The Indian software products' sector is expected to register a 10-fold increase in its revenue over the next seven years. It's revenue may range between $9.5 billion and $12 billion by FY15, from current level of $1.4 billion, according to a new Nasscom-Zinnov study.
The fact, however, is that these desi product companies are yet to break out of the cocoon of the domestic market, and take their products to the developed markets like the US and Japan. Of the existing 371 software product in India, over two-thirds have been formed in the past three years. In 2007 alone, over 100 companies have started their operations. 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 like Middle East, Africa and China.
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 like Malaysia, Thailand, the Philippines and Cambodia."
The Nasscom-Zinnov Analysis, on its part, reveals that the size of the domestic software product market in FY08 was $2.3 billion of which the Indian software product companies had cornered about $460 million when compared to the $1.84 billion of business made by the global software product companies in India. In return, the Indian software product companies sold about $960 million worth of products outside of 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 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 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.
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However, industry leaders believe that the Indian software product industry is already late in trying for a success in a much larger market like the US, which was the strong forte for the Indian IT services company. To take the products to markets like 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 like the US and Japan.
"We are already late in tapping opportunities in the US market. There is a history of services' companies going to the US, but not product companies. This is the reason why most Indian product companies should look at non-traditional markets like India and China which are scaling up first, and where the demand is very high in areas like security, retail, online gaming and mobile space," opines Sudhir Sethi, Chairman & MD, IDG Ventures.