Software product earnings to rise 8-fold

The Indian software product sector is expected to register a 8-fold increase in revenues over the next seven years. Revenues may range between $9.5 billion and $12 billion by FY15, from the current $1.4 billion, according to a new Nasscom-Zinnov study.

However, these Indian companies are yet to reach out vigorously to the developed markets such as the US and Japan and remain confined to the domestic market. Of the existing 371 software product in India, over two-thirds were launched in the past three years.

Over 100 companies started their operations in 2007. The top 10 companies still dominate the software product development market, accounting for 84 per cent of the segment revenues from India.

"We have taken a conscious decision to focus on India and some emerging markets where the risk is lower. We are looking at markets where we find it easier to enter, experiment faster, and where the market tolerance is higher," explains Bharat Goenka, MD, Tally Solutions. Even after 21 years of its existence, Tally is primarily focussed on India, apart from some emerging markets such as West Asia and Africa.

Vishnu Tambi, co-founder of Nagpur-based Excellon Software, concurs, "We introduced our first product – AutoSol – in 2006, and so far our customers are largely Indian. We believe that India is a very good market to test a product, and then go out. We are now preparing ourselves to enter into some emerging markets such as Malaysia, Thailand, the Philippines and Cambodia."

On its part, the Nasscom-Zinnov analysis reveals that the size of the domestic software product market in FY08 was $2.3 billion, of which, the Indian software product companies cornered about $460 million and the global software product companies garnering $1.84 billion. In return, the Indian software product companies sold about $960 million worth of products outside India – mostly in emerging markets.

Pari Natarajan, CEO, Zinnov, asserts, "We very strongly feel that by 2015, Indian software product business revenues would be more evenly balanced between domestic and export-based sales, and the share of revenues from the domestic market would increase from 32 per cent in FY08 to an average of 41 per cent by FY15 to reach $4-5 billion."

He adds that the key parameters – such as proximity of Indian software product businesses to the local market requirements, excellent understanding on localisation requirements, and ease of adopting customised and targeted sales approach – would fuel this growth.

The study also states that over the past three years, the annual revenue aggregate of the Indian software product businesses has grown at a CAGR of 44 per cent. Leading Indian software product firms have strengthened their product portfolio through steady investments in organic growth as well as through overseas acquisitions.

However, industry leaders believe that the Indian software product industry is already late in trying for a success in a much larger market such as the US, which was the strong forte for the Indian IT services company. To take the products to markets such as these, requires a higher marketing investment and greater understanding of the market requirements.

The fact that most of the Indian product companies, while devising their plans, think specifically about the domestic market, makes their products unattractive to established markets abroad.

"We are already late in tapping opportunities in the US market. There is a history of services' companies going to the US, but not the product companies.

This is the reason why most Indian product companies should look at non-traditional markets such as India and China which are scaling up first, and where the demand is very high in areas such as security, retail, online gaming and mobile space," opines Sudhir Sethi, chairman & MD, IDG Ventures.