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 aneyelid,
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

(goutamd@cybermedia.co.in)