India SaaS Market Opportunity Zinnov

India SaaS Opportunity August, 2009 This report is solely for the use of Zinnov client and Zinnov personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the` client organization without prior written approval from Zinnov

AGENDA About Zinnov The SaaS Market In India SaaS Success Story SaaS Key Insights Indian SMB Landscape Zinnov 2

Zinnov is a consulting firm that prides itself for having grow through a commitment to excellence in solving business problems of our clients About Us Founded in 2002 Our Typical Engagements • Zinnov was founded in the year 2002 with the • We work with MNC companies ( IT& focus of providing services in the area of Manufacturing) looking to leverage India Globalization Advisory to fortune 1,000 • We work with companies to help them enter companies India as market, leverage India as a talent destination, and India as a R&D hub 100 80 Client Engagements 150 100 60 40 73 20 43 25 12 0 2 2003 2004 2005 2006 2007 2008 2009(E) Zinnov 4 Zinnov Management Consulting Pvt. Ltd

Our consulting focus areas follow under 3 heads, all which are focused on addressing unique business problems faced by clients Consulting Focus Areas Globalization Market Expansion Human Capital Advisory Globalization Strategy Opportunity Assessment Global Talent pool Analysis Globalization Roadmap Customer Insights Workforce planning Partner selection Go-To-Market Strategy Compensation and Benefits Operations Optimization Blue Sky Product Ideation Flexible Work force Tool Zinnov 5 Zinnov Management Consulting Pvt. Ltd

Our indicative client list speaks volumes about our growth and our capabilities in delivering value to our clients Vertical Client Software Products Hi Tech Manufacturing Zinnov 6 Zinnov Management Consulting Pvt. Ltd

The domestic market for SaaS is estimated to be about USD 50 million and is currently dominated by Collaborative Applications and CRM workloads Workload-wise Distribution of SaaS Market in India, 2009 Total Market: USD 50 - 56 million* Workload Total Market in 2009 Collab. Applications* USD 18.9 Mn CRM USD 16.2 Mn ERM USD 4.8 Mn Security USD 1.6 Mn Others USD 7 – 14 Mn *Note: Market Size is excluding the SaaS Email Market The SaaS market in India is extremely nascent with a total market size of USD 50-56 million. Three key Nascent Market-With Couple workloads, Collab. Apps, CRM and ERM together contribute 80 percent of the market. With the market being so of Early Movers nascent, there are a couple of early movers who have cornered a large share of the market. These include Salesforce.com and Ramco Systems Note: Confidence Level for Market Size is 85 – 90 percent, * Collab. Applications – Collaborative Applications include web conferencing, productivity suites etc. Zinnov 8 Source: Zinnov analysis Zinnov Management Consulting Pvt. Ltd

Currently only a handful of the top global SaaS players are focusing on India Market Focus of Top SaaS Index Players on Indian Market, 2009 Company India Focus Company India Focus NetSuite Intuit - Omniture Blackboard RightNow Technologies Concur Technologies - Salary.com - Constant Contact - salesforce.com DealerTrack Holdings - SuccessFactors DemandTec - Taleo Corporation - Kenexa Corporation The Ultimate Software Group - LoopNet - Vocus - India Focus High Low Zinnov 9 Source : Zinnov Analysis Zinnov Management Consulting Pvt. Ltd

Some of the major challenges that SaaS providers face in India are lack of knowledge about Indian workflows, lack of IT support etc. • Focus of companies in Indian market is • Broadband penetration & reach is relatively new and lacks scale abysmally low. Number of active • Most of these firms don’t have the broadband subscribers in India is 5.52 commitment/money to bank roll and Million as on Dec 2008 scale these experiments Broadband Lack of Penetration Scale • IT talent in non-IT industries is limited. • Current pricing model used by The salary differential is extremely companies is very high compared to high, which is a constraint to IT adoption, hence this impacts the IT Talent Shortfall Constraints Pricing paying propensity • Availability of pirated software that training and usage of SaaS based solves customers business needs solutions Product Localization IT Support • Most MNC’s products in the market • IT support is essential for success of are global products with minimal R&D SaaS. Since the revenues in SaaS are spend for India market requirements. recurring, lack of support affects the None of the Products are mapped to longevity of a customer Indian Work Flows Note: *Broadband is defined as an internet connection with speed equat to ir greater than 256 kbps Zinnov 10 Source: interviews with Company Stakeholders, TRAI, Zinnov Analysis Zinnov Management Consulting Pvt. Ltd

Despite these constraints SaaS is likely to grow in India over the next few years Evolution of Telecom Service Providers into SaaS Carriers Pricing & Drivers for SaaS Growing Support Basic Internet Innovations adoption in India Infrastructure Unique business model Innovations Zinnov 11 Source: interviews with Company Stakeholders, Zinnov Analysis Zinnov Management Consulting Pvt. Ltd

