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Business & Industrial Analysis on IT and Telecom Sector By Subham(intern at IIM-A)

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  • 1. May 31 2012Industry Analysis Report on Information Technology and Telecom Sector, especially concentrated for Information Technology based Start-ups Subham Sahu, Centre or Innovation, Incubation and Entrepreneurship, Indian Institute of Management, Ahmedabad, India
  • 2. ContentsOverview.................................................................................................................................... 4Indian IT and Telecom Industry................................................................................................ 5Information Technology Industry ............................................................................................. 7 IT Services and ITeS industry ................................................................................................ 7 Indian IT services industry................................................................................................. 8 Indian ITeS Industry........................................................................................................... 9 Pricing models in the industry............................................................................................. 10 Challenges ............................................................................................................................ 10 Key players:.......................................................................................................................... 11Cloud computing..................................................................................................................... 11 Scope .................................................................................................................................... 11 Scenario in India................................................................................................................... 11 Business models of cloud computing industry ................................................................... 12 Challenges and Opportunities ............................................................................................. 13 Key plyers in Industry ......................................................................................................... 13Enterprise Software Solutions ................................................................................................. 14 Scenario of Indian Enterprise Software Industry ................................................................ 14 Enterprise application licence pricing ................................................................................. 14 Verticals of Enterprise Software .......................................................................................... 15 Challenges and Barriers........................................................................................................... 15 Key players in Industry ....................................................................................................... 16Telecom Industry..................................................................................................................... 16Telecommunication ................................................................................................................. 16 Scope .................................................................................................................................... 16 Indian telecommunication industry .................................................................................... 16 Challenges and Opportunities ............................................................................................. 17Value Added Services Industry............................................................................................... 18 Scope .................................................................................................................................... 18 Scenario of Indian VAS Industry ......................................................................................... 18
  • 3. Drivers of MVAS.................................................................................................................. 19Start-up Study:......................................................................................................................... 20 Cloud Computing ................................................................................................................ 20 ERP Solution Provider ......................................................................................................... 20 CRM Solution provider........................................................................................................ 21 Security Solution Industry (EAS)......................................................................................... 21 Telecom and VAS INDUSTRY............................................................................................. 22Reference:................................................................................................................................. 23
  • 4. Overview The Information Technology (IT) and Telecom industry has become one of the mostrobust industries in the world. IT, more than any other industry or economic facet, has anincreased productivity, particularly in the developed world, and therefore is a key driver ofglobal economic growth. Information technology (IT) is defined as the design, development,implementation and management of computer-based information systems, particularlysoftware applications and computer hardware. Today, it has grown to cover most aspects ofcomputing and technology.This industry Analysis report covers the IT industry and telecom services industry. The ITindustry can be classified as IT services, IT enabled services and Software Productionindustry. The trends in current market are Cloud computing, Enterprise Application service,Software testing, Merging and Acquisitions in IT industry, Custom application developmentand exporting. The ITeS sector has some of the service area as Knowledge Services (legalprocess outsourcing, research outsourcing, analytics etc.) Business process outsourcing andEngineering service outsourcing(R & D, Designing).Telecom sector industry plays an important role in world economy. The sharp growth inwireless communication, the penetration of mobile phones to rural area, introduction of thethird-generation(3G) and fourth generation(4G) are the key drivers of the industry. Thetelecom industry is so developed still the challenges to bring the rural area under the reach ofinternet reach opens a wide opportunity to growth. The telecommunication industry is also agood consumer of IT industry. The telecom industry is vast and offers a wide range of careeropportunities on both the hardware and software fronts. These prospects include functionaljobs in mobile telephony, internet protocol media systems, wireless communications, GSM,GPRS and CDMA technology, VoIP, data networks and optical networks amongst others. “Despite global economic uncertainty, the telecommunications industry is showingstrong revenue growth, which is being driven by consumer Internet usage and businessmobility solutions. These are enabling new applications,” says Fran Caulfield, ResearchDirector for Insight Research[1].The telecom industry’s services are mobile services, fixed line telecom services and GPRS,3G, 4G services. The telecom industry gave rise to another industry as Value Added Services,Which now have grown to a billion dollar industry. The industry derives its revenuesprimarily from entertainment related services such as games and music downloads, whichmake in close to 80% of VAS revenues. Whereas utility mobile VAS, which are servicessuch as m-governance, m-commerce and education over the mobile, currently constitute only20-25% of VAS revenues, leaving large scope for growth. This Industry analysis report focuses on the IT industry and telecom industry, in orderto study the challenges , barriers, opportunities, gap, which could be helpful the start-upanalysis and the evaluation of start-up according to according to present environment.
