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July 31, 1998
In the contest between the wealthy, sophisticated corporate world and the demanding, mysterious consumer, the janta was crowned the king, once again. The verdict came at the recently held Directions 99, the eleventh annual computer industry briefing session.
Held in Bombay, Delhi and Madras by the International Data Corporation India Limited, Directions 99 delivered a data backed analysis of the macro trends in the industry and identified new business opportunities for information technology companies.
Gupta laid out the scenario for the IT managers. "The individual consumer wants and needs will reshape major segments of the IT market, notably PCs and semiconductors. They are replacing business users as the centre of the PC universe. We have barely scratched the surface as far as these areas are concerned. Individual consumers are going to be the real drivers," he proclaimed.
Nair agreed. "Last year, the growth rates in the computer industry were dismal. If not for the home market, I would have called it pathetic. The home PC market size is likely to shoot up by 67 per cent from 106,000 units now to 509,000 units by 2001. Personally, I think even this is a low figure," he warns.
Nair is emphatic that individual consumers have to be given the same preferential treatment as the corporate user. "The home users are as savvy as the corporate buyers. We shouldn't try and palm them something that we wouldn't sell the corporate buyer," he said.
Gupta too repeatedly stressed that only those companies that realise the potential of the home market will survive in the fast changing IT world.
"PC suppliers will have to establish mind share with the consumers. It is imperative for companies to operate in the home segment. Otherwise, the consequences would be the same as when companies refused to realise desktops as the centre of the PC market," he warned.
The revenue from the home market segment is expected to rise up to Rs 18.8 billion in 2001 from Rs 6.8 billion in 1997-98. Sales of PCs, which currently account for Rs 4.73 billion, are expected to increase to Rs 11.93 billion.
But the really big surprise that the home segment has come up with is the projection for the value of the Internet connectivity business. At present, it is pegged at a mere Rs 50 million. However, by 2001 it is expected to reach Rs 400 million. An eight-fold leap in less than three years!
But if you leave out the Internet, most of the figures bore out common sense expectations.
HCL demonstrated an incredible growth rate to emerge as the winner in the home market segment. By nearly doubling its value from 5.2 per cent last year to 9.4 per cent this year, HCL was acknowledged the undisputed leader of the branded desktop PC segment.
PCL, the market leader of last year, with a share of 15.1 per cent has been virtually wiped out. (That's another story). At present, it holds on to just 1.3 per cent of the market share.
Yet, assemblers and 'Genuine Intel Dealers' (read the unorganised grey market operators), increased their market share from 68.1 per cent last year to 77.5 per cent this year.
Nair cautions the branded segment that prices have to come down if they don't want to end up losing to the grey market.
"If the branded segment does not make a consolidated effort to bring down hardware and marketing costs in the next 18 months, GIDs would end up with 95 per cent of the market. Even today we are the only country in the entire world, with the exception of China, where demographics make it difficult for branded manufacturers in this segment," he complains.
India, with an average of two PCs per 1,000 of the population, has the lowest PC penetration in the entire Asia Pacific region. Even China fares better with a penetration of 6 PCs per 1,000. Singapore remains the leader with a PC penetration of 319 PCs per 1,000.
A survey conducted across 10 cities that account for over 80 per cent of the installed home PC base, showed up this startling fact in clearer light.
Only 16.5 per cent of the households have PCs. Non-buyers account for 64.8 per cent and first-time buyers comprise 18.7 per cent of the pie.
The survey indicated that PC owners are generally graduates or post-graduates and first-time buyers tend to be lesser educated than PC owners.
PC owners are officers or executives at the senior level or self-employed individuals, industrialists or businesspersons.
Nearly 52 per cent of PC owners fall into the category of those with a monthly income of Rs 10,000 to Rs 15,000 and 65 per cent of first-time buyers are part of this category.
This clearly proves that PC ownership is moving down the social strata of income.
The startling fact is that 83 per cent of non-buyers do not feel the need to own a PC! Nair is outraged when he hears of this.
"If you don't know what a PC can do for you then how can you know the need for it," he fumes. But the reasons for this lie elsewhere. Over 50 per cent of the non-buyers have had no exposure to PCs.
Though the primary reason for buying a PC is not entertainment, 73 per cent of PC owners in the home market used it for the purpose. Only 53 per cent of home PC owners use their machines for office work and business.
An average US citizen spends just 12 days of his salary to buy a PC, an Indian with a mean monthly income of Rs 15,000 has to spend 90 days of his salary to buy a PC.
Nair asserts that this has to change if PC sales have to really take off.
"Intel, Microsoft and HCL recently got together and did a market research. We found that the price of Rs 29,000 to Rs 31,000, the price of a good refrigerator or TV, is what gets people excited. The industry has to get the price down if the demand has to go up," he revealed.
Gupta looks at it from a different angle. He sees the potential of the market. "In the US, 45 to 50 per cent of the homes are wired. But this also means that 50 per cent do not have any access devices. Markets that have not gone for computers yet will drive prices. This means we are looking at $700 or $500 PCs," he predicts.
According to him "cheaper chips and thinner operating systems" are what will bring this change. "High performance chips are used by people to store, print and manipulate data. But for those who are only interested in multimedia and Internet access, cheaper chips are the answer. IDC predicts that somebody will come out with chips that cost as little as $20. We are today moving towards a totally new range of non-Pentium chips and we think Intel will enter this area," he assures.