Mobile Revolution Mobile revolution and entry of large Telecom players will drive SaaS adoption Looking to enter the SMB market with Airtel plans to offer SaaS to SMBs and is Free branded laptops free with hi- Novatium. Novatium is a Chennai based in talks with Oracle, SAP, Microsoft, speed Internet data card service start up that has launched a netPC and Google and Jamcracker to offer branded Reliance NetConnect provides hosted applications on different applications on a pay-per-use. It has entered into a strategic alliance subscription basis. The service is Airtel aspires to become the CIO in the with leading IT giants Acer, Asus, HCL, currently available for consumers, but cloud. Already tied up with Google Intel, and Lenovo is being launched for SMB’s. Apps for its broad band users The scheme is priced as low as Rs.1500 per month (excluding Service Tax) for two years with no hidden costs. Novatium provides a complete range of BSNL launched 3G in March 2009. Plans Tata Communications, is just one of the services in network computing and to operate 5 million lines spanning all players with plans for WiMax, a super- specialize in delivering customized district headquarters and important speedy version of wireless broadband. solution to enterprises. They offer the towns by end of this year. Investment The plan will cost more than $100 extra edge, ensuring success in every outlay for the same is Rs.2700 crores. It million and span 115 Indian cities. The field of specialization. has tied up with Nokia, Sony and goal: to provide 20 million broadband Samsung to provide handsets that have connections by 2010. Currently selling to consumers and has been priced at Rs.7000 2500 customers pan-India Source: Zinnov Analysis, Secondary Research Zinnov 12 Zinnov Management Consulting Pvt. Ltd

Mobile Revolution Airtel is striving to become the CIO in the cloud, and is looking at offering an end to end stack of solutions Background and Product Details Other Details Product Launched May, 2009 Technology – Partners Airtel (broadband), Novatium(Hardware), Microsoft (Software) – Windows XP for client customized Accessories 15-inch LCD monitor, keyboard, mouse, companion by Nivio Availability Delhi, Gurgaon and Noida – Linux-based server Product Pricing 7,999 (INR) 24 hours – Companion connector Installation Time Availability Airtel Stores and NEXT Electronic Stores Support – It supports multiple USB peripherals (USB pen drive, USB hard disk, Different Monthly Plans USB printer, digital cameras, etc.), Monthly pricing speakers and microphone Packs Common facilities Differentiating factors (INR) Home 699 MS Office standard Power Consumption – 5 W only 10 GB Space MS Office standard with Admin Professional 3 GB Data Transfer 899 rights Competitive Products – Online Desktop Service – BSNL MS Office Premium with Admin Business 100% Data Security 1199 rights – MTNL Partnerships Access Device Google Apps OS/ MS Office ERP/CRM Source: Company Websites, Novatium Sales , Media Zinnov 13 Zinnov Management Consulting Pvt. Ltd

Mobile Revolution Nokia is leveraging mobile as an access device to provide CRM solutions on an independent operator model All new orders can be Both the supplier as well as received as a message in the the agent have access to their inbox. The status of the order orders right in their mobile can also be tracked every time One can view his network consisting of first level and second level partners on the mobile Key Features Key Advantages Nokia India is piloting a Share and update product information Mobile CRM of textile Portable access to business data Create and distribute purchase order Less paper work distributors. Such solutions information Less errors that are easy to use and Create and send dispatch details Shorter sales cycle are cost effectively a likely Keep track of orders Secure platform for data storage to be disruptive in the A directory service wherein published company information can be accessed market Source: Nokia Tej website, Zinnov Analysis Zinnov 14 Zinnov Management Consulting Pvt. Ltd

Growth of Basic IT Increasing IT and internet penetration will also help in increasing the adoption of SaaS solutions in India PC Users in India, 2006-08 (Millions) Active Internet Entities* in India, 2005-08 8 10 (Millions) CAGR (2003-09) = 17% 6 9 Translates to 60 million internet users 4 8 7.3 6.8 6.3 5.0 7 2 6 0 2006 2007 2008 2009 5 8.6 4 Mobile Phone Subscribers in India, 7.2 2006-08 (Millions) 3 6.0 2 4.1 500 3.1 400 CAGR (2006-09) = 28% 1 300 0 430 2005 2006 2007 2008 2009 200 345 272 100 206 • Overall entities with internet grew by 20% over March 2008 0 2006 2007 2008 2009 • Businesses accounted for 28% of the entities growing at 14% while Households accounted for 72% growing at 22% Note: *Active Internet Entity – Individuals/Establishments with an internet connection. The numbers reported are for the year starting from march and ending in february Zinnov 15 Source: MAIT, TRAI, Zinnov Analysis Zinnov Management Consulting Pvt. Ltd

