india saas market opportunity zinnov
DESCRIPTION
The domestic market for SaaS is estimated to be about USD 50 million and is currently dominated by Collaborative Applications and CRM workloads. Read about this report done by Zinnov for the EMERGEOUT Conclave - third edition in DelhiTRANSCRIPT
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
The SaaS Market In India
SaaS Success Story
Zinnov 3
SaaS Key Insights
Indian SMB Landscape
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
Zinnov Management Consulting Pvt. Ltd
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
Zinnov Management Consulting Pvt. Ltd
AGENDA
About Zinnov
The SaaS Market In India
SaaS Success Story
Zinnov 7
SaaS Key Insights
Indian SMB Landscape
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
Zinnov Management Consulting Pvt. Ltd
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
Zinnov Management Consulting Pvt. Ltd
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
Zinnov Management Consulting Pvt. Ltd
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.
Zinnov 12Zinnov Management Consulting Pvt. Ltd
� 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
Zinnov 13Zinnov Management Consulting Pvt. Ltd
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
Zinnov 14Zinnov Management Consulting Pvt. Ltd
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%
Zinnov Management Consulting Pvt. Ltd
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)
Zinnov 16Zinnov Management Consulting Pvt. Ltd
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
Zinnov Management Consulting Pvt. Ltd
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’
Zinnov 20Zinnov Management Consulting Pvt. Ltd
AGENDA
About Zinnov
The SaaS Market In India
SaaS Success Story
Zinnov 21
SaaS Key Insights
Indian SMB Landscape
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
Zinnov Management Consulting Pvt. Ltd
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
Zinnov Management Consulting Pvt. Ltd
AGENDA
About Zinnov
The SaaS Market In India
SaaS Success Story
Zinnov 24
SaaS Key Insights
Indian SMB Landscape
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
Zinnov Management Consulting Pvt. Ltd
• 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
Zinnov Management Consulting Pvt. Ltd
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
The SaaS Market In India
SaaS Success Story
Zinnov 28
SaaS Key Insights
Indian SMB Landscape
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
Zinnov Management Consulting Pvt. Ltd
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
Zinnov Management Consulting Pvt. Ltd
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
Zinnov Management Consulting Pvt. Ltd
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
Zinnov Management Consulting Pvt. Ltd
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%
Zinnov Management Consulting Pvt. Ltd
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
Indian Software Product
Indian Software Product
Businesses Revenue
0.961.0
1.5
Global Companies
1.07
1.42
Zinnov 39
Indian Software Product
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
Zinnov Management Consulting Pvt. Ltd
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
Zinnov 41Zinnov Management Consulting Pvt. Ltd
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
Zinnov Management Consulting Pvt. Ltd
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
Zinnov Management Consulting Pvt. Ltd
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
RFP-Request for Proposal
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
RFP-Request for Proposal
Final
Implementation by vendor or SI
SI Procures,Hardware,networking after software
Implementation by vendor or SI
Zinnov Management Consulting Pvt. Ltd
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
Zinnov Management Consulting Pvt. Ltd
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