Are SIs becoming ISVs too?

The new age IT business has moved beyond box pushing and the solution business has gained more relevance and prominence. Value add has become a very critical element to sustain in the business and at the same time it is a major differentiator in the industry. While the profit margins in the hardware business are shrinking day by day, the graph of solutions and software business is constantly moving upward. The system integrator fraternity which was first to embrace these transformations, has acknowledged the business prospects in the software business. Leveraging on their expertise and experience, they are creating their niche in the software domain. On the other side, the Independent Software Vendors (ISVs) have emerged as the prominent segment in the industry.

 SIs to SPs and now ISVs

The latest report of Gartner revealed that the Indian Software market is set to reach $5.3 billion in 2016. The current growth momentum in the software industry is enough to increase SIs inclination towards software and solution space. Better profit margins and huge scope for growth are other factors that have made SIs to look at the software and solution business seriously. Significantly, aspire to create their niche in the technology world and develop indigenous solutions that are best fit for Indian businesses,  many SIs are moving into the ISV space.

Limesh Parekh, CEO of Gujarat based Enjay IT Solutions says profitability and job satisfaction were the two major reasons that pushed him out of a system integration business. “If we look back 15-20 years, we all started as SI because of the creativity and profitability involved in the SI business. But lately, SI business started to become very monotonous and less profitable. At the same time software industry was progressing in India. So we took a clever decision to foray into the software space”, says Parekh.

With the vision to develop innovative and cost effective technology solutions for SMEs and help them grow their business, Enjay IT Solutions develops CRM / Telephony and Cloud based products like Tally on Cloud, CRM on Cloud, Telephony on Cloud etc. The company has announced to launch Mobile CRM for SME market soon. Commenced business in a small village in Gujarat, Enjay IT solution has gone a long way by creating its brand not only in India but overseas market.

Devendra Deshmukh, CEO of Pune based software company e Zest Solutions, says that the shift from one business to another was not an easy decision, but the company diversified into the software space which proved to be the right decision.“After establishing ourselves in the initial 12 years, we realised only services will not help us to create value for customers and us in the true sense. So we decided to focus on creating products using our understanding of technologies and industries to deliver value and innovation our customers”, says Deshmukh.

Started as a pure SI, Mumbai based CDP India has developed many software solutions catering to different industry verticals. Stating the reason to lower the emphasis on the traditional SI business and put more resources in the solutions business, Rafi Mulla, COO of Mumbai based CDP India says, “In the System Integration business, we are dependent on partnerships with multiple software and hardware vendors and internal human resources. Retaining all of these is a challenge due to various reasons. Developing a hardware based product is not possible for an organisation of our size, therefore the only option was to pursue software based products. The software based product development has lower entry barriers and higher opportunities of innovation.”

CDP India offers a wide range of products and solutions under the brands of 1MarketView, ROSETab, 1BizEye and 1CView to major banks and financial services institutes and blue-chip companies. The company is in the process of launching CRM solution 1CView based on Open Source Technology that will deliver major cost savings to the organisations. Additionally, CDP India is also in the process of launching Business Intelligence solution (1BizEye) based upon Big Data Technology, leveraging matured business models based on Enterprise Datawarehouse solutions.

Cloud to lead ISV business

The SI business provided an opportunity of exposure to various business domains. Over a period of time, the SI acquired the domain knowledge and was able to identify niche areas and develop their own offerings. Developing their skills around the Cloud, Mobility and Analytics, many SIs have brought their software offerings in these three technology areas.SI business has now moved ahead of the low cost services model to high growth potential innovation model. With advent of Cloud, customers are moving away from on premise products to pay per use cloud products. Most of the cloud products are of self-service in nature and need less SI services.  Flexibility in the business and better margins are the two prominent reasons for SIs opting for their own solutions in the cloud space. Similarly, reach and recurring business are the other two major factors enabling SIs to incline towards prospering Cloud business.

“Instead of developing products in un-related areas, we decided to focus on innovations in our services in core areas. We have focused on creating our software product in Cloud, Mobility & Analytics. We have 3 key products CloudMap, TABit & Offline Scorm Player. TABit & Offline Scorm Player focused on learning on mobiles. Cloud/SaaS business & delivery model helping us to reach out to more customers and offer risk-free and value driven model for our customers”, says Deshmukh.

Limesh Parekh says that the SI business has now moved beyond product integration and service support. Now it's no more hardware and networking, it involves, mobile, cloud, security and networking. “Customers today don't want SIs to supply hardware, they want them to provide real solutions to their real problems. It has become complicated, but at the same time, more profitable”, says Parekh.

ISV business full of challenges

While the business, prospects, flexibility and better profit margins are some of the fascinating elements in the ISV business, the emerging segment is not a cup of tea for everyone. Moving away from organic revenue services business to unpredictable software product business is a big challenge. Building product culture in teams is also one of the key challenges. Investments in people, product development or marketing required is very high and therefore, ISV business requires a lot of ground work, planning, forecast and resources. For a System Integrator organisation, there are various challenges that it has to overcome to operate in the software solutions segment. It starts from the culture of the organisation, nature of resources, office policies, infrastructure requirement, attrition rate etc.

“We at CDP India have taken a slightly different approach to achieve our objective. We have carefully drafted a portfolio based strategy in terms of products, customer segments and engagement models. Our product and customer segment choice avoids head-on competition with established players. Our engagement model of strategic partnerships versus own development allows us to spread our management resources broader rather than deeper”, Mulla says.

Acceptability and public image are other prominent challenges and it becomes more critical when enterprises lack trust and confidence in the deployment of indigenously developed software solutions that are affordable and much cheaper than MNCs’ offerings. However, the mindset is changing slowly. “For more than a decade, we had been leading supplier of Thin Clients in India. So even 5 years after coming into Software business, many partners and customers still know us as ‘Thin Client wala’”, Parekh says.

Acknowledging the scope in the business and the competition that is prevailing in the market, ISVs have implemented many innovative strategies in their business. Innovative solution based on the cutting edge technology is the significant requirement for ISVs to create their niche in the industry. “Client wants more in less and hence we are focused to improvise and propose all our solution and services driven by a better ROI and lowest TCO possible without compromising the quality of solution or services rendered”, says Vipul Datta, CEO of Delhi based Futuresoft Solutions.

 Scope in Future

Software or application management has become an integral part of the delivery process to clients and today work is carried out from clients premised than from back-office. Hence, enterprises are adopting innovating commercial methods to retain and grow business. Here the ISVs could play a very strategic role to assist enterprises to choose a right technology solution that is customised, cost effective and helpful in the growth of business. At the same time, it is an excellent opportunity for SIs to scale up their business. Therefore, there is a right time for SI’s to leverage their understanding of technology and domain knowledge for transformation to ISVs.