Growth of Basic IT India is increasingly becoming a global hub for data center services, and this will further drive SaaS adoption in India Indian Data Center Market, Global Perspective, 2009 Vertical Play of Indian Hosting Service Providers & Global Comparison, 2009 India Global • The Indian datacenter market is estimated to be between USD 1 – 1.2 Billion which accounts for about 8% of the global market Data Center Space in India, 2007 – 2011E (Thousand square feet) Note: * Does not include captive data center space (Captive data centers include those being outsourced to system integrators) Zinnov 16 Source: Data Monitor, Zinnov Analysis Zinnov Management Consulting Pvt. Ltd

Growth of Basic IT Data center players like Tata Communications and Reliance, have a significant Indian and global play Tata communications, largest player in the market, has 22 data center worldwide with 7 data centers operating in India. It has Tier-3 data centers with 1 million square feet capacity. Services include co-location, managed hosting and storage. The flexible on demand model allows clients to purchase as per capacity and then adjust as their business evolves. Reliance has over 500,000 square feet of hosting space. It has 6 Tier- 3 data centers in India with a customer base of 500. Their hosting services include co-location, application hosting depending on basis of the services required by clients. Sify has 200,000 sq ft of hosting space in 4 Tier-3 data centers. It offers co-location, dedicated and shared hosting services. First in country to deploy Gigabit Switch Routers in its backend infrastructure NetMagic has 5 data centers across India and US and 1 virtual data center in US. It has a customer base of 600. It has close to 100,000 square feet of hosting space Ctrl S’s services include infrastructure services such as co-location, managed services such as managed backup, dedicated hosting, hosted exchange and disaster recovery. First in India to deploy water-cooling technology, which would save 30% of its energy cost annually. It has 30,000 square feet area of hosting Net4’s services include virtual private servers, server colocation, backup and recovery and managed services. It has data centers in 8 different locations. It has a hosting space of about 30,000 square feet Source: Interviews with Company Stakeholders, Company Websites , Zinnov Analysis Zinnov 17 Zinnov Management Consulting Pvt. Ltd

Business Model Innovation Companies such as TCS with their ITaaS model are likely to be disruptive in the market and would increasingly drive adoption What are the benefits of the model? ITaaS Stack Stack based business Single L6 Business Intelligence model to deliver IT Stakeholder End to for SMB End enablement to SMB’s Solution L5 Custom Apps – Inventory Stack Management SaaS driven IT on a Tap L4 Business Apps-HRMS model Benefits of Engagement New Model of SMB through ICT L3 Email, Office Apps Lifecycle Remote tech support to L2 Networking Equip. bring down Open source products-low end TCO cost L1 Hardware Business Impact Industry Vertical Focus Anchor Clients, Low Price points • Manufacturing • 18 Anchor clients in manufacturing, have tied up • Health care with Industry associations such as CODIASSIA, AEPC • Education • Retail • Entry price point as low as Rs.500 per user per month. Zinnov 18 Source: Zinnov Analysis Zinnov Management Consulting Pvt. Ltd

Business Model Innovation School mate is another example of a unique business model that provide staff augmentation support along with SaaS offerings SchoolMate Model IT + manpower The Lack of IT talent is a major constraint for IT adoption in Schools. Schoolmate with its unique man power supported Parents managed service model is a breakthrough innovation in Information the market Payment What is the Model all about? Uniqueness of the Model Computeriz- Communica- ation of day tion of SaaS + Support + Man power to day activities information to parents Reduces IT Staff requirement The New Schoolmate will deploy a technical person in of SMB Information each school, who will work fulltime on Model covers, health, SchoolMate implementation in the school fees, reports etc Technical Staff for each school who manages Online. On site ICT, and data support model entry Zinnov 19 Zinnov Management Consulting Pvt. Ltd

Pricing Innovation Ramco is an ERP solution provider that has launched disruptive pricing model to drive adoption of its solutions Ramco Model Paying Propensity for ICT solutions in India is limited, and to acquire and grow clients, pricing Payment innovation is essential. Ramco & NIIT provide Payroll solutions to the Indian government and charge them per pay slip Pay Slips generated Hosted Solution • Ramco has an hosted ERP solution that is called Ramco OnDemand • NIIT is its technology partner and they have developed an HR module on top of Pricing Ramco OnDemand Innovation • This solution is hosted on the government managed CDAC data center Driving IT • The solution is being used to generate & manage the government payroll. Adoption Government is charged on the number of pay slips generated and not on the regular model depending on ‘number of users’ Zinnov 20 Zinnov Management Consulting Pvt. Ltd

