ERP Bells Toll For Tally

This is a natural progression for the accounting king. After
closing FY 2005 with revenues of Rs 229 crore, with six lakh legal customers
mostly in the small enterprise and single user space, the accounting major had
to look elsewhere to grow. So does this worry the competition? No, if other
vendor statements are to be believed.

ERP is a bad word," Bharat Goenka tells, batting an
eyelid, forcing a smile. It is no mystic grin. The three-letter word is still
aspirational. The thud is in the very few Indian successes.

The demystification is in the numbers. If we take all the ERP
companies considered successful and total its list of customers, they wouldn't
have penetrated even 1% of the market - considering there are 200,000 businesses
in India who are potential ERP patrons.

This sea of opportunities is there, but rafting in rough
waters is no fun. Bharat is willing to risk it as Tally finds inspiration in a
bad word and promises to cross over to the next level of growth high tide.

In many ways, this looks a very obvious thing to do. The
accounting software giant closed FY 2005 with revenues of Rs 229 crore, has
600,000 legal customers according to some accounts — mostly in the small
enterprise and single user space — is the undisputed number one in the SME
segment in its area in India with over 60% market share. It grew 118% last year,
reducing licensing costs, battling piracy and introducing VAT-compliant
solutions.

The point is, this kind of growth may be difficult to sustain
for too long on the one big mast of accounting software, even with innovative
schemes like offering insurance to legal customers against perceived risks of Rs
5 lakh. It cannot outgrow the market. Two, the traditional Indian small market -
which till sometime back had probably not felt the need for an ERP - is
undergoing a silent change. Enterprises in this segment (let's say companies
in the Rs 5-50 crore range) had automated their accounting practices but had not
automated anything beyond that. In cases where this had been done, the solutions
came mostly from local unorganized vendors who implemented 'home-grown ERP'.
With many companies in this segment competing internationally now, the need for
having better processes in place has been felt. Some of Tally's traditional
customers, it is said, were keen on upgrading to an ERP. This left the company
with little choice.

Right choice, it may be. But it will be a battle where babies
of the industry will meet fathers and grown-up brothers. The goal aspirations of
bigger vendors like SAP and Oracle could earlier be taken care of by mid and
large enterprises. The number of large enterprises not having ERP can now be
counted on fingertips. The mid market cup has started to fill. There is growth
to be had here still, but people are looking at the next level and that is the
small market.

There are varying theories on what constitutes the small
market. Frost & Sullivan, for example, says this is the market of companies
with less than 30 million annual turnover and there are two kinds of ERP
companies reaching out here. One is vendors who were earlier focused on the top
and middle of the Indian enterprise pyramid - SAP is a very good example
considering its recent focus on the bottom of the pyramid companies.

The second kind is more interesting. Traditionally, there
were no players who came from the bottom and who could perceive the opportunity
in the small market. It will happen now with Tally moving in. The real value for
the company is enormous because they have a good degree of existing customers,
many of whom are users of pirated copies. "Since you cannot grow more being
the number one already in the accounting business, it is logical to upgrade
functionality and add more features in the suite. Besides existing legal
customers becoming a prospect, people using pirated software might also be
brought into the fold because ERP is about implementation and less about pirated
copy use," says Alok Shende, director ICT practice with Frost &
Sullivan.

There are other positives he sees. Many people are very
comfortable using their software. It has great degree of stickiness in terms of
menu and logic of applications among others. So, chances are, Tally would keep
all the front-end of the ERP package same — the user experience of using the
ERP will therefore be very similar to the user experience of using the
accounting application - the back-end part, which has the business logic,
databases etc., will be made more stronger.

Rowing into the sea, therefore, will not be very difficult to
begin with. The calm might give away to a storm only when Goenka is challenged
by people like SAP and 3i Infotech, who will get into this market or is already
aggressively positioned.

It will thus be an interesting battle to watch. On one side
you have a traditional ERP player who has been successful in all tiers of the
market they have operated in versus a homegrown company with a huge base of
customers. The success, initially, will be in giving their existing users an
easy migration path. "We will have our hands full in trying to keep them
happy," Goenka quips.

Mark my lips

The happiness for the customer will be in Tally's ground-up design. Why
have so many ERP companies failed in penetrating the Indian market? That's
because most people focus on implementation and not on the lifecycle of the
implementation, says Tally's MD. Speed matters. Every organization changes in
approximately two-two and half years — in scale and type of activity, the type
of customers it is addressing. So, there is a continuous effort in continuously
modifying the systems one has deployed rather than effectively utilizing the
systems. "There is more energy devoted to constant change of the system to
keep pace with the business change. The main thing that we have historically
brought to the table and continue to bring is how to use technologies that make
initial implementation rapid," he says. The rapidity is because the product
allows continuous implementation to happen without effort. "Unless you have
technologies deployed in that manner, you cannot address the mass market. You
can address the niche market, which is what people have done so far," he
adds.

