Enterprise Application Software

Cooling off

Akhtar Pasha says that while the EAS category cooled off in 2008, the market still saw some humongous deals. CRM had its share of adherents from government, insurance, telecom and SMBs. 2009 will see customers focus on value-based strategies leading to smaller deal sizes

After seeing a couple of fantastic years during 2006 and 2007 that saw the enterprise application software (EAS) market—that consists of ERP, CRM, SCM and BI—growing 22-24% in license revenue, 2008 saw the EAS market take a hit. We believe that the big five vendors missed their annual targets by large margins because no one anticipated that business would be this bad in 2008. Nagaraj L Bhargava, Chief Operating Officer, Synaptris, a global vendor for flexible and user-driven reporting and analysis solutions, said, “2008 was the toughest year anybody has seen in the recent past, businesses were shaken and most vendors missed their business targets by huge margins. It was probably the harshest year since 2001. Q4 2008 was taxing and revenues tanked.”

Gartner’s statistics say the same. The EAS business grew by 17% in license revenues to reach $344 million in CY 2008 up from $293.4 million in CY 2007 and most of the big projects were put on the backburner or postponed to 2009 leading to lower spending than expected. Q3 and Q4 2008 posted the worst performance in the recent past.” Business intelligence as a category, which grew by 44% to $12.4 million in CY 2007, saw a 50% dip in growth rate in 2008. The BI license revenue market grew by 20% to $15 million in CY 2008.

Nevertheless, there were some big-ticket sales as well as small deals that still pulled the market to reflect double-digit growth in 2008 unlike some other technology verticals that saw marginal growth such as servers and PCs. Apparently, in 2008, SAP won some huge deals from L&T, M&M, HCL Technologies and Infosys. Similarly, Oracle did well in some quarters winning its largest deal from Vodafone for CRM deployment.

Ranjan Das, President & CEO, SAP Indian Subcontinent, said, “In the tough market conditions [2008] there is certainly uncertainty in the market, we were still able to post a decent total, we won 990 deals out of which 600 were new customers in CY 2008.” He continued that towards Q3 when the rest of the market was reeling from a severe cash crunch and markets were down SAP signed three big ticket projects with L&T, M&M and Infosys for the complete end-to-end adoption of solutions on the SAP platform where they would be optimizing their business processes using SAP.

Sushant Dwivedy, Director, Microsoft Business Solutions, Microsoft, India however did not agree that EAS business was that bad. He said, “We continued to see growth for ERP and SCM combined. Professional services, retail, large infrastructure projects and aerospace ancillary kept the business moving in 2008. Customers were trying to control costs using ERP and SCM. However the automobile and real estate that did well in 2007, lost momentum and got hammered in 2008.”

Chetan P Pathak, Vice President, Ramco Systems Ltd., said, “There was a marked slowdown in September 2008 in EAS spending, which affected overall growth. However, we were able to grow our license revenue by 25% in 2008 over 2007.”

Sanjay Mehta, CEO, MAIA Intelligence, said, "2008 was quite dull, particularly October that surprised us. We were better off because of our 'price advantage' as bagged Exim Bank tender pitched against the big daddies of BI. In all we added 34 customers." He agreed, "There was pressure on deal sizes as it reduced by 40% in 2008 over 2007."

ERP continues to carry EAS business

The bulk of EAS revenues came from ERP and it carried the market forward in 2008—of the total EAS spending of $344 million, ERP represented most of the spending with $210 million representing 61%, followed by CRM with $73 million and SCM with $61 million.

R Ray Wang, Principal Analyst, Enterprise Application/Tech Industry Strategy, Forrester Research, said, “The lingering impact of the recession in 2009 will motivate business process and applications professionals to focus on value-based strategies for lower operating costs and smaller projects with quicker returns. As enterprise application vendors face reduced deal pipelines, customers will benefit from more bargaining leverage and will have better opportunities to stabilize rising maintenance fees.”

He continued that a confluence of value strategies and demand for purpose-built industry applications would drive business process and applications professionals to consider new deployment options, such as open source, hosting, business process outsourcing, and SaaS, for new functionality. “Additionally, growing interest in reducing dependency on a single packaged applications vendor for all solutions, and a plethora of new vendors, will lead to the re-emergence of best-of-breed strategies,” Wang added.