Success Story Zoho is one of the early successes in the SaaS space and the firm currently offers a whole host of applications on a SaaS model Products • Productivity & Collaboration Tools • Zoho Mail : Web based email service • Zoho Writer : Online word processor Company Overview • Zoho Sheet : Online spreadsheets • Founded in 1996, Zoho Corp is privately held and splits its • Zoho Show : Online presentation tool business into three divisions – Zoho, ManageEngine and • Zoho Docs : Online document management WebNMS • Zoho Corp's main focus for its applications is the SMB space, but • Zoho Notebook : Online note taker it also nurtures enterprise ambitions • Zoho Wiki : Full featured wiki • ManageEngine provides enterprises with IT management • Zoho Share : Centralized public repository software, while WebNMS targets OEMs in search of a network • Zoho Planner : Online organizer management suite • Zoho Chat : IM tool • Business Apps • Zoho CRM : On-demand CRM solution Employees & Locations • Zoho Meeting : Web conferencing; Remote support • Zoho Corp now has around 1,000 employees, compared with 750 • Zoho Creator : Platform to create database apps a year or so ago • Zoho Invoice : Online invoicing • The Zoho division of Zoho Corp currently employs 330 staff, up • Zoho Projects : Project collaboration software from 250 in July 2008 • The company's headquarters are in Pleasanton, California, but • Zoho Reports : Online Reporting & BI the majority of its staff is based in Chennai, India. It has other US • Zoho People : HRIS & Application tracking system locations in Austin and New Jersey and offices in Beijing, London • Zoho Business : Email hosting & Office suite and Tokyo. • Zoho Marketplace : Buy apps/ post requirements Zinnov 22 Source: Zinnov Analysis Zinnov Management Consulting Pvt. Ltd

Success Story Zoho is predominantly focused on the SMB and CMM customers and offers free versions of its products to promote usage Customer & User Base Distribution Product Innovations • Zoho has been consistently removing redundancies between its standalone offerings and focusing more on the sale of integrated 100% offerings • A classic examples are the integration of CRM with e- mail, project management with Chat, Invoicing with time sheets etc. • Zoho is also looking at integrating its products with third party technologies such as Microsoft Office and Intuit Quick Books 75% plug-ins for CRM and Write Strategy • Zoho has deliberately not branded itself as a SaaS player as it also offers onsite deployments of its software 50% • Zoho is looking to expand in the cross-fertilization of technologies 94% across Zoho Corp as a whole. The company's ManageEngine division has over 30,000 customers and already has some links 70% with its Zoho counterpart 25% Customers • Zoho currently has two million registered users for its apps, a 30% doubling in size over the past year or so • The growth has mostly come about through word-of-mouth referrals and SEO 6% 0% • Zoho has about 100-150 resellers around the world and is keen to ramp up indirect sales Micro SMB CMM Enterprise • It's also looking to partner with systems integrators as it attempts to win more enterprise deals. Customers Users Zinnov 23 Source: Zinnov Analysis Zinnov Management Consulting Pvt. Ltd

There are 4 essential aspects that players need to address before looking to grow in the SaaS market in India Product Customization is Sales & Marketing Client Channel Partners are Telecom Players are an Essential Acquisition spend will be essential for achieving scale essential cog in the high in the market ecosystem for growth & client servicing •Indian small businesses do •Globally sales and marketing •Partner eco-system focus is •Telecom players such as not follow global best spend is about 50 percent of essential in India. It has Airtel, Reliance, Idea and practices in business the overall budget for key helped initial market leaders BSNL are essential in the eco- process, and hence global SaaS players like Ramco systems to build system. Not only do they products without an early mover advantage lead SaaS adoption through customization do not fit their •In India the MSME has increased broadband needs identified 1200 •India has a wide business penetration but they can also manufacturing clusters. In landscape and requires act as effective partner for •Most Indian sales forces addition there are multiple communicating with clients payments have hierarchical other verticals such as in at least 8 major languages reporting, however this is not retail, education, etc. with if not 22. This requires a •Clients prefer to pay a standard feature in many each having limited levels of strong local channel partner via, Demand Draft, Cheque or SFA products currently in the IT awareness eco-system to scale wire transfer and tracking market. Companies thus pay effectively in the market payments is a challenge. an additional fee to be able •The need to create IT Telcom players can be to use the feature. For awareness through leveraged as a payment example, ZOHO charges USD events, demos and a lot more channel to increase efficiency 20 per user per month to off line modes than globally and reduce overall cost of enable users with hierarchical accepted online modes, will product delivery reporting substantially increase the spend on S&M to acquire clients Zinnov 25 Zinnov Management Consulting Pvt. Ltd

