india saas market opportunity zinnov

India SaaS Opportunity

August, 2009

This report is solely for the use of Zinnov client and Zinnov personnel.

No part of it may be circulated, quoted, or reproduced for distribution

outside the` client organization without prior written approval from

Zinnov

AGENDA

About Zinnov

The SaaS Market In India

SaaS Success Story

Zinnov 2

SaaS Key Insights

Indian SMB Landscape

AGENDA

About Zinnov


SaaS Success Story

Zinnov 3

SaaS Key Insights


Zinnov is a consulting firm that prides itself for having grow through a

commitment to excellence in solving business problems of our clients

• Zinnov was founded in the year 2002 with the

focus of providing services in the area of

Globalization Advisory to fortune 1,000

companies

Founded in 2002

• We work with MNC companies ( IT&

Manufacturing) looking to leverage India

• We work with companies to help them enter

India as market, leverage India as a talent

destination, and India as a R&D hub

Our Typical Engagements

About Us

Zinnov 4

212

25

43

73

100

0

20

40

60

80

100

2003 2004 2005 2006 2007 2008 2009(E)

Client Engagements150

Zinnov Management Consulting Pvt. Ltd

Our consulting focus areas follow under 3 heads, all which are focused

on addressing unique business problems faced by clients

Consulting Focus Areas

Globalization

AdvisoryMarket Expansion Human Capital

Zinnov 5

Globalization Strategy Opportunity Assessment

Workforce planning Customer Insights

Go-To-Market Strategy Compensation and BenefitsPartner selection

Globalization Roadmap

Global Talent pool Analysis

Operations Optimization Blue Sky Product Ideation Flexible Work force Tool


Our indicative client list speaks volumes about our growth and our

capabilities in delivering value to our clients

ClientVertical

Software

Products

Zinnov 6

Hi Tech

Manufacturing


AGENDA

About Zinnov


SaaS Success Story

Zinnov 7

SaaS Key Insights


Workload-wise Distribution of SaaS Market in India, 2009

Total Market: USD 50 - 56 million*

Workload Total Market in 2009

Collab. Applications* USD 18.9 Mn

CRM USD 16.2 Mn

ERM USD 4.8 Mn

The domestic market for SaaS is estimated to be about USD 50 million and is

currently dominated by Collaborative Applications and CRM workloads

The SaaS market in India is extremely nascent with a total market size of USD 50-56 million. Three key

workloads, Collab. Apps, CRM and ERM together contribute 80 percent of the market. With the market being so

nascent, there are a couple of early movers who have cornered a large share of the market. These include

Salesforce.com and Ramco Systems

Nascent Market-With Couple

of Early Movers

Security USD 1.6 Mn

Others USD 7 – 14 Mn

Note: Confidence Level for Market Size is 85 – 90 percent, * Collab. Applications – Collaborative Applications include web conferencing, productivity suites etc.

Source: Zinnov analysisZinnov 8

*Note: Market Size is excluding the SaaS Email Market


Company India Focus

Intuit -

Blackboard

Concur Technologies -

Company India Focus

NetSuite

Omniture

RightNow Technologies

Currently only a handful of the top global SaaS players are

focusing on India Market

Focus of Top SaaS Index Players on Indian Market, 2009

Constant Contact -

DealerTrack Holdings -

DemandTec -

Kenexa Corporation

LoopNet -

Salary.com -

salesforce.com

SuccessFactors

Taleo Corporation -

The Ultimate Software Group -

Vocus -

Source : Zinnov AnalysisZinnov 9

LowHighIndia Focus


Lack of

ScaleBroadband

Penetration

• Broadband penetration & reach is

abysmally low. Number of active

broadband subscribers in India is 5.52

Million as on Dec 2008

• Focus of companies in Indian market is

relatively new and lacks scale

• Most of these firms don’t have the

commitment/money to bank roll and

scale these experiments

• IT talent in non-IT industries is limited. • Current pricing model used by

Some of the major challenges that SaaS providers face in India are

lack of knowledge about Indian workflows, lack of IT support etc.

Pricing

IT SupportProduct

Localization

IT Talent Shortfall Constraints

Note: *Broadband is defined as an internet connection with speed equat to ir greater than 256 kbps

Source: interviews with Company Stakeholders, TRAI, Zinnov Analysis

• IT talent in non-IT industries is limited.

The salary differential is extremely

high, which is a constraint to IT

adoption, hence this impacts the

training and usage of SaaS based

solutions

• Current pricing model used by

companies is very high compared to

paying propensity

• Availability of pirated software that

solves customers business needs

• Most MNC’s products in the market

are global products with minimal R&D

spend for India market requirements.

