Buoyed by Oracle's investment in i-Flex, it is not surprising to see a flurry of interest in India's packaged software as against its traditional software services industry. Articles like this in Information Week, BusinessWeek can only encourage that interest.
The reality is, as Nasscom India's own software trade body points out, India's share of the global packaged software market has been minuscule - 0.2%. Players like Ramco have offered ERP functionality for over a decade. Others include Sasken for telecomm vertical, Kale for airlines, Talisma for CRM software (profiled in the Information Week article above), Tally for mid market accounting software and so on. Even the bigger Indian services players like Infosys have spawned software companies like Yantra and continues to offer a banking focused product Finacle. But overall, the more established route to success has been through delivering services not building intellectual property.
Why the hesitation to build more packaged products? An Indian investor told me a few years ago "We are so different from our VC cousins in Silicon Valley. They love software investments but are suspicious of services investments. We are just the opposite." Without a well developed capital investment structure, Indian firms found it a lot easier to start and sustain services firms. Their customers were also more willing to give them low risk development or maintenance contracts, rather than buy long-term software from them.
Then Wall Street started to reward well run services firms like Wipro and Cognizant with 10X revenue valuations, much higher than it is rewarding packaged software companies. Some non-manufacturing verticals, tired of waiting for the established software companies like Oracle to deliver industry functionality, have continued to build custom software or are looking at BPO as their next path (again benefiting Indian services vendors), bypassing packaged software. So the established Indian services firms almost look down on packaged software.
The building blocks for more dramatic packaged software growth are certainly in place. Every major western player - Oracle, SAP and others have significant captive software development and maintenance staff in India. A number of other software companies have outsourced portions of R&D to focused outsourcers like Aztec and Sonata Software. Much of services revenue in India comes from maintenance of legacy customer systems. So the culture is in place to also maintain and upgrade packaged software.
What Indian software vendors need to build is more elaborate sales channels - selling software is very different than selling services. And they need to build more financial viability and capitalization. The bigger Indian services - certainly have the latter. They could use their huge market capitalization to buy a handful of mid-tier software companies and acquire their channel and customer base that way. If they do, they will find that Romesh Wadhwani has been executing on that strategy for a couple of years with his feet squarely in both packaged software and offshore software services.