It is also essential to look at innovative channels to engage customers and grow business in the Indian Market Strategic Alliances • Salesforce.com and Google have formed a strategic alliance for Salesforce Group Edition featuring Google Ad- Partnerships with Telecom Companies and ISPs words, which provides every element of the customer lifecycle, from advertising, creating leads, closing business • Google has tied up with Airtel to launch Airtel Live to and retaining customers in one integrated solution distribute Google Apps (Gmail, Google Docs, Google Calendar, iGoogle) to Airtel broadband customers • Zoho partnered with Google to enable Google users to access all Zoho services with their single Google ID • Tata Communications has partnered with SugarCRM to offer hosted CRM solutions to Indian businesses Integration with Social Media • Several companies such as Trend Micro, F- secure, have partnered with Tata Indicom to provide on demand hosting, backup and security solutions • Zoho has launched Zoho applications (Zoho Writer, Zoho Sheet and Zoho Show) on the Facebook platform, enabling users to chat and work together • Indian gaming company Indiagames has tied up with through the social network several ISPs such as Airtel, MTNL, Tata Indicom to deliver Games On Demand • Salesforce has launched an application on Twitter which enables salesforce users to engage with their client base faster and more efficiently, either individually or en masse Zinnov 26 Source: Company websites, press releases Zinnov Management Consulting Pvt. Ltd

To succeed in the India market its essential that firms look at the right price- value mix, followed by a solution centric approach Basic Principles Child Birth at Homes at Stay 5 Star at Cars at Call at Rs.1 Fly at Rs.1 Rs.1500 Rs.300,000 Rs.1499 Rs,100,000 Zinnov 27 Zinnov Management Consulting Pvt. Ltd.

India is home to the second largest number of SMB’s in the World, and these SMB’s are spread across various verticals SMBs across various countries Industry Sector wise Distribution of SMBs Employee-size distribution (2006-07) (2006-07) (2006-07) 101-1000 11 to 100 (0.1M) (1.2M) Rest of the World (30M) Germany (4M) UK (4M) Services Russia (8M) 16% Number of SMBs (in Millions) Number of SMBs (in Millions) Retail US (26M) 52 % Manufacturing/ Assembling/ Processing 15% Less than 10 (33.8M) India (35M) Professional Services 7% Repair & Maintenance China (44M) 6% Total = 35 Million Others Educational 1% Services 3% SMBs are defined as organizations with employees within the range of 1-999 Source: Zinnov Syndicated study of Indian SMB Landscape, May 2008 Zinnov 29 Zinnov Management Consulting Pvt. Ltd

Retail contributes half the number of SMB’s in India and is highly diversified Format-wise Break Up of Retail Shops Sector-wise Break Up of Retail Spent (2006-07) (2006-07) Others (4.0%) Recreation (0.7%) # of Retail Footwear (1.7%) Shops 3M 12M ~3M ~1700 18M (in Million) Furniture (4.7%) Consumer Durables & IT (4.7%) Jewelry & Watches (5.0%) Urban (45%) Apparel (7.0%) Personal/HealthCare (7.6%) Rural (55%) Food, Beverages and Tobacco (64.8%) Street Vendors Mom n Pop Medium Stores Large Stores Total Stores Retail holds enormous opportunity but requires concentrated channel efforts Source: Zinnov analysis of Indian Retail Sector Zinnov 30 Zinnov Management Consulting Pvt. Ltd

Manufacturing units in India are spread across 2000 odd clusters across the country Registered Unregistered State/ Territory Total Clusters(1) Clusters(2) UTTAR PRADESH 131 157 288 KARNATAKA 126 55 181 26 KERALA 149 17 166 TAMIL NADU 131 28 159 30 MADHYA PRADESH 91 64 155 83 ANDHRA PRADESH 71 79 150 17 BIHAR 54 85 139 40 12 MAHARASHTRA 74 42 116 GUJARAT 106 9 115 288 69 WEST BENGAL 36 62 98 32 139 4 PUNJAB 67 12 79 17 RAJASTHAN 38 31 69 36 1 ORISSA 4 57 61 115 155 98 CHHATTISGARH 24 18 42 42 HARYANA 38 2 40 61 JHARKHAND 15 21 36 116 ASSAM 8 24 32 HIMACHAL PRADESH 20 10 30 JAMMU & KASHMIR 13 13 26 150 Legend UTTARANCHAL 17 NA 17 MANIPUR 4 13 17 181 # of clusters DELHI 2 10 12 200+ 100-200 CHANDIGARH 1 3 4 50-100 MEGHALAYA 1 3 4 0-50 159 NAGALAND NA 3 3 166 MIZORAM 1 NA 1 1222 818 2040 (1) A district having 100 or more registered MSME units that were engaged in manufacturing the same product are considered as a cluster (2) District having an estimated number of 500 or more unregistered MSME units which were engaged in manufacturing of a product are considered to form a cluster Tapping the manufacturing cluster will require an understanding of density of registered SMBs Source: Zinnov analysis of the Third All India Census of Small Scale Industries 2001-2002 Zinnov 31 Zinnov Management Consulting Pvt. Ltd