None of the Products are mapped to

Indian Work Flows

• IT support is essential for success of

SaaS. Since the revenues in SaaS are

recurring, lack of support affects the

longevity of a customer

Zinnov 10Zinnov Management Consulting Pvt. Ltd

Evolution of Telecom Service

Providers into SaaS Carriers

Evolution of Telecom Service

Providers into SaaS Carriers

Despite these constraints SaaS is likely to grow in India over the

next few years

Drivers for SaaS adoption in IndiaDrivers for SaaS adoption in India

Growing Basic Internet Infrastructure

Growing Basic Internet Infrastructure

Unique business

model Innovations

Unique business

model Innovations

Pricing & Support

Innovations

Pricing & Support

Innovations

Source: interviews with Company Stakeholders, Zinnov AnalysisZinnov 11


Looking to enter the SMB market with

Novatium. Novatium is a Chennai based

start up that has launched a netPC and

provides hosted applications on

subscription basis. The service is

currently available for consumers, but

is being launched for SMB’s.

Airtel plans to offer SaaS to SMBs and is

in talks with Oracle, SAP, Microsoft,

Google and Jamcracker to offer

different applications on a pay-per-use.

Airtel aspires to become the CIO in the

cloud. Already tied up with Google

Apps for its broad band users

Free branded laptops free with hi-

speed Internet data card service

branded Reliance NetConnect

It has entered into a strategic alliance

with leading IT giants Acer, Asus, HCL,

Intel, and Lenovo

The scheme is priced as low as Rs.1500

per month (excluding Service Tax) for

two years with no hidden costs.

Mobile revolution and entry of large Telecom players will drive

SaaS adoption

Mobile Revolution

Source: Zinnov Analysis, Secondary Research

two years with no hidden costs.

Novatium provides a complete range of

services in network computing and

specialize in delivering customized

solution to enterprises. They offer the

extra edge, ensuring success in every

field of specialization.

Currently selling to consumers and has

2500 customers pan-India

BSNL launched 3G in March 2009. Plans

to operate 5 million lines spanning all

district headquarters and important

towns by end of this year. Investment

outlay for the same is Rs.2700 crores. It

has tied up with Nokia, Sony and

Samsung to provide handsets that have

been priced at Rs.7000

Tata Communications, is just one of the

players with plans for WiMax, a super-

speedy version of wireless broadband.

The plan will cost more than $100

million and span 115 Indian cities. The

goal: to provide 20 million broadband

connections by 2010.


� Product Launched

� Partners

� Accessories

� Availability

� Product Pricing

� Installation Time

� Availability

� Technology –

– Windows XP for client customized

by Nivio

– Linux-based server

– Companion connector

� Support – It supports multiple USB

peripherals (USB pen drive, USB hard disk,

USB printer, digital cameras, etc.),

speakers and microphone

� Power Consumption – 5 W only

� May, 2009

� Airtel (broadband), Novatium(Hardware), Microsoft (Software)

� 15-inch LCD monitor, keyboard, mouse, companion

� Delhi, Gurgaon and Noida

� 7,999 (INR)

� 24 hours

� Airtel Stores and NEXT Electronic Stores

10 GB Space

Packs Common facilitiesMonthly pricing

(INR)Differentiating factors

Home 699 MS Office standard

Airtel is striving to become the CIO in the cloud, and is looking at

offering an end to end stack of solutions

Other DetailsOther DetailsBackground and Product DetailsBackground and Product Details

Different Monthly PlansDifferent Monthly Plans

Mobile Revolution

� Competitive Products –

– BSNL

– MTNL

Source: Company Websites, Novatium Sales , Media

10 GB Space

3 GB Data Transfer

Online Desktop Service

100% Data Security

Professional 899MS Office standard with Admin

rights

Business 1199

MS Office Premium with Admin

rights

PartnershipsPartnerships

Access Device Google Apps OS/ MS Office ERP/CRM


Both the supplier as well as

the agent have access to their

orders right in their mobile

every time

One can view his network

consisting of first level and

second level partners on the

mobile

All new orders can be

received as a message in the

inbox. The status of the order

can also be tracked

Nokia is leveraging mobile as an access device to provide CRM

solutions on an independent operator model

Mobile Revolution

Source: Nokia Tej website, Zinnov Analysis

Key Features

� Share and update product information

� Create and distribute purchase order

information

� Create and send dispatch details

� Keep track of orders

� A directory service wherein published

company information can be accessed

Key Advantages

� Portable access to business data

� Less paper work

� Less errors

� Shorter sales cycle

� Secure platform for data storage

Nokia India is piloting a

Mobile CRM of textile

distributors. Such solutions

that are easy to use and

are cost effectively a likely

to be disruptive in the

market


PC Users in India, 2006-08

(Millions) Active Internet Entities* in India, 2005-08

(Millions)

Increasing IT and internet penetration will also help in increasing

the adoption of SaaS solutions in India

Growth of Basic IT

5

6

7

8

9

10

Translates to Translates to 60 million

internet users

5.06.3

7.3 6.8

0

2

4

6

8

2006 2007 2008 2009

CAGR (2003-09) = 17%

Note: *Active Internet Entity – Individuals/Establishments with an internet connection. The numbers reported are for the year starting from march and ending in february

Source: MAIT, TRAI, Zinnov Analysis

Mobile Phone Subscribers in India,

2006-08 (Millions)

