Software as a Utility makes a lot of business sense for small and medium-sized companies, especially in emerging markets like India. Most of these companies have not used much software other than an accounting package, email and the MS-Office suite (most likely, a pirated copy). What these businesses need is an integrated eBusiness suite of applications at an affordable price point. The only way this can be done is by delivering software as a subscription service.
This is how disruptive technologies emerge. They target a new, low-end market and then make their way upwards. The initial market needs to, in the words of Clay Christensen, “be delighted with a crummy product.” This is exactly what software can do for these businesses. They can now become more efficient by using software for their business processes and automate tasks they would do manually. These businesses can serve as the starting point for a new generation of enterprise software companies.
Craig Baity of the Gartner Group elaborates on the opportunity for India (in a recent panel discussion organized by Business Today):
India has potential is Applications Software Packaging. You are great at developing software, but there isn’t one Indian software brand in the world. Last time I was here, I met some cement companies. It turned out that they had what they believed to be one of the world’s only applications for managing the supply chain for that industry. They had an application that was helping them shift cement from one end of the country to another, and they had a data-centre employing 2,000-3,000 people supporting the application. Why couldn’t they work on packaging and branding it and selling it to companies that can’t afford Oracle and Informix and SAP, which is most of Asia by the way.
There is another interesting element at play here: Microsoft’s new licencing policies. Faced with a market reluctant to go in for new upgrades, Microsoft has modified its pricing and licencing terms for its new products. This means that most organizations (Microsoft’s existing customer base) will end up paying much more for Microsoft products in the coming years. According to Meta Group, “Aggressive pricing and licensing changes for use of Microsoft Windows 2000 on servers are driving customers and competitors alike to seek an alternative. In the past six months, we have encountered a strong wave of user animosity toward Microsoft in the wake of server pricing changes to its Client Access License.”
The question, therefore, from the perspective of markets like India is: will software companies like Microsoft price their products differently in emerging markets? Just as many books (especially, text books) are available in India at much cheaper prices, will software companies do price discrimination? I don’t think so. Books available at lower price points in India are restricted for sale outside the country. Even though it is theoretically possible to buy books in India and ship them elsewhere, the cost of shipping becomes prohibitive.
Unlike the atoms of books, software is bits. For bits to be bought and shipped through the Internet is much easier (remember Napster?). Software companies will not do anything that can cause a negative impact on their earnings from their primary markets – North America, Western Europe and Japan. This makes me believe that software pricing will remain uniform worldwide.
This creates the opportunity for lower-priced software, which is initially targeted at the emerging markets, to make inroads at the low-end of the market. The Internet is the distribution medium, and the software can be offered as a service, reducing packaging costs. Marketing and Branding still need to be done, and therein lies perhaps the bigger challenge. But for Indian companies looking at an opening to build a global brand in software, the timing couldn’t possibly be better.