Mid-Sized Manufacturing units are at the cusp of growth and form the foundation of a strong Indian manufacturing base Sector-wise Distribution of SMBs with Vertical-wise Distribution of Mid-sized 101-999 Employees Manufacturing units (2006-07) (2006-07) Services 14% Metallurgy 19% Chemicals 25% Number of Units (in percent) Others Manufacturing 2% Textile 16% 86% Pulp and Paper 4% Cement & Construction 5% Technology 7% F&B Engineering 14% 8% Total= ~86K Total= ~ 0.1 Million Source: Zinnov Syndicated study of Indian SMB Landscape, May 2008 Zinnov 32 Zinnov Management Consulting Pvt. Ltd

SMBs are a priority sector with 12% of the net bank credit directed towards them; the Govt. is further boosting the sector with financial stimulus Priority Sector lending to SMBs by banks in India (2006 to 2008) 280000 SMB stimulus package 240000 (Rs. 62000 Crores) 200000 15489 46069 160000 262765 120000 11648 13063 8430 10421 80000 148651 104703 40000 82434 0 2006 2007 2008 2009 Total Foreign Banks Private Sector Banks Public Sector Banks Source: Reserve Bank of India Zinnov 33 Zinnov Management Consulting Pvt. Ltd

Despite the large numbers, SMB’s in India face certain fundamental business challenges that have only been complicated by the current recession • Demand for their products ad • Global economic meltdown, and services has come down reluctance of the banks to lend substantially, this has resulted in money for investments has massive lay offs and need for impacted liquidity restructuring of busiesses 1 2 Lack of Lack of Macroeconomic Demand for Stability services • Most SMB’s lack a competitive Lack of Lack of Risk • Most Small businesses in India edge both in the domestic as Competitive Mitigation 3 have a small set of customers and well as the global markets due to 6 Edge have not diversified their lack of innovation, and best risks, and run high business risks practices Lack of Lack of Ready Labor Operational Pool Efficiency 5 4 • SMB’s are struggling with • Most of the units face challenges operational efficiency, they run at with regards to availability of sub-optimal levels of business ready talent, and are production, and lack integration of forced to invest in training business processes Source: Primary intervies with key stakeholders at PSF Units; Zinnov analysis Zinnov Management Consulting Pvt. Ltd Zinnov 34

SMB’s are adopting a number steps to overcome these fundamental challenges and to grow their business 1 Exploring niche markets and emerging locations 2 Value added services to face competition 3 Cost efficiency/ plant consolidation 4 Increased supplier collaboration Key Steps to Increase Integrate new opportunities to Competitiveness transform markets and gain first mover advantage 5 Training of labor force 6 Faster reaction for design/ customer feedback 7 Service oriented products and pricing 8 Energy Efficiency and Green Initiatives Zinnov 35 Zinnov Management Consulting Pvt. Ltd

Technology adoption can help better accelerate each of these initiatives which in turn have a great deal of business impact Key Steps Business Impact IT Enablement 1 Exploring Niche Markets 2 Value Added Services 3 Cost Efficiency Key Steps Business Impact IT Enablement Increased 4 Collaboration Training of Labor 5 Force Faster reaction to 6 customers Service Oriented 7 Products/Pricing 8 Green Iniatives Source: Zinnov Analysis Zinnov 36 Zinnov Management Consulting Pvt. Ltd

The inherent advantages of IT on these initiatives coupled with increased aspiration of SMB’s is driving IT adoption • Indian SMBs are exporting their products to the global market and are in direct SMBs entering competition with global players especially In Global Markets from low cost countries such as China and Ukraine • The Exports for the SMB in India has been growing with a CAGR of 12.5% over the last 10 years • Large number of MNC are entering into the Indian Market and offers a direct competition to the local players especially the SMB IT solution • The total Imports to India has been growing Adoption with a CAGR of 16% over the last 10 years SMB partnership MNC entering • SMBs when partnering with MNC will With MNCs in India in Indian Market mandate the incorporation of the best of technologies to maintain the standards and better coordination between the two SMBs going global and Global MNCs entering domestic market necessitates Technology requirement Source: Zinnov analysis of data from Planning Commission, March 2001, Govt. of India, Reserve Bank of India Zinnov 37 Zinnov Management Consulting Pvt. Ltd

The drive for IT adoption amongst SMB’s is evident in the rapid growth of basic IT infrastructure adoption like PC’s PC distribution among SMBs (2007-08) 100% 90% 0.3M 80% 70% 29.2M 60% PC Penetration (%) 50% 0.9M 0.1M Average penetration (2012) - 39% 40% 30% Growth 25% 20% Average penetration (2008) - 16% 10% 4.6M 0% Employee Size Less than 10 11 to 100 101- 1000 PC penetration 14% 74% ~100% PC users Manual, No PC IT which started as a phenomena among Large corporate is fast penetrating into SMBs Note: * Includes overseas acquisition led revenue growth Zinnov 38 Source: Zinnov Analysis Zinnov Management Consulting Pvt. Ltd