Zinnov 15

3.1

4.1

6.0

7.2

8.6

0

1

2

3

4

2005 2006 2007 2008 2009

• Overall entities with internet grew by 20% over March 2008

• Businesses accounted for 28% of the entities growing at 14% while

Households accounted for 72% growing at 22%

206272

345430

0

100

200

300

400

500

2006 2007 2008 2009

CAGR (2006-09) = 28%


Vertical Play of Indian Hosting Service Providers & Global

Comparison, 2009

Indian Data Center Market, Global Perspective, 2009

India Global

India is increasingly becoming a global hub for data center

services, and this will further drive SaaS adoption in India

Growth of Basic IT

• The Indian datacenter market is estimated to be between USD

1 – 1.2 Billion which accounts for about 8% of the global

market

Note: * Does not include captive data center space (Captive data centers include those being outsourced to system integrators)

Source: Data Monitor, Zinnov Analysis

Data Center Space in India, 2007 – 2011E (Thousand square feet)


Tata communications, largest player in the market, has 22 data center worldwide with 7 data centers operating in India. It has Tier-3 data centers with 1 million square feet capacity. Services include co-location, managed hosting and storage. The flexible on demand model allows clients to purchase as per capacity and then adjust as their business evolves.

Reliance has over 500,000 square feet of hosting space. It has 6 Tier- 3 data centers in India with a customer base of 500. Their hosting services include co-location, application hosting depending on basis of the services required by clients.

Sify has 200,000 sq ft of hosting space in 4 Tier-3 data centers. It offers co-location, dedicated and shared hosting services. First in country to deploy Gigabit Switch Routers in its backend infrastructure

Data center players like Tata Communications and Reliance, have

a significant Indian and global play

Growth of Basic IT

NetMagic has 5 data centers across India and US and 1 virtual data center in US. It has a customer base of 600. It has close to 100,000 square feet of hosting space

Ctrl S’s services include infrastructure services such as co-location, managed services such as managed backup, dedicated hosting, hosted exchange and disaster recovery. First in India to deploy water-cooling technology, which would save 30% of its energy cost annually. It has 30,000 square feet area of hosting

Net4’s services include virtual private servers, server colocation, backup and recovery and managed services. It has data centers in 8 different locations. It has a hosting space of about 30,000 square feet

Source: Interviews with Company Stakeholders, Company Websites , Zinnov Analysis Zinnov 17Zinnov Management Consulting Pvt. Ltd

Business IntelligenceBusiness Intelligence

Custom Apps – Inventory Management

Custom Apps – Inventory Management

Business Apps-HRMSBusiness Apps-HRMS

Email, Office AppsEmail, Office Apps

Networking Equip.Networking Equip.L2

L3

L4

L5

L6

ITaaS Stack

Benefits of

New Model

End to

End

Solution

Stack

Engagement

of SMB

through ICT

Lifecycle

Single

Stakeholder

for SMB

SaaS driven

IT on a Tap

model

Remote tech

support to

bring down Open source

Stack based business

model to deliver IT

enablement to SMB’s

Companies such as TCS with their ITaaS model are likely to be

disruptive in the market and would increasingly drive adoption

What are the benefits of the model?

Business Model Innovation

Networking Equip.Networking Equip.

HardwareHardwareL1

L2bring down

TCO

Open source

products-low end

cost

• Manufacturing

• Health care

• Education

• Retail

Industry Vertical Focus

• 18 Anchor clients in

manufacturing, have tied up

with Industry associations

such as CODIASSIA, AEPC

• Entry price point as low as

Rs.500 per user per month.

Anchor Clients, Low Price points

Zinnov 18

Business Impact

Source: Zinnov Analysis Zinnov Management Consulting Pvt. Ltd

IT + manpower

Information

Parents

Payment

The Lack of IT talent is a

major constraint for IT

adoption in Schools.

Schoolmate with its unique

man power supported

managed service model is a

breakthrough innovation in

the market

School mate is another example of a unique business model that

provide staff augmentation support along with SaaS offerings

SchoolMate ModelSchoolMate Model

Business Model Innovation

The New

Model

Communica-

tion of

information to

parents

Information

covers, health,

fees, reports

etc

Computeriz-

ation of day

to day

activities

Reduces IT

Staff

requirement

of SMB

Technical Staff

for each school

who manages

ICT, and data

entry

Online. On site

support model

Schoolmate will deploy a technical person in

each school, who will work fulltime on

SchoolMate implementation in the school

SaaS Support Man power+ +

What is the Model all about?

Zinnov 19

Uniqueness of the Model


Payment

Pay Slips

Paying Propensity for ICT

solutions in India is

limited, and to acquire and

grow clients, pricing

innovation is essential.

Ramco & NIIT provide

Payroll solutions to the

Indian government and

charge them per pay slip

generated

Ramco is an ERP solution provider that has launched disruptive

pricing model to drive adoption of its solutions

Ramco ModelRamco Model

Pricing Innovation

Driving IT Adoption

Pricing Innovation

Hosted Solution

• Ramco has an hosted ERP solution that is called Ramco OnDemand

• NIIT is its technology partner and they have developed an HR module on top of

Ramco OnDemand

• This solution is hosted on the government managed CDAC data center

• The solution is being used to generate & manage the government payroll.