Customers are looking at value strategies demanding purpose-built industry applications driving EAS market forward and that there is growing interest in reducing dependencies on a single packaged application as we saw plenty of examples even in 2008. Here we present some of them.

Tripureswar Chattopadhaya, Head - Customer Delivery & Sales, Interlace India Pvt Ltd., explained this phenomenon and said, “In the recession we saw customers adopting best of breed strategy—since they already have standard ERP for transactions systems, they are looking at niche applications that can be hooked on to ERP.” An edible oil customer of ours is using our solution for secondary procurement, distribution & supply and sales [pre and post sales] for ‘Sauda’, which is preferred for procurement and cane management. He continued that another customer of Interlace’s, Hash 10 which is opening 2,500 new stores across India through franchisee model. While it was implementing SAP-ERP to help it manage the stores, it was also using Interlace’s Retail Magic [Remgic] solution to manage its point of sales, branches, sales, stock, distribution, customer management and sundry expenses. Hash 10 will be using Remgic solution to manage procurement and distribution for all 2,500 franchisees. “We have built hooks for Remgic to talk to SAP for managing their entire operations,” commented Chattopadhaya.

Pathak said that his company saw revenue across verticals such as mining where customers were optimizing output from mines and cement manufacturers such as Sagar Cements and Sree Jayajothi Cement. In logistics there were new customers including Continental Carriers, MRC Logistics, Metso Minerals. Pathak said, “There was solid demand for on-demand applications based on the SaaS model. We closed as many as 70 new customers for Ramco OnDemand ERP such as Sujana Metals and KVK Energy. HRM solutions also saw big traction as customers wanted to manage their workers through automation and Geojit, Caterpillar, Landmark were key customers in that segment.”

Bhargava added, “The trends in H1 2008 were entirely different from H2 2008 and there was no uniform trend. In the former case, ERP continued to do well and most vendors saw big growth. The latter half of 2008, there were no new deals be it with SMBs or large enterprises. This took a toll on deal sizes, that become quite small, customers bought fewer new licenses, and SMBs that had been the growth engines for EAS vendors were less aggressive. Spending for EAS came from government, utility, PSUs (HPCL, BPCL), telecom, insurance, consumer products group companies that helped the EAS market to recover and sustain growth in 2008.”

Das agreed, “The deal sizes have reduced significantly in 2008 as IT budgets are getting smaller.”

Microsoft saw ERP business coming from customers such as Uturn (Realty), Sunrise Kitchen, SFO Technologies, IDA Trading Foundation (Healthcare-NGO), Asian Paints and Lilliput.

Balaji Sreenivasan, Founder & CEO, Aurigo, a Microsoft Dynamics AX partner that entered India in 2008, said, “We cater to the engineering, construction and management market and we did decent business in 2008 despite the downturn noticed in the real-estate sector. IDEB Inc., a growing conglomerate is using our solution to manage its contractors and suppliers in multiple cities. RDS Projects and Navin Housing were other projects that we executed.” Additionally there was spending from infrastructure companies such as Tejas Construction & Infrastructure that manufacture power plants. Sreenivasan agreed, “The average deal sizes have been reduced by 40-45% in 2008.”

2008 belonged to CRM

Truly, 2008 belonged to CRM as this market moved beyond its beachhead of telecom, BFSI and ITES into mainstream.

Mohammed A Ali, President & CEO, CRM 24X7, said, “In the challenging economy reeling under pressure, businesses are focusing on increasing their serviceability to customers to get additional revenues. Customers have developed a taste for on-demand CRM solutions. We saw our CRM24X7 On-Demand Application launched successfully in Rackspace Data Center and we have been successful in selling to Dorset, Gardex, Orange GPS, Prosem Technologies, Enersave, Quantum Aromatics and more.” What is interesting to note in these companies is that they are small firms but yet they have realized there is money to be made in improving the customer experience. He explained that Asianet Satellite Communications, is using CRM24X7 to achieve the highest TRAI rating to gain customer loyalty without incurring additional costs and to have a healthier bottom-line. It also streamlined its distribution of workload amongst customer support technicians and achieve collection targets with minimal loss of time. Similarly, Enersave Lighting Solutions into the business of energy saving lighting solutions is using CRM to cater to its customers in a better way.

