesses have to adapt to this new way of doing business, they do have the luxury of time. Therefore, e-commerce will undoubtedly be a major driver for the Indian software companies in the future.