  • 5. Indian IT and Telecom IndustryOver the past decade, information technology industry has become one of the fastest growingindustries in India. Strong demand over the past few years has placed India among the fastestgrowing IT markets in the Asia pacific region. The role of information technology changesnow a days, It is changing and putting an invisible layer to the lives.  The IT sector has increased its contribution to Indias GDP from 1.2% in FY1998 to 7.1% in FY2011.  According to NASSCOM, the Indian IT/ITeS industry is expected to aggregate revenues of $28.8 billion in 2010-11, up by $4.9 billion in 2009-10, indicating a growth rate of 20.7 per cent.  Revenues of the top 3 players (TCS, Infosys and Wipro) in the Indian software industry grew by 19.8 per cent (y-o-y) in 2010-11 to touch Rs 958.4 billion; growth was on account of recovery in the volumes.  Export revenues are expected to reach $59.4 billion in 2010-11 as compared to $50.1 billion in 2009-10 a growth of 18.5 per cent. Export dominate the IT–ITES industry, and constitute about 77% of the total industry revenue.
  • 6.  Though the IT–ITES sector is export driven, the domestic market is also significant with a robust revenue growth. The industry’s share of total Indian exports (merchandise plus services) increased from less than 4% in FY1998 to about 25% in FY2012.Some of the major reasons for the significant growth of the IT industry of India are  Abundant availability of skilled manpower  Reduced telecommunication and internet costs  Reduced import duties on software and hardware products  Cost advantages  Encouraging government policiesThe India has the worlds second-largest mobile phone users with over 919 million as ofMarch 2012. It has the worlds third-largest Internet users with over 121 million as ofDecember 2011.India has become the worlds most competitive and one of the fastestgrowing telecom markets.The total revenue of the Indian telecom sector grew by 7% to 283,207 crore (US$56.5billion) for 2010–11 financial year, while revenues from telecom equipment segment stood at117,039 crore (US$23.35 billion).The industry is expected to reach a size of 344,921 crore(US$68.81 billion) by 2012 at a growth rate of over 26 per cent, and generate employmentopportunities for about 10 million people during the same period.With the launch of 3G in the Indian market, a variety of data services, mobile internet, andlocation-based services, m-commerce, app stores, and applications are expected to increasethe end-user experience, and created a revenue of 13,026 crore by the end of the year 2011.Now the leading telecom operators of India are launching 4G services in major cities. The 3Gand 4G in india are not yet shown a significant growth in data consumtion as the speedthrough them still remains below expectation. In telecom industry of India the Introduction of Tata Docomo to india and the slash ofprice started tariff war between the operator. The inclination of the tariff also helped theindustry for better penetration in Indian market.The leading telecom operators of India are BSNL, Airtel, Tata Docomo, Tata indocom,reliance communications, Loop, Vodafone etc. India’s mobile VAS market is projected at US$ 3 billion with revenues driven bymobile–entertainment-themed VAS, including mobile music, games, images, TV and video,accounts for 29 per cent. Mobile messaging and mobile Internet accounts for 49 per cent and21 per cent respectively and 1 per cent revenue is generated from other value added services.Major players in field of VAS are one97, on mobile, spice digital, IMImobile.
