Bangalore: A slowdown in the global enterprise software business may hit Indian software firms such as Tata Consultancy Services, Wipro, Satyam and Infosys, which derive between 15% and 20% of their revenue from it.
Enterprise software helps companies that buy it to manage entire business processes, manufacturing in some cases, marketing or human resources management in others, or a combination of all.
SAP AG, the world’s largest enterprise software maker, and Oracle, the second largest, recently announced that their revenue from new licences declined for the quarter ended 31 December. Both companies are beginning to focus their efforts on small businesses and on evolving a pay-as-you-use model for their software.
This may be because the $118 billion global enterprise software market is seeing a change in business models. “Software-as-a-Service (or Saas, as industry insiders call it) is changing licensing dynamics and will have an impact on system integrators,” said Jawahar Bekay, chief executive of Bangalore’s GCI, which offers one such service. Client companies usually buy enterprise software, and licences, and hire other software firms to manage the project and implement the software. The software typically helps them manage entire business processes, manufacturing in some cases, marketing or human resources management in others, or a combination of all in still others.
“Drops in SAP and Oracle licence revenues may have a minor effect on system integrators such as TCS, Infosys, Wipro and Satyam,” said Ray Wang, a principal analyst at consulting firm Forrester Research. If the revenue from new licences for Oracle and SAP declined for another quarter, Indian companies would feel the pinch in the third quarter of 2007, he added.
Hyderabad-based Satyam Computer Services derived as much as 42% of its revenue in the quarter ended 31 December from package implementation and custom application, focused primarily on solutions from SAP and Oracle.
“Even if SAP is not growing, we will not have any problem as long as the enterprise applications market grows,” said Ram Mynampati, the company’s president.
Most Indian software services firms derive a large part of their reven ue from enterprise applications, essentially customized software they write for companies that use them for various purposes.
That view is shared by other analysts. “According to Nasscom, over 65% of the (industry’s) revenues come from maintenance work. Therefore, slowing software licence buying may not have any impact now,” said Pankaj Kapoor, an analyst with ABN Amro.
A report by Forrester Research analysts Andrew Bartels and John Rymer in December 2006 says that the success of Google and Salesforce.com in providing applications as services has made Saas a cause celebre. “Oracle and SAP, which have the most to lose if Saas catches on have been forced to embrace the concept,” they point out.
(C.R. Sukumar in Hyderabad contributed to this report.)