Government is charged on the number of pay slips generated and not on the regular

model depending on ‘number of users’


AGENDA

About Zinnov


SaaS Success Story

Zinnov 21

SaaS Key Insights


Company Overview

• Founded in 1996, Zoho Corp is privately held and splits its

business into three divisions – Zoho, ManageEngine and

WebNMS

• Zoho Corp's main focus for its applications is the SMB space, but

it also nurtures enterprise ambitions

• ManageEngine provides enterprises with IT management

Products

• Productivity & Collaboration Tools

• Zoho Mail : Web based email service

• Zoho Writer : Online word processor

• Zoho Sheet : Online spreadsheets

• Zoho Show : Online presentation tool

• Zoho Docs : Online document management

• Zoho Notebook : Online note taker

• Zoho Wiki : Full featured wiki

• Zoho Share : Centralized public repository

Zoho is one of the early successes in the SaaS space and the firm currently offers a whole

host of applications on a SaaS model

Success Story

• ManageEngine provides enterprises with IT management

software, while WebNMS targets OEMs in search of a network

management suite

Employees & Locations

• Zoho Corp now has around 1,000 employees, compared with 750

a year or so ago

• The Zoho division of Zoho Corp currently employs 330 staff, up

from 250 in July 2008

• The company's headquarters are in Pleasanton, California, but

the majority of its staff is based in Chennai, India. It has other US

locations in Austin and New Jersey and offices in Beijing, London

and Tokyo.

• Zoho Share : Centralized public repository

• Zoho Planner : Online organizer

• Zoho Chat : IM tool

• Business Apps

• Zoho CRM : On-demand CRM solution

• Zoho Meeting : Web conferencing; Remote support

• Zoho Creator : Platform to create database apps

• Zoho Invoice : Online invoicing

• Zoho Projects : Project collaboration software

• Zoho Reports : Online Reporting & BI

• Zoho People : HRIS & Application tracking system

• Zoho Business : Email hosting & Office suite

• Zoho Marketplace : Buy apps/ post requirements

Source: Zinnov AnalysisZinnov 22


Customer & User Base Distribution

Product Innovations• Zoho has been consistently removing redundancies between its

standalone offerings and focusing more on the sale of integrated

offerings

• A classic examples are the integration of CRM with e-

mail, project management with Chat, Invoicing with time sheets

etc.

• Zoho is also looking at integrating its products with third party

technologies such as Microsoft Office and Intuit Quick Books

plug-ins for CRM and Write

Strategy

75%

100%

Zoho is predominantly focused on the SMB and CMM customers and offers free versions of

its products to promote usage

Success Story

Strategy• Zoho has deliberately not branded itself as a SaaS player as it also

offers onsite deployments of its software

• Zoho is looking to expand in the cross-fertilization of technologies

across Zoho Corp as a whole. The company's ManageEngine

division has over 30,000 customers and already has some links

with its Zoho counterpart

Customers• Zoho currently has two million registered users for its apps, a

doubling in size over the past year or so

• The growth has mostly come about through word-of-mouth

referrals and SEO

• Zoho has about 100-150 resellers around the world and is keen

to ramp up indirect sales

• It's also looking to partner with systems integrators as it

attempts to win more enterprise deals.

94%

6%

30%

70%

0%

25%

50%

Micro SMB CMM Enterprise

Customers Users

Source: Zinnov AnalysisZinnov 23


AGENDA

About Zinnov


SaaS Success Story

Zinnov 24

SaaS Key Insights


There are 4 essential aspects that players need to address before

looking to grow in the SaaS market in India

•Indian small businesses do

not follow global best

practices in business

process, and hence global

products without

customization do not fit their

needs

•Most Indian sales forces

•Globally sales and marketing

spend is about 50 percent of

the overall budget for key

SaaS players

•In India the MSME has

identified 1200

manufacturing clusters. In

addition there are multiple

•Partner eco-system focus is

essential in India. It has

helped initial market leaders

like Ramco systems to build

an early mover advantage

•India has a wide business

landscape and requires

communicating with clients

•Telecom players such as

Airtel, Reliance, Idea and

BSNL are essential in the eco-

system. Not only do they

lead SaaS adoption through

increased broadband

penetration but they can also

act as effective partner for

payments

Product Customization is

Essential

Sales & Marketing Client

Acquisition spend will be

high

Channel Partners are

essential for achieving scale

in the market

Telecom Players are an

essential cog in the

ecosystem for growth &

client servicing

Zinnov 25

•Most Indian sales forces

have hierarchical

reporting, however this is not

a standard feature in many

SFA products currently in the

market. Companies thus pay

an additional fee to be able

to use the feature. For

example, ZOHO charges USD

20 per user per month to

enable users with hierarchical

reporting

addition there are multiple

other verticals such as

retail, education, etc. with

each having limited levels of

IT awareness

•The need to create IT

awareness through

events, demos and a lot more

off line modes than globally

accepted online modes, will

substantially increase the

spend on S&M to acquire

clients

communicating with clients

in at least 8 major languages

if not 22. This requires a

strong local channel partner

eco-system to scale

effectively in the market

payments

•Clients prefer to pay

via, Demand Draft, Cheque or

wire transfer and tracking

payments is a challenge.