Microsoft too got some big projects for Microsoft Dynamics CRM 4.0 from Religare Technova, Hiranandani Infrastructure & Real Estate Company (HIRCO), Lavasa and Reliance Money. Dwivedy said, “Businesses want a better understanding of who their biggest customers are, the ones that contribute to their growth, and increase their customer order fulfillment to post sales support, quotations and tracking warranties through CRM.”

Rajendra C Mruthyunjayappa, Managing Director, APAC Talisma Corp, said, “Overall 2008 business for EAS was bad as we saw businesses bleeding. This forced us to look at other verticals for growth such as hospitals and insurance, government, clinical trials and education as against the traditional buyers for CRM—telecom, ITES and BFSI had stopped buying CRM.” The vendor saw new business for CRM coming from healthcare (Apollo Hospital, Paras Hospital) where the entire business mindset changed from patient care to complete healthcare relationships where customers can find the best possible treatments, medical insurance attend health-related workshops under one roof. Mruthyunjayappa added, “The Government was a surprise spender in 2008. We closed quite a deal on RTI projects for Bihar, Rajasthan and Karnataka for tracking the enquiry, grievances and helpdesk management. This is one big growth area of us and it rings a change in the trend of CRM adoption.”

OEMs push SCM

The decision to have SCM has been a strategic decision from sourcing of products to finished goods as it has given them good value [helps them remain competitive in the market, plan their raw materials better thereby increasing the efficiency of their manufacturing, planning and execution]. We saw interest in SCM coming from verticals such as automobiles, manufacturing, pharmaceuticals, oil & gas and BFSI.

Dwivedy said, “Businesses with large supply chain are engaging in interesting projects wherein they want to know what’s happening at the secondary point of sale so that they can plan their manufacturing backwards looking at the trends to remove inefficiencies and wastages.” He cited Premier Tissues India Ltd, manufacturers and exporters of tissues in India wanted to know their secondary point of sales details so that they can plan their inventories and supply better.

BI attacks costs culprits

Ashit Panjwani, Director-Marketing, SAS Institute (India), said, “During a recession a lot of top management companies tend to monitor and track a lot. It holds good for technology spending as well. Large businesses are spending on BI for identifying costs and cost culprits so that their bottom lines are protected. For example our customer in the telecom vertical is using analytics for customer segmentation, lifecycle management, share of wallet and to manage customer churn.” He added we have seen customers using analytics to tame the transportation and freight costs. Logistics companies, for example, spend approximately 20% of their costs on transportation and freight costs. Other aggressive customers in consumer products goods are using analytics for calculating the effectiveness of campaign management, demand forecasting.

MAIA Intelligence’s business came from large conglomerates such as Tata Chemicals, HDFC Standard Life Insurance, Reliance Capital and Bharat Forge Ltd (BFL). BFL is using data from the manufacturing, finance and operations and is connected to 1KEY's dashboards and reports for valuable insights into its inventory, costs, customers, profitability and key business areas, including revenue management, reservations, management reporting and performance analysis. Additionally it is using for market performance analysis, operations, strategic account management, and global sales analysis on daily basis. Similarly Tata Chemicals is using dashboards for cash flow analysis and to look into production, safety, sales and dispatch data to get quick feel of financial implication of decisions.

Sanjay added, "We are seeing analytics being used financial consolidation and closing of books of large conglomerate houses such as Pidilite Industries and Kamath Hotels. Customers are demanding quick result oriented solution with faster deployment cycle time."

Pallavi Kathuria, Director, Server Business Group, Microsoft India, said, “Customers are using BI for taking business critical decisions. We are bringing BI to the masses with SharePoint wherein we have decided to consolidate the scorecard, dashboard and analytical capabilities from Office PerformancePoint Server into Microsoft Office SharePoint Server Enterprise.”

Amid the current global economic crisis, both applications vendors and their customers adjust to new operating paradigms, we expect the trends in ERP, CRM, SCM and BI will not change in 2009 and that we may see single digit growth. What is important to note here is how quickly the customer mindset has changed in deploying CRM and BI solutions—to cut costs and monitor everything. However ERP will still remain buoyant as customers have started focusing on value-based strategies for lower operating costs and smaller projects with quicker returns and no longer dependant of big EAS vendors. Hence, there will be plenty of opportunity for smaller firms to fill in the gaps and see good growth.

akhtar.pasha@expressindia.com