This basic IT adoption has also resulted in an exponential growth of software products in the Indian market Indian Software Product Market Landscape, FY2008 Indian Software Product Businesses Revenue 1.5 Indian Software Product 1.42 Companies Selling in India USD 0.46 billion 1.07 1.0 0.96 Global Companies Indian Software Product USD billion Selling Software Companies Selling Outside Products in India India 0.69 0.68 USD 1.84 billion USD 0.96 billion 0.5 0.40 0.46 0.39 0.29 0.0 FY 2006 FY 2007 FY 2008 Domestic Exports* Note: * Includes overseas acquisition led revenue growth Zinnov 39 Source: Zinnov Analysis Zinnov Management Consulting Pvt. Ltd

Interestingly however, Internet usage in India still outstrips the actual penetration of Desktops and Laptops Desktop Penetration in India Users (in Internet Users and Internet Penetration Units (in Millions) in India Millions) CAGR 6 90 8% 7.1% 89% 80 7% 5.5 5.5 5 70 6% 4.6 4 60 4.5% 5% 22% 3.6 50 3 3.6% 3.6%3.7% 4% 3.0 40 81 3% 2 2.3 30 2.1% 31% 1.6% 51 2% 1.7 20 39 40 42 1 0.7% 1% 10 0.1%0.3%0.5% 17 23 1 6 7 0 0 3 0% 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Desktops Internet Users • Introduction of sub-notebook generation for as low as $300 by HCL, ASUS, SAHARA etc. • Internet Users in India are growing at a CAGR of 46% • With the entry of low cost notebooks in the market the share of • Penetration of Internet is around 4% of the total population desktop to total PCs has dipped and further resulting a slow-down in the assembled PC sales Source: AKAMAI, ITU, IAMAC, Secondary research Zinnov 40 Zinnov Management Consulting Pvt. Ltd

Despite the exponential growth of basic IT infrastructure and of internet usage, verticals like manufacturing & retail still have abysmally low levels of IT adoption Potential Opportunity for Technology Adoption High by sector (2007-08) Growth Potential High Retail • Accounting 18M Medium 17% • Inventory Management/ Low Procurement • POS • Accounting and Payroll MSME 13M • E-mail and Internet Banking 7% • Inventory Management/ Procurement Addressable • ERP Size • HRM Educational • Process requirement Services Professional • Online Resources 20% Services • Accounting 79% 2.4M Hospitality 10% 1.2M • Training Students 0.3M • Administration IT/ITES ~5000 ~100% • CRM • CRM • Accounting Low Technology Adoption High Lower technology adoption in MSME and Retail answers the huge potential opportunity at the basic level Source: Zinnov Syndicated study of Indian SMB Landscape, May 2008 Zinnov 41 Zinnov Management Consulting Pvt. Ltd

The low adoption of IT can be attributed to certain unique characteristics of the Indian market Multitude of languages, varying levels of literacy, drastic shift in needs across the country Diversity of Population Indian customers are known to be value Changing Regulatory and policy customers and frameworks that make it price/performance Price extremely difficult to have a Environmental expectation is high Performance consistent market strategy Shift Expectation Challenges in India Low broadband penetration, low PC Young and aspiring population moving Demographic Infrastructure penetration, Lack of consistent power towards urban centers in search of Shift Challenges supply employment Zinnov 42 Zinnov Management Consulting Pvt. Ltd

These challenges have been further compounded by the following market complications Lack of Technology • SMBs are not able to identify their technical requirements • SMBs look for a complete solution rather than a standalone product Know-how • They look at PCs and peripherals as additional costs • SMB owners need to be convinced of returns before making any capital investments in IT. In most of the cases, SMB owner expects the quantified benefits such as growth in revenues/profit margin or significant Unclear Return on cost savings. Investments • IT Vendors have struggled to articulate a clear business case for IT adoption and SMB owners have not seen immediate benefits on IT • There ate too many products available in the market, each of them claiming to be better than the other Cluttered • Clear differentiation among products and the value for money is not easily realized Product Portfolio • Dealer networks and their staff are not geared enough to resolve customer queries • SMBs that have invested in IT need frequent technical support due to limited knowledge of technology. Most of the SMB don’t invest much on internal IT staff. High cost for technical • SMB owners have to often choose between a regular support with high cost or settle down to limited support support at economical price. However, neither of the two options solves the need for technical support. • Most of the SMB invest in technology solutions on a long term basis. Frequent technological development which force them to migrate to a newer technology and dump legacy system is not welcomed by them. High investments made • IT vendors and their channel partners need to guide SMB owners to design their IT investments and in legacy systems become their trusted partners. Source: Zinnov Analysis Zinnov 43 Zinnov Management Consulting Pvt. Ltd