  • 7. Information Technology IndustryThe IT industry can be divided into three Subsectors as 1. IT Services 2. ITeS Services 3. Software IndustryThough the IT industry is divided into this three sector, some themes are the trends now adays which are lucrative opportunity to grow. The study shows that some of themes areoffering good opportunity, they are 1. Cloud Computing 2. Enterprise Application Service 3. Software TestingSome trends are being seen in IT industry as their growth and opportunity 1. Non-linear Growth 2. Mergers and AcquisitionsIT Services and ITeS industryAccording to NASSCOM, the global IT services industry is expected to grow at a CAGR of3.8 per cent from $566 billion in 2009 to $684 billion in 2014, led by outsourcingengagements. 300 250 200 150 Project-Oriented services 100 Outsourcing Support and Training 50 0 2009 2010 2011 2012e 2013e 2014e Worldwide Spending on IT Services
  • 8. Domestic IT-ITes market:Domestic It-ITeS market shows an increase in revenue in coming days.Indian IT services industry : IT services exports is the fastest growing segment, growing by 19 per cent in FY2012, to account for exports of USD 40 billion Increased acceptance from mature segments such as BFSI, US, and large corporations, and emerging segments such as retail, healthcare, utilities, SMBs, Asia Pacific and RoW
  • 9. IT Services to different Industry  The increase in domestic market for IT Services industry  Emerging technologies – cloud computing, mobility, social media and big data/analytics unleashing new opportunities for the industryIndian ITeS Industry  ITeS industry commonly nown as BPO services industry which deals with Legal process outsourcing, knowledge process outsourcing and Engineering services outsourcing.  Exports, which formed around 84 per cent of the revenues in 2010-11, grew by 14 per cent on a y-o-y basis and reached USD 14.1 billion  Domestic revenues grew by 22 per cent in 2010-11, grew higher compared to about 18 per cent in 2009-10. This ITeS growth in domestic market is led by the BFSI, telecom and manufacturing and a greater vendor focus with specific offerings.
  • 10.  Software and services revenues (excluding Hardware), comprising nearly 87 per cent of the total industry revenues, expected to post USD 87.6 billion in FY2012; estimated growth of about 14.9 per cent over FY2011Pricing models in the industryThe maturity of the third-party model has brought with it a variety of pricing and engagementmodels. Some of the pricing models seen in the industry include:  Per-unit time / variable cost: This is currently the most common pricing model in the industry. The client guarantees a minimum amount of business and is billed on a per hour or per seat basis.  Per seat or full time employee (FTE) per month: The client guarantees a minimum amount of business for a number of FTEs on a monthly basis.  Activity based billing: Billed by the volume of activity (i.e. per call, per statement or per line transcribed)  Gain-share models: Billing based on quantifiable value delivered (i.e. success rate, conversion ratio etc) on the basis of mutually agreed parameters.  Hybrid pricing models: Combination of 2 or more models. Typically incorporate a fixed volume rate plus a marginally higher rate for peak load absorption.Challenges  The mix of voice and non-voice jobs: The costs associated with a voice-based business are high, given the high attrition rates and wage hikes.  Foreign exchange : the appreciation and depreciation of the rupee value with dllar plays a major role in long term contracts.  Attrition: the Attrition rate is very high as the BPO sector growth rate is high.