Telcom players can be

leveraged as a payment

channel to increase efficiency

and reduce overall cost of

product delivery


• Google has tied up with Airtel to launch Airtel Live to

distribute Google Apps (Gmail, Google Docs, Google

Calendar, iGoogle) to Airtel broadband customers

• Tata Communications has partnered with SugarCRM

to offer hosted CRM solutions to Indian businesses

• Salesforce.com and Google have formed a strategic

alliance for Salesforce Group Edition featuring Google Ad-

words, which provides every element of the customer

lifecycle, from advertising, creating leads, closing business

and retaining customers in one integrated solution

• Zoho partnered with Google to enable Google users to

access all Zoho services with their single Google ID

It is also essential to look at innovative channels to engage

customers and grow business in the Indian Market

Strategic Alliances

Partnerships with Telecom Companies and ISPs

• Several companies such as Trend Micro, F-

secure, have partnered with Tata Indicom to provide

on demand hosting, backup and security solutions

• Indian gaming company Indiagames has tied up with

several ISPs such as Airtel, MTNL, Tata Indicom to

deliver Games On Demand

• Zoho has launched Zoho applications (Zoho Writer, Zoho

Sheet and Zoho Show) on the Facebook

platform, enabling users to chat and work together

through the social network

• Salesforce has launched an application on Twitter which

enables salesforce users to engage with their client base

faster and more efficiently, either individually or en

masse

Source: Company websites, press releasesZinnov 26

Integration with Social Media


To succeed in the India market its essential that firms look at the right price-

value mix, followed by a solution centric approach

Basic Principles

Zinnov Management Consulting Pvt. Ltd.

Cars at

Rs,100,000Fly at Rs.1 Call at Rs.1Child Birth at

Rs.1500

Homes at

Rs.300,000

Stay 5 Star at

Rs.1499

Zinnov 27

AGENDA

About Zinnov


SaaS Success Story

Zinnov 28

SaaS Key Insights


India is home to the second largest number of SMB’s in the World, and these

SMB’s are spread across various verticals

Nu

mb

er

of

SM

Bs

(in

Mil

lio

ns)

Industry Sector wise Distribution of SMBs

(2006-07)

SMBs across various countries

(2006-07)

Services

16%

Retail

Employee-size distribution

(2006-07)

Russia (8M)

UK (4M)Germany (4M)

Rest of the World (30M)

101-1000

(0.1M)11 to 100

(1.2M)

Nu

mb

er

of

SM

Bs

(in

Mil

lio

ns)

Zinnov 29

Nu

mb

er

of

SM

Bs

(in

Mil

lio

ns)

Total = 35 Million

Manufacturing/

Assembling/ Processing

15%

52 %

Repair &

Maintenance

6%

Professional

Services

7%

Educational

Services

3%

Others

1%

SMBs are defined as organizations with employees within the range of 1-999

US (26M)

India (35M)

China (44M)

Less than 10

(33.8M)

Nu

mb

er

of

SM

Bs

(in

Mil

lio

ns)

Source: Zinnov Syndicated study of Indian SMB Landscape, May 2008Zinnov Management Consulting Pvt. Ltd

Retail contributes half the number of SMB’s in India and is highly

diversified

Format-wise Break Up of Retail Shops

(2006-07)

Urban

(45%)

Others (4.0%)

Recreation (0.7%)

Footwear (1.7%)

Furniture (4.7%)

Consumer

Durables & IT (4.7%)

Jewelry & Watches (5.0%)

Apparel (7.0%)

Sector-wise Break Up of Retail Spent

(2006-07)

# of Retail

Shops

(in Million)

3M 12M ~3M 18M~1700

Zinnov 30

Retail holds enormous opportunity but requires concentrated channel efforts

Street Vendors Mom n Pop Stores

Medium Stores Large Stores Total

Rural

(55%)

Personal/HealthCare (7.6%)

Food, Beverages

and Tobacco (64.8%)

Source: Zinnov analysis of Indian Retail SectorZinnov Management Consulting Pvt. Ltd

Manufacturing units in India are spread across 2000 odd clusters across the

country

State/ Territory Registered

Clusters(1)

Unregistered

Clusters(2)Total

UTTAR PRADESH 131 157 288

KARNATAKA 126 55 181

KERALA 149 17 166

TAMIL NADU 131 28 159

MADHYA PRADESH 91 64 155

ANDHRA PRADESH 71 79 150

BIHAR 54 85 139

MAHARASHTRA 74 42 116

GUJARAT 106 9 115

WEST BENGAL 36 62 98

PUNJAB 67 12 79

RAJASTHAN 38 31 69

ORISSA 4 57 61

CHHATTISGARH 24 18 42

26 26

30 30

17 17

288 288

155 155

83 83

40 40

69 69

115 115 98 98

139 139

36 36 1 1

4 4

32 32

17 17

12 12

26

30

17

288

155

83

40

69

115 98

139

36 1

4

32

17

12

Zinnov 31Source: Zinnov analysis of the Third All India Census of Small Scale Industries 2001-2002

