The amazing fact about the Indian software products market space is that it exists! Though one would be hard pressed to name 10 Indian companies that make products, according to Dataquest, Indian companies launched 92 new products and upgrades in the last financial year (2000-2001). A growth of 37% in revenue (Rs. 2100 crores) was achieved last year. The main drivers of this growth have been the MNCs with 152 new product offerings.

Products can be classed into two:

• Business centric (BC)
• Customer centric (CC)

There are very companies that make a pure play in the market field of BC products. Most of the companies have a product strategy that is coupled with their services business. A majority of them convert their previous project code and domain knowledge into 'products'. This is clearly a case of 'productized services'. Even major players like TCS and Infosys* have not been extremely successful in the domain of products. Notable example of a product that has done well is Tally. But then it is targeted more at the business segment than at the end-consumer.

BC product segment has really driven the product market growth. The main classes here are**:

• Application Software
• System Infrastructure software
• Application Development and Deployment tools

Unless there is a dynamic domestic market, there will not be potential for software packages made & marketed by Indian Companies. Also most, if not all the needs of the consumers are already met by the MNCs operating in the country.

While the US is definitely the ringleader in the shrink-wrapped products, the Indian companies seem to be making the fundamental mistake of emulating the US approach. Here is why that strategy is misplaced:

• Lack of huge amounts of risk capital
  
  Product marketing requires huge outlays of capital towards brand building and none of the Indian companies can really afford to do so. Maybe the bigger players can as they are sitting on huge amounts of cash***. Product development requires money, international reach, branding and plain marketing savvy. It also requires a different mindset - the ability to pour money down a project on which no returns are foreseeable.
  
  

• Low investment in R&D
  
  Very few Indian have substantial investments in R&D. TCS for example has a dedicated R&D center in Pune. The financial details of the revenue earned etc. is not known. The typical R&D budget of a US based company would run into millions of dollars as compared to a few thousands of dollars spent by Indian companies and that too, the ones with the deep pockets. R&D has to be tied to standards development and new/emerging technologies for it to make an impact. Indian firms have very little participation in the worldwide standards being developed. One does hear about an Infosys or a TCS being part of a standards body but the number is really very low to make an impact.
  
  

• High rate of product failures
  
  This is a no-brainer: the product market is littered with the corpses of products that did not make it. The reasons could be many - the technology moved on, the market needs were different from the product developed, competitor had a better product, marketing just was not good enough. Given this international scenario, software products are not high on the list of things to do of many software companies. There is a tendency to hedge the risks by going in for 'cash cow' activities like maintenance and even plain body shopping.
  
  

• Lack of the cushion of a domestic market
  
  The US products market has a huge PC penetration (6 in 10 households have a PC****, 328 per 1000) and a vibrant domestic market. The Indian companies face a dull consumer pull for products that is partly driven by PC penetration (5.7 per 1000*****) and low installed base (under 6 million compared to China's 27.5 million). Competing with the MNC giants require cutting edge technology, customer intimacy and deep pockets.
  
  

• Structural deficiencies of companies
  
  Most Indian companies do not boast of well-developed marketing functions. The skill level of personnel manning these positions leaves much to be desired. In many cases, it is the developer who after years of service to the company occupies a marketing position. Though this is not true of all companies, pure recruitments for marketing functions at middle management levels is hard to find.
  
  The 'product manager' is not a strong function is most companies; his/her role is mostly subservient to that of the technical managers.
  
  The skill level and technical experience required for a products based company is simply not to be found. Because of the services portfolio handled, most personnel have a few years of experience in any single technology; rather they have a smattering of skills. Take the example of Microsoft, it recruits and promotes based on skill and years of experience in a particular technology. Microsoft has a well -defined career path for technical staff, as compared to Indian companies that simply promote their best developers to managerial roles eventually.
  
  Extremely deep domain knowledge of the vertical is must for a successful product. This is the reason for the success of companies like i-Flex, where there are banking specialists who have worked in the field for many years. Very dew companies however have this kind of personnel depth.
  
  Product development requires radical departure from the way in which Indian companies have learnt to mange and monitor projects. The life-cycle models followed are themselves different from what is commonly practiced in some Indian companies.
  
  

• Patents and piracy
  
  The menace of software piracy is a growing problem among businesses internationally as well as in India. Even considering the fact that there was a decrease in the software piracy in last 10 years, it is still very high in India. According to IDC estimates, the money lost in 2001 from pirated software is estimated to be close to US$ 245 Million******, which is almost half of the legal packaged software market. This revenue loss was mainly due to piracy by unauthorized copying and selling and unauthorized bundling with hardware. Given this backdrop, it is hardly a conducive environment to enter with new products that were the result of millions of rupees of research. In India one cause of the problem is that a large portion of the PC users is not aware of intellectual property (IPR) laws and think it is legal to copy software. In India, IPR of computer software is covered under the provisions of Indian Copyright Act 1957. This Law was amended in 1995 to make it stronger than earlier. Despite having a strict legislation in place piracy has continued unabated. In India the laws against anti-piracy are well written but they need to be consistent, effective and properly implemented. According to Randy Komisar, patents and IPRs can be used as an effective oil slick to prevent the competition from copying yor products and taking over your markets. In the Indian context, software companies for strategic intent hardly ever use IPR laws.

Lessons from Israel?

And there is a lot to be learnt from countries like Israel. When one thinks of Israel, 'niche' is the word that springs to the mind. It has the largest number of start-ups outside of the Silicon Valley.

R&D-focused Israeli companies have developed some of the world's most sophisticated software products and sell them directly to end-users whereas Indian companies have specialized in back office work, putting hundreds of programmers at a time to work writing code and doing after-sales service for other, usually American, companies*******.

India clearly does not have the financial wherewithal to market shrink-wrapped products and therefore the focus should be on specialized and a focused audience, much like Israel does.

A close examination of Israel's software industry shows a remarkable picture of innovation. Israeli software companies are always on the lookout to conceive and develop new technologies or software products that will either complement a new development in hardware or software, or fill a vacuum in the market. The focus is to create a market of their own rather than competing with a hundred other products in the same space. This, in a major way has lead to the success of many start-up companies.

Though the demand within Israel for computer packages and software is high, it is limited by the country's low population of six million. This has resulted in the Israeli software industry concentrating mainly on the export market. It is said that there is no computer application for which an Israeli package does not exist.

Look before you leap

Structure: The Company must look within itself and see if its internal process matches up to the rigors of product development. An organic kind of internal structure with focus on innovative life-cycle models can go a long way.

Value: Is the product/ offering adding sufficient value to a customer segment? The need may be stated or unstated, but must add value. The offering should not merely be one that is the cheaper alternative; rather it should have a distinct customer desired feature set.

Dynamics: This includes the technological forces, customer needs and competitive forces that the company has to view critically before committing to productize its services or launch a new product. The obsolescence cycle strikes many companies dead in their tracks, therefore companies must be on the lookout for emerging standards, trends, killer applications. Competitive forces can quickly decimate your advantage at lower cost; companies need to be on the lookout for this. At times being the immediate follower to the innovator is a strategy that can yield results.

# Contributed by -
Renjit George Philip,
PGP, Class of 2004,
Indian Institute of Management, Bangalore