Nair too has some ready tips for the PC vendor to increase sales. "Add value in terms of service, software and hardware to your PC. Don't just sell boxes. The customer wants all the goodies that come with the PC," he elaborates.
He also encourages vendors to develop vernacular language software titles to expand market in the next three to five years. "Microsoft itself is coming out with Windows NT 5.0 and Word 9 next year in seven Indian languages," Nair informs. (Ref: The Polyglot Plot).
Despite all this, in terms of market segmentation, corporate houses account for nearly 57.2 per cent of the market. Homes have around 20 per cent of the market. The 'small office home office' market has the rest.
The market for Internet services in the country is estimated to reach $14 billion by 2002. Ravi Sangal, president, IDC India Limited, forecasts that Web users will rise from 71.3 million to 129.2 million by the turn of the century and Web commerce will touch $123.3 billion by 2000.
"The radio took 50 years to reach a population of 50 million. The TV took around 20 years. But the Internet took just five years to reach the same number of people," he points out.
Gupta adds: "Internet applications is where the real commerce begins. The business community has to see the benefit of a wired society. Certain areas have shown an increase of about 90 per cent in productivity because of using Internet applications. Web commerce, which was $8 billion in 1997, is likely to top $300 billion by 2002."
"Today a lot of companies need Web services. The Web population will grow from 82 million now to over 300 million users in just four years. The ability to do business online will become a necessity. The IT industry has a key role to play in 'enablement'; in enabling banks, airlines and other services get on to the Net. Only those IT vendors who enable corporate houses to go on the Web will emerge as leaders," Gupta warns.
Today Web usage remains the highest in the United States of America. Nearly 58 per cent of the population use the Internet there. Western Europe comes second with 20 per cent of the population logged on to the World Wide Web.
The IDC presentation claimed that in the world of Internet browsers, Netscape Navigator is fast losing out to Microsoft Internet Explorer. Like other Microsoft products, Internet Explorer is slowly eating away into Netscape's share. While Netscape Navigator's share declined from 54.6 per cent in 1996 to 50.5 per cent in 1997, Microsoft Internet Explorer increased its share from 29.5 per cent to 38.9 per cent.
India, however continues to buck international trends. Netscape rules the market in the country with a share of nearly 80 per cent. But the Microsoft Internet Explorer is not far behind. It continues to grow from 40 per cent last year to around 55 per cent this year. Sangal agrees. "Like other Microsoft products the Internet Explorer will dominate the market," he affirms.
There were some major upsets in the PC server market. Hewlett Packard doubled its market share by exhibiting a growth of over 51.1 per cent while Digital had an incredible growth rate of 137.4 per cent.
But both Wipro-Acer and HCL showed a negative growth of 33.5 per cent and 45.8 per cent respectively over the previous year.
In the midrange server market, Sun Microsystems showed a slight growth of 3.9 per cent and HP had a negative growth of 32.3 per cent.
IBM, however, demonstrated an unbelievable growth rate of 142.2 per cent. Nair explains the phenomenon. "IBM mainframes are now being used for Y2K work. IBM first sold machines that created this problem and then they sold more to fix the problem. It is a case of brilliant marketing," he laughs.
The software exports sector is expected to more than double its share. Dipankar Sanyal, director, Oracle Software India Limited, is confident that software exports would rise from Rs 65 billion to Rs 156 billion by 2000. The domestic IT market would then reach a value of Rs 160 billion and the packaged software market would be worth Rs 15.5 billion.
Application tools continued to dominate the packaged software market with CAD/CAM accounting for nearly 52.8 per cent. The CAD/CAM market in 1997-98 has grown by 78.7 per cent over the previous year due to phenomenal growth in the PC-CAD software and personal workstation market.
Operating systems continued to have the lion's share of the systems software market with a share of nearly 85 per cent.
Oracle remains the market leader in the RDBMS segment with 60 per cent market share and Office 97 from Microsoft dominates office suites with 86 per cent share.
In the IT services market, hardware and software supports account for 43 per cent. Outsourcing and system integration have a share of 18 and 13 per cent respectively.
Sanyal has got the ERP software strategies for the future all worked out. "Enhance software functionality to address vertical segments like energy, utilities and financial services. Expand the distribution and channel partner set-up and port on to emerging OS platforms," he advises the top 20 ERP vendors.
As for other Indian ERP vendors, he has a slightly different mantra. "Aim for vertical slices in very large companies where product functionality indicates a strong differentiation from the top ERP vendors. Also support companies with less than Rs 1.5 billion in the Indian market so that the market expands horizontally," Sanyal reveals.
The Compaq-Digital merger that has been one of the most talked about deals in recent times could not escape attention at the seminar too.
Stacy Plemmons, vice-president, Hewlett Packard India Limited, says "They have now become the third largest IT company with a total revenue of $36.7 billion. But they also have a few challenges before them. Their work cultures are very different. To give an example it would be like fusing the cultures of Tamil Nadu and Bihar. They will also have to face channel conflict and deal with multi-vendor services business; something that Compaq is not used to."
But if one of the fortune-tellers of the industry is to be believed, the IT industry can expect many more mergers. "I foresee a major shakeout in the IT world. I see a lot of mega-mergers taking place before the end of 1998," Gupta proclaimed.
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