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Over the years, Indian IT service companies have established themselves firmly on the global stage. More than two-thirds of Fortune 500 firms turn to them for part of their IT and business process outsourcing needs. Some, such as Tata Consultancy Services (TCS), Infosys Technologies and Wipro Technologies, have become global brands, competing head-to-head with multinational IT service providers. The National Association of Software and Service Companies (Nasscom) estimates that of India’s total software and services revenue of US$52 billion in fiscal 2008, the software product segment accounted for a mere US$1.4 billion, with the top 10 companies taking in more than 80%. This could well change in the coming years. According to a recent study by Nasscom and Bangalore-based management consulting firm Zinnov Management Consulting, sales of software products are expected to increase from US$294 billion at present to US$537 billion by 2015. The study estimates that by 2015 the addressable market for Indian software products could be US$290 billion to US$315 billion. The optimism is not unfounded. Since 2001, India has produced 371 product start-ups. Two-thirds of these were formed in the last three years, 100 in the last year alone. While most of the early players in the Indian software product space focused primarily on the financial and accounting segments, the newer companies are looking at areas such as business intelligence, security and content. In the last three years, total venture capital investment in India grew at a compound annual rate of 42%, reaching US$543 million in 2007. Funds invested in the software product segment grew slightly faster — by 43% — to US$156 million. Says Sudhir Sethi, chairman and managing director of IDG Ventures India: “We are extremely bullish about software product firms from India.” IDG Ventures India is a US$150 million venture fund that has made eight investments in the last 18 months, five of them in the software product space. Soon it will fund another software product firm. “Of our total investment of US$50 million until now, US$38 million has been in software product firms. We have put our money where our mouth is,” says Sethi. According to S. Sadagopan, director of the International Institute of Information Technology, Bangalore, “It is just a matter of time before software products from India will explode.” Take the domestic market. When it lacked strength, Indian players were compelled to build software products for other markets, such as the United States. Capturing the nuances of customer requirements was tough, and marketing the product was expensive. In recent years, however, a thriving economy has fueled the growth of domestic technology demand. Nasscom estimates that the total domestic IT market (comprising hardware, software, services, business process outsourcing, etc.) has jumped from US$8 billion in 2004 to US$23.1 billion in 2008. Over the next few years, India is expected to be the world’s fastest-growing IT market, according to the Nasscom-Zinnov study. The domestic market accounts for US$500 million of the Indian software product segment’s US$1.4 billion in revenue. The Nasscom-Zinnov study anticipates that, in line with Indian companies’ increased technology spending, revenue from the domestic market will grow to US$4 billion to US$5 billion by 2015. Much of the growth in the domestic market, however, will be fueled by demand from the small and medium business (SMB) segment. There are two key reasons for this. First, the Nasscom-Zinnov study estimates, the SMB share of domestic IT spending will increase from 38% at present to 50% by 2015. Second, SMBs’ requirements and buying patterns open a door for domestic providers. Published: October 16, 2008 in India Knowledge@Wharton |
India’s Software Industry Reboots for an Expanding Market
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Tagged with:
- business intelligence
- domestic market
- Funds invested in the software product
- inancial and accounting segments
- Indian IT service
- Infosys Technologies and Wipro Technologies
- ipott
- iPOTT Softech
- it services
- Nasscom
- National Association of Software and Service Companies
- Outsourcing
- purnima varadrajan
- Search Software
- security
- Software Search
- Tata Consultancy Services (TCS)
- Zinnov Management Consulting
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