Tapping the manufacturing cluster will require an understanding of density of registered SMBs

(1) A district having 100 or more registered MSME units that were engaged in manufacturing the same product are considered as a cluster

(2) District having an estimated number of 500 or more unregistered MSME units which were engaged in manufacturing of a product are considered to form a cluster

CHHATTISGARH 24 18 42

HARYANA 38 2 40

JHARKHAND 15 21 36

ASSAM 8 24 32

HIMACHAL PRADESH 20 10 30

JAMMU & KASHMIR 13 13 26

UTTARANCHAL 17 NA 17

MANIPUR 4 13 17

DELHI 2 10 12

CHANDIGARH 1 3 4

MEGHALAYA 1 3 4

NAGALAND NA 3 3

MIZORAM 1 NA 1

1222 818 2040

116 116

181 181

166 166

150 150

159 159

42 42 61 61

0-500-50

50-10050-100

100-200100-200

200+200+

# of clusters# of clusters

LegendLegend

116

181

166

150

159

42 61

0-50

50-100

100-200

200+

# of clusters

Legend


Mid-Sized Manufacturing units are at the cusp of growth and form the

foundation of a strong Indian manufacturing base

Sector-wise Distribution of SMBs with

101-999 Employees

(2006-07)

Chemicals

25%

Metallurgy

19%

Vertical-wise Distribution of Mid-sized

Manufacturing units

(2006-07)

Nu

mb

er

of

Un

its

(in

pe

rce

nt)

Services

14%

Zinnov 32

Total= ~ 0.1 Million

Cement & Construction

5%

Pulp and Paper

4%

Total= ~86K

Textile

16%

F&B

14%

Others

2%

Technology

7%Engineering

8%

Nu

mb

er

of

Un

its

(in

pe

rce

nt)

Manufacturing

86%

Source: Zinnov Syndicated study of Indian SMB Landscape, May 2008Zinnov Management Consulting Pvt. Ltd

SMBs are a priority sector with 12% of the net bank credit directed towards

them; the Govt. is further boosting the sector with financial stimulus

46069

15489

160000

200000

240000

280000

Priority Sector lending to SMBs by banks in India

(2006 to 2008)

SMB stimulus package

(Rs. 62000 Crores)

Zinnov 33

82434104703

14865110421

13063

46069

8430

11648262765

0

40000

80000

120000

160000

2006 2007 2008 2009

Total Foreign Banks Private Sector Banks Public Sector Banks

Source: Reserve Bank of IndiaZinnov Management Consulting Pvt. Ltd

Despite the large numbers, SMB’s in India face certain fundamental business

challenges that have only been complicated by the current recession

• Demand for their products ad

services has come down

substantially, this has resulted in

massive lay offs and need for

restructuring of busiesses

• Most Small businesses in India

Lack of

Demand for

services

Lack of

Macroeconomic

Stability

Lack of Risk Lack of

• Global economic meltdown, and

reluctance of the banks to lend

money for investments has

impacted liquidity

• Most SMB’s lack a competitive

edge both in the domestic as

12

Zinnov 34

• Most Small businesses in India

have a small set of customers and

have not diversified their

risks, and run high business risks

• SMB’s are struggling with

operational efficiency, they run at

sub-optimal levels of

production, and lack integration of

business processes

Source: Primary intervies with key stakeholders at PSF Units; Zinnov analysis

Lack of Risk

Mitigation

Lack of

Operational

Efficiency

Lack of

Ready Labor

Pool

Lack of

Competitive

Edge

• Most of the units face challenges

with regards to availability of

business ready talent, and are

forced to invest in training

edge both in the domestic as

well as the global markets due to

lack of innovation, and best

practices

3

45

6


SMB’s are adopting a number steps to overcome these fundamental

challenges and to grow their business

Exploring niche markets and emerging locations

Value added services to face competition

Cost efficiency/ plant consolidation

Increased supplier collaboration

1

2

3

4

Zinnov 35

Increased supplier collaboration

Training of labor force

Faster reaction for design/ customer feedback

Service oriented products and pricing

4

5

6

7

Key Steps to Increase

CompetitivenessIntegrate new opportunities to

transform markets andgain first mover advantage

Energy Efficiency and Green Initiatives8


Technology adoption can help better accelerate each of these initiatives

which in turn have a great deal of business impact

Key Steps

Exploring Niche

Markets

Value Added

Services

Cost Efficiency

Business Impact IT Enablement

Key Steps Business Impact IT Enablement

1

2

3

Zinnov 36

Increased

Collaboration Training of Labor

Force

Faster reaction to

customers

Service Oriented

Products/Pricing

Green Iniatives

45

6

7

8

Source: Zinnov AnalysisZinnov Management Consulting Pvt. Ltd

The inherent advantages of IT on these initiatives coupled with increased

aspiration of SMB’s is driving IT adoption

SMBs entering

In Global Markets

• Indian SMBs are exporting their products to

the global market and are in direct

competition with global players especially

from low cost countries such as China and

Ukraine

• The Exports for the SMB in India has been

growing with a CAGR of 12.5% over the last

10 years

• Large number of MNC are entering into the

Indian Market and offers a direct competition

to the local players especially the SMB

Zinnov 37Source: Zinnov analysis of data from Planning Commission, March 2001, Govt. of India, Reserve Bank of India