  • 11.  Wage increases: the inflation in India results in wage increase,, which affect the industry  Infrastructure: the industry needs good infrastructure, which should be provided to start –ups , as they have limited infrastructure for company. “In India, STPI has tried to address this issue by providing incubation officespace, i.e., ready to plug-in offices, in nearly 51 locations across the country.”Key players:Tata Consultancy Services IBMInfosys Hewlett-PackerdCognizant AccentureWiproHCL TechnologiesCloud ComputingScopeCloud computing refers to a pay-per-use model of computing where applications andsoftware are accessed over the Internet and not owned by users. It helps IT companies to savehuge costs as they do not have to invest heavily in IT infrastructure. This service drivenmodel has three distinct characteristics that differentiate it from traditional hosting. It is soldon demand, is elastic, and offers greater flexibility.  Microsoft-IDC study estimates that the revenues from cloud innovation could reach as high as $1.1 trillion a year by 2015 from $400 billion in 2011, where some $28 billion was spent worldwide on public cloud IT services (as compared to over $1.7 trillion of spending on total IT products and services industry) creating 1.5 million jobs.  According to Zinnov Management Consulting, Indias cloud computing market is expected to reach USD 4.5 billion by 2015.Scenario in India  India and China are two major players in the cloud computing arena. Subscription based service model and cost effectiveness are two important factors that drive more and more Indian companies and SME’s to enter and utilize cloud-based applications.
  • 12.  Software as a Service (SaaS) applications are gaining acceptance in India, with 32% of SaaS adopters replacing an on-premise application in 2009-10 says Springboard research  22% of organizations using an on-premise application have chosen to adopt the same applications SaaS version in another geography or department within the organization.  Springboard estimates that the Indian SaaS market, valued at US$105 million in 2009, will be worth US$352 million by 2012. Its likely to register a growth of 60% CAGR from 2008 to 2012.Business models of cloud computing industry:
  • 13. Challenges  Security is a Main concern: Since the deployment models are private and public , the enterprises are concerned about using the cloud as the security concern. The large firms have the Resources to build private cloud to avoid this but everyone cannot.  Potential erosion in traditional services: Traditional on-site software product vendors are increasingly facing competition from SaaS providers who provide flexible payment models as compared to the incumbent fixed price plus annual maintenance model.Opportunities  Low total cost of ownership of applications because of pay as you go services. No need to have a dedicated in-house IT team to manage applications. This ensures they focus on their sore business and not supporting tasks. So, SMBs are more interested in this service.  Many SMBs are worried about loss of data as they do not have systems and processes in place to take regular backups. They opt for easy to use cloud based backup services“SMBs will be the key driving factor for cloud computing services in future. It alsoidentifies that SMBs will be specifically interested in services which can assist them in: Marketing (Business to Business, Business to consumer, Consumer to Business) Communication: enable their clients to interact with them online. Also enablesmooth interactions within the business (internal communication) Product / Service development: conceptualize, develop and launch new productsToday some of the most common cloud applications used by SMBs include:  CRM : Customer support and interaction  Sales and marketing automation  Accounting and financial transactions  Content communication and collaboration (CCC)Key plyers in IndustryAmazon Google BlueLock GoGridCSC IBM AT&T
  • 14. Enterprise Software SolutionsEnterprise software are typically business-oriented tools such as online shopping and onlinepayment processing, interactive product catalogue, automated billing systems, security,enterprise content management, IT service management, customer relationship management,enterprise resource planning, business intelligence, human resource management,manufacturing, enterprise application integration, and enterprise forms automation. Themarket for softwares used by enterprises in the country is projected to grow 13 per cent thisyear and revenues for the segment will reach $ 3.22 billion despite challenging economicconditions, research firm GartnerScenario of Indian Enterprise Software Industry  enterprise software market in India is projected to grow 13 per cent in 2012, as revenue reaches $$3.22 billion USD in 2012, according to Gartner, Inc  India’s enterprise software market is forecast to maintain its strong performance, with an estimated compound annual growth rate (CAGR) of 13.6 per cent from 2009 to 2016 – the third highest growth rate in the world.  The country is forecast to account for 11 per cent of the region’s total revenue of $29.33 billion USD for Asia/Pacific this year, the equivalent to 1.15 per cent of the total worldwide software of market share of $280 billion USD billion.Enterprise application licence pricingEnterprise application licences are typically sold on following basis:  Number of employees  Number of users – Licences are sold on the basis of number of end users, rather than number of employees  Transaction – The user pays for the service on a per transaction basis  Server – The software is licensed on the basis of number of servers
  • 15. Verticals of Enterprise SoftwareChallenges and Barriers  Lack of domain expertise: Serving verticals like life sciences, aviation and oil and gas requires deep domain expertise across the breadth of the verticals. Lack of domain expertise in these areas limits the off-shoring opportunity in the EAS space.  Lack of experience in consulting and configuration space  Cloud based CRM and security of cloud is a challenge now a days , which seems great opportunity.