If the problem is of technology and speed, MNCs have no upper
hand either. Can SAP deploy 10,000 solutions in one year in India? "In 18
years all over the world, they have 3,600 customers. Let's assume a company is
able to do 1000 installations a year. Then it will take 200 years for it to
reach the figure of 200,000," Goenka reasons.

Ability to service is a problem for all companies now because
their products are designed for implementation that requires this kind of
effort, says Goenka. Tally has spent 25 man years worth of effort in designing
the product from scratch to address the problem of incremental implementation
and if the architecture of the product supports that. The claim is, it should
not take more than 6 to 9 man months to implement its solution - almost one—tenth
of the 7.5 man years required by competition. In doing so, it is expecting to
mobilize a fleet of 7000 people first.

That is enabling a significant ecosystem of SIs who are
trained to deliver this solution. Tally is in the process of tying up with SIs
and it already has an ecosystem of 14,000 people in the market who are selling
its small enterprise products. Out of the, around 200 are capable of, or are
already delivering solution to the mid enterprise and large enterprise space.
They will automatically become part of the company's new ecosystem. "We
are hoping that in the next six months, we will engage another 100-150 SIs who
will be able to take this to the market. We should be creating an ecosystem of
400 SIs," says Goenka. He is not talking to the big SIs yet. That will
happen after a formal entry into the market is announced in January.

Snatcher! Keep away

There are very few people who have seen Tally's ERP solution outside of
the company as of yet. D. Kalyanaraman, managing director of partner company JL
Infomatrix, who has had a close peek, says the solution has the potential to
usurp the entire mid-market space because of

its robust and simple to use characteristics.

January will therefore be crucial to the competition. But
vendors like 3i Infotech says it has nothing to fear since it is already
positioned in the mid-sized market for the last two years. "We had never
been in the tier one market. SAP and Tally are now coming in our area. The
advantage we have is we are here for a long time, also our approach," says
R.K. Kanthi, group head, Enterprise Solutions, 3i Infotech.

The approach is micro verticalization. All enterprises in the
Indian scenario are worried about cost - buying a software, implementation of
that, the time taken to implement, the people-time taken, post implementation
maintenance support - How can vendors reduce cost for the enterprise? A nifty
ERP which is user friendly and easy to maintain, as Tally says its solution is,
is one answer. The other reply comes from 3i Infotech that says the only way
this can be done in the SME segment is by having all ERP micro verticalized.
"For example, we have a product called Orion Advantage Auto Components.
This ERP is only for auto component manufacturing segment. So, here there is no
need for business study, mapping, no need for customization. Only the specific
functionality for the specified vertical is available," Kanthi says. 3i
Infotech has such micro veticalizations for auto components, the process and
chemical industry, textile and apparel industry. The implementation time in such
cases for the SME segment is typically

45 days.

The company's hope: Tally will take a long time to settle
in - by the time they come out with micro-verticals for example, 3i Infotech
will be way ahead with 8-10 verticals. It could be in for surprise as some of
Tally's partners have already developed or are developing verticals. JL
Infomatrix Limited for example, is building vertical solutions for the apparel
and the jewelry industry. D. Kalyanaraman says it would take a maximum of two
months for Tally's partners to build one vertical.

SAP, on the other hand, says it has stood the test of time
against all kinds of competitors. "If you look at the number of new wins in
Q3 of 2005, there are 27 in SMB space — more than all the competition put
together - we have a value proposition, which is very sound," says Nagaraj
Bhargava, director marketing, alliances and sales operations with SAP.

He predicts a resource problem for start-ups in the market.
"Let us take just one example of the underlying technology - you will
have to be available on multiple databases; on multiple operating systems, which
means that you will have to necessarily have resources behind each one of this
if you want to deliver on a constant basis. You need to put in a lot
of resources (both people and money) to have a platform that will
scale and a technology that will enable it," he says. Complexity in one
aspect of upgrade, or database is huge for example. "Factor in the fact
that customers buy business solutions to use over many years. This means
ensuring all parts and modules of your product are upgradeable.
Customer and market needs are very dynamic and subject to change -
new capabilities will need to be constantly built, sometimes you have to
make available on versions of your product that are not necessarily the current
one. It just requires lot of resources, money and sustained involvement. It is
not about building a fantastic product today. It is about building it on an
everyday basis," he adds.

The fine line is that building an ERP product for the large
enterprise is very different from doing so for a small company. The difference
mainly is in complexity. So the R&D dollars Tally has pumped in to build a
product and keep that in cycle, fine tune, customize, and build processes, is
not enormous.

Knowing more about the company's ROI from its ERP arm will
have to be a long wait though.

Goutam Das in
Bangalore