MNC entering

in Indian Market

SMB partnership

With MNCs in India

to the local players especially the SMB

• The total Imports to India has been growing

with a CAGR of 16% over the last 10 years

• SMBs when partnering with MNC will

mandate the incorporation of the best of

technologies to maintain the standards and

better coordination between the two

SMBs going global and Global MNCs entering domestic market necessitates Technology requirement

IT solution

Adoption


The drive for IT adoption amongst SMB’s is evident in the rapid growth of

basic IT infrastructure adoption like PC’s

50%

60%

70%

80%

90%

100%

PC distribution among SMBs

(2007-08)

PC

Pe

ne

tra

tio

n (

%)

29.2M

0.9M

0.3M

0.1M

Zinnov 38Note: * Includes overseas acquisition led revenue growth

Source: Zinnov Analysis

0%

10%

20%

30%

40%PC

Pe

ne

tra

tio

n (

%)

Less than 10 11 to 100

14% 74% ~100%PC penetration

Employee Size

PC users Manual, No PC

4.6M

0.9M

Average penetration (2012) - 39%

Average penetration (2008) - 16%

101- 1000

IT which started as a phenomena among Large corporate is fast penetrating into SMBs

Growth 25%


This basic IT adoption has also resulted in an exponential growth of software

products in the Indian market

Indian Software Product

Companies Selling in

India

USD 0.46 billion

Indian Software Product Market Landscape, FY2008



Businesses Revenue

0.961.0

1.5

Global Companies

1.07

1.42

Zinnov 39


Companies Selling Outside

India

USD 0.96 billion USD

bill

ion

Note: * Includes overseas acquisition led revenue growth

Source: Zinnov Analysis

0.290.39

0.46

0.40

0.68

0.0

0.5

FY 2006 FY 2007 FY 2008

Domestic Exports*

Global Companies

Selling Software

Products in India

USD 1.84 billion

0.69


3.0

3.6

4.6

5.5 5.5

3

4

5

6

Interestingly however, Internet usage in India still outstrips the actual

penetration of Desktops and Laptops

81

3.6%

4.5%

3.6%3.7%

7.1%

3%

4%

5%

6%

7%

8%

40

50

60

70

80

90

Units (in

Millions)

Desktop Penetration in India

CAGR

89%

22%

Internet Users and Internet Penetration

in India Users (in

Millions)

1.7

2.3

0

1

2

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Desktops

Zinnov 40

13

6 717

23

39

5140 42

0.1%0.3%

0.5%0.7%

1.6%

2.1%

0%

1%

2%

3%

0

10

20

30

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Internet Users

31%

• Introduction of sub-notebook generation for as low as $300 by

HCL, ASUS, SAHARA etc.

• With the entry of low cost notebooks in the market the share of

desktop to total PCs has dipped and further resulting a slow-down in

the assembled PC sales

• Internet Users in India are growing at a CAGR of 46%

• Penetration of Internet is around 4% of the total population

Source: AKAMAI, ITU, IAMAC, Secondary research Zinnov Management Consulting Pvt. Ltd

Potential Opportunity for Technology Adoption

by sector (2007-08)High

Addressable

Size

Retail

17%

MSME

7%

Low

Medium

High

Growth Potential

13M

18M• Accounting

• Inventory

Management/

Procurement

• POS

• Accounting and Payroll

• E-mail and Internet Banking

• Inventory Management/ Procurement

• ERP

• HRM

Despite the exponential growth of basic IT infrastructure and of internet usage, verticals

like manufacturing & retail still have abysmally low levels of IT adoption

HighLow

Size

Technology Adoption

Educational

Services

20%

Hospitality

10%

Professional

Services

79%

IT/ITES

~100%0.3M

1.2M

2.4M

~5000

• HRM

• CRM

• Accounting

• Training Students

• Administration

• CRM

• Process requirement

• Online Resources

• Accounting

Source: Zinnov Syndicated study of Indian SMB Landscape, May 2008

Lower technology adoption in MSME and Retail answers the huge potential opportunity at the basic level


The low adoption of IT can be attributed to certain unique characteristics of

the Indian market

Diversity of Population

Price Performance Expectation

Environmental Shift

Multitude of languages, varying levels of

literacy, drastic shift in needs across the

country

Indian customers are

known to be value

customers and

price/performance

expectation is high

Changing Regulatory and policy

frameworks that make it

extremely difficult to have a

consistent market strategy

Zinnov 42

Challenges in India

Expectation

Infrastructure Challenges

Demographic Shift

Low broadband penetration, low PC

penetration, Lack of consistent power

supply

Young and aspiring population moving

towards urban centers in search of

employment


These challenges have been further compounded by the following market

complications

Lack of Technology

Know-how

• SMBs are not able to identify their technical requirements

• SMBs look for a complete solution rather than a standalone product

• They look at PCs and peripherals as additional costs

Unclear Return on

Investments

• SMB owners need to be convinced of returns before making any capital investments in IT. In most of the

cases, SMB owner expects the quantified benefits such as growth in revenues/profit margin or significant

cost savings.