Existing market offerings are found to be too expensive by SMB’s and they do not see a price value proposition in the offerings ERP Solutions are being offered to Basic accounting software that allows SMB customers at anywhere between Rs.1,50,000- clients to do book keeping costs between Rs.10,000-Rs. Rs.15,00,000. 40,000 The cost for communication set up OS pre-loaded laptop costs between Rs.25,000- like modem, broadband, electricity, etc 45,000 while Office software is approx Rs.12,000 per year for small business cost Rs.16,000 The cost of a Small business to start off with a basic computer with licensed OS, Office, Accounting Software and Internet connectivity for a year is Rs. 73,000 SMB owners do not see price/ performance value, this also actively encourages Piracy Source: Zinnov Analysis Zinnov 44 Zinnov Management Consulting Pvt. Ltd

To successfully pitch solutions to SMB’s, one needs to understand the factors that influence their buying decisions 1 Capital Investment Total cost of license, implementation and support of the ERP solution over a period of 3 – 5 years 2 5 Return on Investment Scalability Buying Decision for Improvement in productivity and process Product scalability to accommodate the efficiency of the enterprise i.e. very little dynamic needs of the enterprise SMBs latency period 4 3 Best Practices Reduced Complexity Deliver best practices across the business value Deliver value with minimal internal IT support chain and increase competitiveness on the and talent, in addition to lower investments in global scale training SMBs view IT as capital investments and hence ROI becomes a critical factor Source: Zinnov Syndicated study on Indian SMB Landscape, May 2008; Zinnov 45 NASSCOM-Zinnov study on India Software Product Business, Aug 2008 Zinnov Management Consulting Pvt. Ltd

The purchase cycle of SMB’s is also dramatically different from that of large enterprises and this difference needs to be understood in order to be successful Large Enterprises ( Pvt. & Public Sector) SMB Purchase Chain Purchase Chain CEO CEO Specifications CIO Garnered through Conferences, Peer IT Business Group, Secondary Department RFI to SI Heads Need Alternative Need Short List CIO,CSO Procurement Either through SI or Product RFP-Request for Proposal Vendor Directly RFI to SI SI Procures,Hardware,networking RFI for after software Product Short list based Short List Implementation by vendor RFI for Product on Initial or SI Start List Response to RFI RFP Start List RFP-Request for Proposal 80% OF THE TIME SMB. RFP-Request for SI Procures Proposal PROCURES PRODUCTS Hardware, n THROUGH SI CHANNEL etowrking Final and 20% THROUGH and software PRODUCT VENDOR Final DIRECTLY Implementation by Implementation vendor or SI Implementation by vendor or SI Zinnov 46 Zinnov Management Consulting Pvt. Ltd

To address these challenges & differences one needs to use innovative models to drive business and SaaS leads the stack… Technology • Open Cloud/ Cloud Computing Technology • S+S (Software + Service) Innovations • Virtualization Innovations • Service Oriented Architecture • Open Source Delivery Model • Packaged/ License Innovations Delivery Model • Software as a Service Innovations • Software Appliance • Software Enabled Solutions Revenue Model • License Innovations Revenue Model • Subscription/ On Demand • Transaction Innovations • Ad Based • Session based The need from SMBs has led to several business innovations from technology providers Source: Syndicated study on Indian SMB Landscape; NASSCOM-Zinnov study on India Software Product Business Zinnov 47 Zinnov Management Consulting Pvt. Ltd

Thank You 69 "Prathiba Complex", 4th 'A' 575 N. Pastoria Ave 21, Waterway Ave, Cross, Koramangala Ind. Layout, 5th Suite J Suite 300 Block, Koramangala Sunnyvale The Woodlands Bangalore – 560095 CA – 94085 TX – 77380 Phone: +91-80-41127925/6 Phone: +1-408-716-8432 Phone: +1-281-362-2773

http://softwarestrategiesblog.com	1266
http://nasscom-emerge.groupsite.com	96
http://www.slideshare.net	96
http://lcolumbus.wordpress.com	8
http://translate.googleusercontent.com	3
http://www.techgig.com	3
http://static.slidesharecdn.com	1
http://health.medicbd.com	1

India SaaS Market Opportunity Zinnov

by NASSCOM EMERGE Forum on Sep 07, 2009

Accessibility

Categories

Tags

Upload Details

Usage Rights

8 Embeds 1,474

Statistics

India SaaS Market Opportunity Zinnov — Presentation Transcript