  • 16. Key players in IndustrySAP Salesforce.comORACLE LawsonSAGE Unit4 AgressoINFOR EpicorMICROSOFT VismaTelecom IndustryTelecommunicationScopeThe telecom industry is growing at a great pace and the growth rate is expected to doublewith every passing year. There are new developments in the telecomm sector, including thelaunch of 3G and 4G technology that the Indian market is witnessing at present.Indian telecommunication industry  India has the worlds second-largest mobile phone user base with over 919 million users as of March 2012. It has the worlds third-largest Internet users with over 121 million as of December 2011. In recent times India has become the worlds most competitive and one of the fastest growing telecom markets .
  • 17. Net addition to mobile subscribers  The no. of subscriber to fixed line connections are declined in a vast rate. The share of rural subscribers has increased to 34.77 per cent MoM, urban share has declinedby 0.36 per cent. With this, the overall Tele-density in India reaches to 78.66 at the end ofMarch, 2012 from 78.10 of the previous month.The country has the worlds third largestInternet users with over 121 million users (of whom 59% who only access the internet viamobile devices) as of December 2011 However, the Internet penetration in India is one of thelowest in the world and only accounts for 8.4% of the population compared to OECDcounties where average penetration rate is over 50%.Challenges and Opportunities  This has been witnessed due to strong competition that has brought downtariffs as well as simplification of policy environment that has promoted healthy competitionamong various players  The licence and investment is not affordable for a startup.  It is not matures still very difficult to survive in present competition Opportunities:  The opportunity for internet providers in cheaper rate open  Internet users base fast reaching near the English speaking population base. Local language and content required for further growth  Infrastructure equipment cost is down to a fraction of what prevailed just a few years ago.
  • 18.  Increased viability for the operators to expand to semi-urban and rural markets, hence, Operators can plan better expansion plan nowValue Added Services IndustryScopeThe industry derives its revenues primarily from entertainment related services such as gamesand music downloads, which rake in close to 80% of VAS revenues. Whereas utility mobileVAS, which are services such as m-governance, m-commerce and education over the mobile,currently constitute only 20-25% of VAS revenues, leaving large scope for growth.Scenario of Indian VAS IndustryIndia’s mobile VAS market is projected at US$ 3 billion with revenues driven by mobile–entertainment-themed VAS, including mobile music, games, images, TV and video, accountsfor 29 per cent. Mobile messaging and mobile Internet accounts for 49 per cent and 21 percent respectively and 1 per cent revenue is generated from other value added services."As far as India is concerned, voice and/or SMS basedapplications are likely to continue to dominate, especially as theuser base continues to expand into lower income segments of thepopulation"- Lead ICT Policy Specialist, World BankWith mobile penetration expected to go up to nearly 100% by 2015 , and the advent of 3G,MVAS revenues are expected to grow to approximately Rs. 48,000 crores
  • 19. Drivers of MVAS  Govt. mandate for inclusive growth: the Govt. should use MVAS to reach people for inclusive growth.  Increasing Mobile phone ,and network penetration  Need for differentiation  Increasing consumer demand/awareness  Automation due to Information And Comm. Technology