• IT Vendors have struggled to articulate a clear business case for IT adoption and SMB owners have not

seen immediate benefits on IT

Zinnov 43

High investments made in legacy systems

• Most of the SMB invest in technology solutions on a long term basis. Frequent technological development

which force them to migrate to a newer technology and dump legacy system is not welcomed by them.

• IT vendors and their channel partners need to guide SMB owners to design their IT investments and

become their trusted partners.

Cluttered

Product Portfolio

• There ate too many products available in the market, each of them claiming to be better than the other

• Clear differentiation among products and the value for money is not easily realized

• Dealer networks and their staff are not geared enough to resolve customer queries

High cost for technical support

• SMBs that have invested in IT need frequent technical support due to limited knowledge of technology.

Most of the SMB don’t invest much on internal IT staff.

• SMB owners have to often choose between a regular support with high cost or settle down to limited

support at economical price. However, neither of the two options solves the need for technical support.

Source: Zinnov Analysis Zinnov Management Consulting Pvt. Ltd

Existing market offerings are found to be too expensive by SMB’s and they do

not see a price value proposition in the offerings

ERP Solutions are being offered to

SMB customers at anywhere between Rs.1,50,000-

Rs.15,00,000.

Basic accounting software that allows

clients to do book keeping costs between Rs.10,000-Rs.

40,000

The cost for communication set up

Zinnov 44

OS pre-loaded laptop costs between Rs.25,000-

45,000 while Office software

for small business cost Rs.16,000

The cost for communication set up

like modem, broadband, electricity, etc

is approx Rs.12,000 per year

The cost of a Small business to start off with a basic computer with licensed OS, Office, Accounting Software and Internet connectivity for a year is Rs. 73,000

SMB owners do not see price/ performance value, this also actively encourages Piracy

Source: Zinnov AnalysisZinnov Management Consulting Pvt. Ltd

To successfully pitch solutions to SMB’s, one needs to understand the factors

that influence their buying decisions

Total cost of license, implementation and

support of the ERP solution over a period of 3 –

5 years

Buying Decision for Improvement in productivity and process

efficiency of the enterprise i.e. very little

Return on Investment

Capital Investment

Product scalability to accommodate the

Scalability

1

25

Zinnov 45

Deliver value with minimal internal IT support

and talent, in addition to lower investments in

training

Reduced Complexity

3

Deliver best practices across the business value

chain and increase competitiveness on the

global scale

4

Best Practices

Source: Zinnov Syndicated study on Indian SMB Landscape, May 2008;

NASSCOM-Zinnov study on India Software Product Business, Aug 2008

SMBs view IT as capital investments and hence ROI becomes a critical factor

Buying Decision for

SMBsefficiency of the enterprise i.e. very little

latency period

Product scalability to accommodate the

dynamic needs of the enterprise


The purchase cycle of SMB’s is also dramatically different from that of large

enterprises and this difference needs to be understood in order to be successful

CEO

IT Department

CIO,CSO

Business Heads

NeedNeed

Procurement Either

through SI or Product

Vendor Directly

Large Enterprises ( Pvt. & Public Sector)

Purchase Chain

Specifications

Garnered through

Conferences, Peer

Group, Secondary

CEO

CIO

RFI to SI

Short List

RFP-Request for Proposal

SMB Purchase Chain

Alternative

Zinnov 46

RFI to SI

Short List

RFP

SI Procures Hardware, n

etowrkingand software

Implementation

RFI for Product

Start List


Final

Implementation by vendor or SI

Vendor Directly

Short list based

on Initial

Response to

RFI

80% OF THE TIME SMB.

PROCURES PRODUCTS

THROUGH SI CHANNEL

and 20% THROUGH

PRODUCT VENDOR

DIRECTLY

RFI for Product

Start List


Final


SI Procures,Hardware,networking after software



To address these challenges & differences one needs to use innovative models

to drive business and SaaS leads the stack…

Technology

Innovations

Delivery Model

Technology

Innovations

• Open Cloud/ Cloud Computing

• S+S (Software + Service)

• Virtualization

• Service Oriented Architecture

• Open Source

• Packaged/ License

Zinnov 47Source: Syndicated study on Indian SMB Landscape; NASSCOM-Zinnov study on India Software Product Business

Delivery Model

Innovations

Revenue Model

Innovations

Delivery Model

Innovations

• Packaged/ License

• Software as a Service

• Software Appliance

• Software Enabled Solutions

Revenue Model

Innovations

• License

• Subscription/ On Demand

• Transaction

• Ad Based

• Session based

The need from SMBs has led to several business innovations from technology providers


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