Indian firms turn to software-as-a-service

Local startups and small businesses deploy hosted business applications to avoid incurring heavy capital expenditure and having to hire IT professionals.
Written by Swati Prasad, Contributor

Hit by the recession and need to better manage their cost, some small and medium size companies in India are finding value in hosted business applications, such as ERP and CRM.

Sudha "Suki" Iyer, for instance, returned to India from the United States in August 2008 to start Metamorph Learning, a staff training and placement company focusing on the retail industry. As a startup, MetaMorph needed a simple accounting tool to manage billing, invoicing, cash-flow statements, and profit and loss records.

Driving India's SaaS

The global recession and cost efficiencies SaaS can provide are driving demand for hosted solutions in India. Industry players and analysts identify other growth drivers:
•  presence of several global companies that bring in best practices;
•  presence of large technology sector with companies that are more open to new business models, such as SaaS;
•  rising Internet penetration and use of online transactions convinces fence-sitters that the model can work;
•  high satisfaction rate among early adopters;
•  plug-and-play nature of the delivery model;
•  globalization of Indian companies;
•  rise of niche applications in India including derivatives management, risk management and other customized industry applications on the hosted platform.
•  painless upgrades, where the provider manages all updates and upgrades; and
•  short implementation time. Companies can install hosted applications within days or weeks, compared to licensed models.

Having lived and worked in the United States, Iyer had witnessed the emergence of the software-as-a-service (SaaS) model. Hence, she decided to deploy Microsoft's subscription-based Dynamics NAV 4.0 instead of purchasing a licensed accounting and financial software.

"We are a lean company with a core team of three people," Iyer, who is currently CEO of Metamorph, told ZDNet Asia in a phone interview. "I did not want to incur heavy capital expenditure on licensed software. Neither did I want to employ IT professionals to man the licensed solution. Therefore, SaaS was the obvious choice," she said.

Andrew Knott, Salesforce.com's Asia-Pacific vice president of marketing, said in an e-mail: "Nowadays, capital is scarce and the credit situation is tight. Therefore, making big-ticket purchases of hardware, software and data centers, doesn't make sense."

Tulip Telecom, a local data telecom service and IT services provider, has been using Salesforce.com's hosted comprehensive CRM tool for the last two years. The service includes an array of features ranging from database management to updating a purchase order.

Deepinder Singh Bedi, executive director at Tulip Telecom, said in an e-mail interview: "In the recession, SaaS has helped us keep a constant check on our overall costs as it gives us the option of using applications as per our requirement."

According to a Springboard Research January 2009 report, the Indian SaaS market will see a compound annual growth rate of 76 percent between 2007 and 2011, reaching US$260 million in revenues by 2011. SaaS-based ERP and CRM applications are likely to see highest demand, Springboard said.

In fact, the research house said the Asia-Pacific SaaS ERP market is expected to expand to a US$193 million market by 2012, from just US$35 million last year.

The recession is indeed pushing more companies to adopt SaaS. "Just as people are looking for rented accommodation instead of buying houses during recession, companies find it more practical to go in for a hosted solution," Sushant Dwivedy, director of business solutions at Microsoft India, told ZDNet Asia in a phone interview.

Dwivedy noted that the cost differential is akin to that between renting and buying a house. "The cost of a hosted solution is typically in the range of 3 to 5 percent of the total cost of a licensed solution," he said.

Microsoft touts its own SaaS strategy, dubbed "software plus services", which Dwivedy described as a combination of hosted and on-premise software delivered via a multitude of devices. The software giant is focusing its SaaS play on the small and midsize business (SMB) sector, targeting industry clusters in India, and is beefing up its partner ecosystem.

Supporting new entrepreneurs
In addition to helping SMBs better cope with the recession, SaaS is also aiding new business startups.

Knott said: "Cloud computing is enabling a new class of entrepreneurs. They don't need to build offices, distribution centers, data centers or infrastructure of any kind--everything is managed in the cloud."

According to Knott, the cloud computing model becomes more important for India due to the sheer number of SMBs in the country, which currently clocks at 35 million. "They are all looking for easy to use, reliable and scalable applications that enable good business growth," he said.

Structural Waterproofing Company (SWC), for example, is using Microsoft Dynamics ERP application, supported by IT services provider Tech Mahindra. "We saw several benefits of SaaS," Tushar Bhattacharya, SWC's deputy general manager of finance, told ZDNet Asia in a phone interview.

"Thanks to the SaaS solution, we are able to focus on our core business and run it in a profitable way," Bhattacharya added. The Kolkata-headquartered company manufactures a range of components for the construction industry.

According to Springboard, companies have indicated they are satisfied with the SaaS tools, given their lower costs and ease of use. "Our survey found satisfaction rate amongst adopters at a high of 7.5 on a 10 point scale, where 10 is the highest and 1 is the lowest," Balaka Baruah Aggarwal, the research firm's senior manager of emerging services, told ZDNet Asia in an e-mail.

The enthusiasm for SaaS is expected to continue, despite the general belief that cloud-based services are not secure and companies are hesitant to put up mission-critical data on hosted servers.

However, data security and safety concerns are no longer seen as deterrents to SaaS.

According to Springboard's Baruah Aggarwal, SaaS players give high priority to addressing security and privacy issues as their business model depends on these fundamentals.

"Vendors ensure high security infrastructure where SaaS applications are hosted," she said, adding that security is "not a significant barrier" to SaaS adoption. She noted that only 4 percent of respondents in a Springboard survey who had no plans to adopt SaaS, highlighted security as an issue.

Knott of Salesforce.com said security concerns are one of the biggest misconceptions of cloud computing. "One of the major benefits of security in a multi-tenant cloud is that all customers benefit from the same rigorous security standards," he added.

Swati Prasad is a freelance IT writer based in India.

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