  • 20. IT & TelecomIndustry Analysis Report 2012Start-up Study: IT/ITeS industry Name Founded innovation Monetization Helical 2005 a healthcare IT solutions Technologies provider Desicrew 2005 Rural people employment BPO services to through low cost BPO service Corporate clients RuralShores 2008 create a social impact by ITeS services in low providing opportunity to the cost rural community Cloud Computing Name Founded Innovation Monetization Appfog 2011 it leverages the open-source Cloud Platform-as –a- Foundry code as its core Service Bromium 2011 virtualization technology as a tool Service charge for securing the myriad endpointsCloudSigma 2012 impressive SuperNAP data center IaaS service model and offers 10 GbE interconnects Orange 2003 Visual Platform as a Service PaaS service model (PaaS), a modeling driven visual Scape development and deployment environment for creating business applicationsDropmyemail 2012 backing up one’s email Freemium model ChalkPad Education ERP systems Product sale and revenue ERP Solution Provider Name Founded Innovation Monetization VendAPPS™ 2011 vendor solution which B2B software revenue covers your entire supply chain ERP- 2011 Info-portal about ERP Ad and revenue Software.org solutions Niqotin 2008 Enterprise Resource App revenue Planning (ERP) application, named Rural ERP, for Indian Rural MSME’s
  • 21. IT & TelecomIndustry Analysis Report 2012 CRM Solution provider Name Founded Innovation Monetization Cirrus Insight 2011 puts the power of the Revenue as a product Salesforce.com CRM right inside Gmail. iWeb Technology 2011 Knowledge Base as well as Revenue as a product Solutions Pvt.Ltd an Application Generator which creates multi vertical & horizontal applications like ERP, CRM, SCM, HR, Payroll, Finance, Quality, Productio etcContractuallyCRM 2011 easy to automatically convert REVENUE AS A your email contacts to one PRODUCT central spot, sync it with your CRM (if needed), and add tasks, follow-ups, and priority associated with those contacts Security Solution Industry (EAS) Name Founded Innovation Monetization Epic Alarm 2012 advanced solutions designed to Product revenue(b2b, protect businesses and b2c) residences.alfredNFC.com 2012 invented a universal conduit of Product revenue(EAS) information that ties mobile devices to location-specific events via the Cloud and made it accessible to all developer partners. BriVAS 2012 technology that allows for Product revenue technologies multimodal authentication verification for digital devices Pratikar 2012 interact with the real world just Producttechnologies(Ana by scanning QR Codes, NFC revenue(consumer) tag Tags or even plain text. (http://anatag.co m)
  • 22. IT & TelecomIndustry Analysis Report 2012 Telecom and VAS INDUSTRY Name Founded Innovation MonetizationInternet Libre 2011 pre-paid internet wireless Customer paid access service with three key advantages Keku 2012 connects people around the Customer paid world with its high-quality calling service and simple mobile apps.Mobile tulip 2011 Providing technology solutions for top tier operators, aggregators and mission critical needs. Bulk messaging revenue TTAG 2011 web and telecom technologies Paid Service(customer to deliver innovative telecom pays) products and services  No complicated distance dialling codesMobacomm 2012 Pay by phone(mobile wallet) App. Revenue StarTele 2011 mobile SIP Product for Product revenue Tech businesses and VoIP carrier services across worldwide
  • 23. IT & TelecomIndustry Analysis Report 2012Reference: 1. http://www.bgr.com/2012/01/05/global-telecommunications-industry-revenue-to- reach-2-1-trillion-in- 2. http://www.tele.net.in/telefocus/vas/item/4962 3. https://www.deloitte.com/assets/Dcom- India/Local%20Assets/Documents/Deloitte_ASSOCHAM_MVAS_Study.pdf 4. http://saharanext.com/mobility/enterpriseHorizontalSolutions.asp 5. http://articles.economictimes.indiatimes.com/2012-04- 03/news/31281242_1_enterprise-software-software-market-asheesh-raina 6. http://www.mikeonmanufacturing.com/mike-on-manufacturing/2010/06/how-do- erp-software-companies-survive.html 7. www.crisilresearch.com 8. http://www.nasscom.org 9. https://www.bcgperspectives.com/information_technology