Mid Size ISV's in emerging markets

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Globalization has changed the playing field for ISVs of all sizes, opening the door to new markets and more economical offshore development resources. These trends have also enabled new players to emerge offering low-cost software products and services. These trends have sparked interest in a widening array of software alternatives. These alternatives include Open Source, Software-as-a-Service (SaaS) solutions, and Web 2.0 mash-ups.

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Mid Size ISV's in emerging markets

  1. 1. Challenges and Opportunities for Mid size ISVs in Emerging Markets The global software market stands at USD 300-320 billion out of which USD 6.8-7.2 billion is allocated to the emerging economies by the software industry. While the R&D spend on software products continue to grow at a relatively lower pace owing to the global economic crisis, companies have also re-aligned their R&D spend strategy to focus on new revenue streams (emerging markets ), new customers (SMBs) and new models (SaaS etc). In fact, many of the consumer software (including mobile software, gaming) companies are now looking towards India and China for the next wave of their revenue growth owing to the availability of a fast pace of technology adoption in these two geographies. A majority of companies are increasing R&D spend in emerging geographies such as India and China, as they believe that emerging geographies are a good ground for work associated with the low end of the Product Life Cycle value chain. Most of the ISVs are planning to generate at least 20 percent of their revenue from new products over the next 3 years with a major focus on emerging markets such as India and China. Service providers are also being leveraged as channel partners for product sales due to the extended reach that they can provide in the domestic market. Opportunity still untapped, with only 15% of the total R&D budget of Software Product Companies being spent on emerging geographies Challenges before a mid size ISV The challenge for ISVs today is to scale the products and business across markets, maintaining the high standards associated with the company. An ISV has to target 2 segments of the market namely - enterprises and SMBs. Enterprise customer's expectations are higher and the flexibility, adjustability to functionality delivered by a product is very low. Therefore, this market typically suffers from high costs, both in implementation and long term maintenance. However, in the SMB space it's just the opposite where the customer's budget is not much, but requires the basic fundamentals of software for streamlining the business.
  2. 2. Midsize independent software vendors (ISVs) striving to gain and maintain a competitive edge can be held back by a variety of business challenges – manual processes; inefficient, inaccurate revenue recognition; multiple sales channels with varying service levels and quality; and disparate views of the customer. ISVs are also faced with the challenge of providing their customers with a broad range of data import/export, data cleansing, and de-duplication capabilities. Today, customers expect migration and integration to be included in the solution. Some of challenges ISVs face: Technical Challenges ➢ Demanding customers (Constant changes in requirements)  Custom coding is too expensive and hard to maintain  There is no way to predict what legacy application and data formats you will run into with a new customer ➢ Shrinking product life cycle ➢ Sophisticated web services and APIs are great but come with a learning curve and are often complex ➢ Availability of skills with respect to the technology. ➢ Quality – always a matter of concern. ➢ Identifying right technology – as they are more expert on domain not on technologies, they find tough to identify appropriate technology for their new or existing products. Maintenance Challenges ➢ Sharp focus on customer support- Winning customer confidence and satisfaction ➢ Need for independent testing ➢ Connectivity and "plumbing" are not the core business to most ISVs ➢ Maintenance and support to their products – as it is high bandwidth mundane work and with less risk involved.
  3. 3. “Software support is seen as the segment to grow most during the next five years, with a CAGR of 5.7%. Hardware Maintenance and Support has the least growth prospects for the next five years with 0.4% growth rate. Apart from the significant cost advantage, availability of talent, maturity of vendor eco-system, process innovations, collaboration tools etc. have contributed to the growth of R&D sourcing from emerging geographies such as China, India, Russia and Eastern Europe. As these emerging economies are growing at a rapid pace, companies believe that these markets will play a critical role in their revenue growth as well. Many ISV companies are planning to generate over 25 percent of their revenue from these emerging markets.” Marketing Challenges ➢ Reduced time to market- reduced time to market is always welcomed ➢ Budget constraints-mainly with startups and small size companies ➢ Market research (Identify and develop target markets) ➢ Resource scalability issues (Ramp up and scale down in future). – holding idle resources involve high cost. ➢ Competition – with existing players, new entrants and substitute products with better functionalities. ➢ Vendor identification – finds difficult to identify right vendor for outsourcing or partnerships. Challenges related to Intellectual Property Issues ➢ Managing product licensing and securing software to avoid unauthorized usage ➢ More concerned about information security (IPR) issues – for an ISV the product is their asset, so theft of code is a fear factor for them. Opportunities in an emerging market In 2008, spending on IT services was highest in North America and Western Europe, with a growth rate of 4.2% and 5% respectively. Latin America and Central Europe showed the highest growth rate in the past year although their market share was low.
