The No. 1 software company, Microsoft Corp., a relatively new entrant into the so-called enterprise resource planning (ERP) software market, could overtake Oracle Corp. in fresh licence sales of business software in India by 2010, helped by its focus on small and medium businesses, according to experts tracking the market.
ERP software helps companies streamline different parts of their business including inventory, operations, budgeting and human resources. Three software firms dominate the ERP market in India: SAP AG, the world’s biggest business software firm (through its Indian unit, SAP India Pvt. Ltd), leads with a 48.3% share, followed by Oracle India Pvt. Ltd at 24.9% and Microsoft India Pvt. Ltd at 12.2%, according to a late 2007 analysis of the previous year’s data by research firm Frost and Sullivan.
The market for fresh ERP licences sold each year in India, $54.2 million (nearly Rs240 crore) in 2006, is expected to expand at around one-fifth annually to touch $80 million by the end of this year, and reach almost $185 million by 2013, the report predicted.
Over half the demand for ERP solutions come from small and medium enterprises or SMEs, a segment which will continue to drive the market in the future, it added.
Tech vendors define SME customers differently; some club clients below $100 million in this category, while others count organizations with less than 1,000 computers as SME clients.
The ERP business is typically split into fresh licence sales, software updates and maintenance revenues. New licences flag the growing reach of an ERP vendor and the other two bigger components follow.
“Microsoft can emerge as the No. 2 player in the overall Indian ERP market beating Oracle in the next couple of years because of its strong focus on SMEs. SMEs are growing faster than the overall ERP market,” said Praveen Sengar, senior manager, software and services research, at research firm International Data Corp. (IDC).
While SAP, Oracle and Microsoft will continue to dominate the market in the future, the possibility of Microsoft overtaking Oracle in the next two years is very likely, another analyst said.
“SAP, with its large spread, has been very aggressive in the SME market in the last one year and has shown strong growth. While Oracle is strong in manufacturing, Microsoft has been able to identify specific requirements of SMEs, and design solutions around these needs,” said Sourabh Kaushal, industry manager of the information and communications technology practice, South Asia and West Asia, at Frost and Sullivan.
Referrals have worked in the favour of Microsoft, Kaushal added. For instance, Consolidated Carpet Industries Ltd, with revenues of Rs40 crore, deployed Microsoft’s ERP suite in April last year after it saw several of its clients using the Microsoft product, branded Dynamix. “We did look at other vendors but were comfortable with Microsoft’s ERP, which has helped us reduce workload and increase productivity,” said Sanjay Aggarwal, chief financial officer at the New Delhi firm that plans to roll out a Microsoft customer relationship management or CRM software by May.
While both SAP and Oracle have been in the ERP business since the mid-1990s, Microsoft entered the market only a couple of years ago with the launch of the Microsoft Dynamix suite. A version of it for SME customers contributes 70% of the company’s ERP business. By the end of the year, the company expects demand for its software to be less skewed in a 60:40 ratio.
“We feel we entered at the opportune time when the small and mid market was just opening up and they needed software that was flexible and could easily adapt to their own systems. The segment was untapped and had huge potential,” said Sushant Dwivedy, director for business solutions at Microsoft India.“We have good adoption of ERP in the manufacturing, auto and textile sectors.”
Microsoft’s increasing focus on offering software as a service (where customers pay for the services they use as against buying expensive licences), will also help the company grow its share of the market, analysts say. “Around 5% to 10% of our customers currently prefer the hosted mode of buying software. In three years, we see a 50:50 ratio between hosted and licence customers,” Dwivedy said. The hosted service offers “ an economical, value-for-money” option and will be increasingly adopted by SME customers in the months ahead, IDC’s Sengar said.
Overtaking Oracle and coming at par with SAP, however, might not be an easy task for Microsoft which has a share equal to that of the German software firm among SME clients. “The big challenge for Microsoft is the strong SAP brand that has much wider coverage and is also very aggressive with its pricing,” Sengar added.
SAP has more than 30,000 small and midsize customers globally, representing more than 70% of its total customer base. “We have in many ways created the ERP category in India and are globally targeting to reach 100,000 customers by 2010, riding on the SME segment,” said Nagaraj Bhargava, vice-president marketing at SAP India, which plans to launch an hosted offering —SAP Business ByDesign—for SMEs in India in the next three-four months.
Oracle’s focus on the SME started last year with the launch of its ‘Accelerate’ program for partners servicing mid-sized companies. At the end its fiscal year ended May 2007, the California, US-headed firm had more than 700 application software customers in India. The firm said its applications allow customers to scale up easily when they grow fast. “SMEs with high growth plans see this as a differentiator. Competing applications do not offer that,” said Nitin Paranjape, director Oracle applications at Oracle India.
Maruti Udyog Ltd with around 800 users is one of the largest customers of Oracle’s ebusiness suite, which it deployed two years ago. “My requirement then was openness and software that can talk to my legacy systems and had functionality and scalability,” said Rajesh Uppal, general manager of information technology at the automaker. And, now when Uppal plans to deploy a CRM software, he wants to expand the list of offerings. “We are evaluating and looking at what all the top vendors have to offer, not just Oracle.”