  4. 4. The Asia-Pacific region had a growth rate of 6.8% and seems to be the focus of many companies looking to shift focus from the traditional markets. The shift in focus to optimize IT spending and global sourcing during the recession ensured that the emerging markets showed double digit growth. Latin America and Central Europe are markets with huge potential and companies focusing there now would have a great first-mover advantage. “Most of the ISVs are planning to generate at least 20 percent of their revenue from new products over the next 3 years with a major focus on emerging markets ” Germany, Austria and Switzerland have emerged at the economic forefront of Europe and present significant opportunities for the Indian IT sector as it continues to build inroads into newer and emerging markets. The Germanic countries are facing acute talent shortages in the knowledge based sectors like IT and Engineering services. India is a natural partner, complementing the needs with a large technically qualified talent based, global experience and lower cost credentials. Current European uncertainties are short term in nature and it is sure that the European bloc as a whole will continue to be one of the largest markets for the Indian IT – BPO Industry. The Indian IT firms that have access to a pool of technically skilled work force should capitalize by seeking partnerships with similar-sized Germanic companies for front-end capabilities. Newer partnership models on joint product development can help built a viable SME segment in both markets.
  5. 5. Apart from the significant cost advantage, availability of talent, maturity of vendor eco-system, process innovations, collaboration tools etc. have contributed to the growth of R&D sourcing from emerging geographies such as China, India, Russia and Eastern Europe. As these emerging economies are growing at a rapid pace, companies believe that these markets will play a critical role in their revenue growth as well. Many ISV companies are planning to generate over 25 per cent of their revenue from these emerging markets. The emerging best practice for software development is to decouple product design and development (along with testing and support) elements in the value chain. The life cycle of product development is increasingly being divided into phases that require internal expertise (and value-adding), which is essentially in the product definition and design phases, whereas steps that are highly commoditized include development, testing and support. Enabling Software as a Service (SaaS) - ASP Model Critical Dimensions of Saas Design and Delivery
  6. 6. With increasing awareness of the advantages of cloud computing among the customers, Service providers are increasing looking at developing capabilities in the Cloud Computing department. This is also driven by the fact that the leading enterprise software vendors are expanding their product portfolios with SaaS based applications especially for the SME sector. Because the pay-as-you-go pricing model associated with SaaS permits customers to more easily abandon their software vendors, SaaS providers must develop highly differentiated solutions at the lowest possible cost, and properly support their customers’ needs in order to ensure their satisfaction and loyalty. Start-ups and established ISVs both face a wide range of operational challenges they must overcome to meet these requirements. Conclusion Globalization has changed the playing field for ISVs of all sizes, opening the door to new markets and more economical offshore development resources. These trends have also enabled new players to emerge offering low-cost software products and services. This commoditization is making it more difficult for ISVs to differentiate themselves, and win and retain customers. Compounding these challenges is the growing number of software platforms. As more and more companies push their employees out of centralized corporate offices so they can spend more time face-to-face with customers or simply reduce overhead costs, demand for mobile applications is exploding. With more employees working from home or in other remote locations, a growing number of businesses are adopting on-demand software services which enable employees to access corporate applications and databases via the Web. These trends have sparked interest in a widening array of software alternatives. These alternatives include Open Source, Software-as-a-Service (SaaS) solutions, and Web 2.0 mash-ups.
  7. 7. About vEmployee vEmployee is a leading IT Service provider based out of India. With services spanning over the technology value chain, vEmployee is a one stop shop for enterprise wide IT needs. With over a decade long experience in the industry, vEmployee has established itself as a trusted partner to various companies by providing timely project delivery coupled with high quality. Our parent organization Clarion Technologies is a SEI CMMI 3 level assessed company whose singular focus is on 'client satisfaction'. Start Today For more information on partnering with vEmployee, contact us at sales@vemployee.com or visit our website at: www.vemployee.com.

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