Gurgaon/New Delhi, January 6, 2007 – Another great year for the Indian Domestic IT Market is over and as we enter the New Year, the only question in our minds is ‘how will 2007 shape up?’ To answer this question, the IDC India team undertook a detailed exercise to visualize and frame its Top 10 IT Market Predictions for the year 2007. Most of these predictions are concerned with the domestic IT market. However, there is a reference to those trends in the global market, which will have deeper implications for the domestic market.
The domestic IT market in India grew by 22.4% in 2006* and is expected to keep the momentum up in 2007. The estimated year-on-year growth in 2007 is estimated to be 21.5%, making it the fastest growing market in the Asia-Pacific region.
‘The domestic IT market has posted impressive growth in the last three years and is expected to continue the momentum in 2007 also, which only means the domestic market has come of age’, commented Mr. Kapil Dev Singh, Country Manager, IDC (India) Limited.
From a global perspective, 2007 will be a year of intense ‘hyper disruption’ in the IT industry, with major structural changes taking place along different industry vectors at once – all interacting with each other and, more important, accelerating each other. In 2007, small businesses will become big, more software become services, more services become software, business IT players become more ‘consumer-ish’, and consumer players become more business like. These disruptions, and others, will force most market leaders out of their comfort zones and open up new opportunities to those that choose to surf these disruptions rather than stand against them.
‘These deep shifts in the global market place will surely have their implications on the Indian market, which when coupled with its high speed growth, will pose unique challenges. These challenges will be around managing the twin play of IT going deeper into already penetrated market segments and simultaneously exploring newer segments for growth to be sustained’, Mr. Singh stressed.
A brief on the Top 10 India IT Market Predictions 2007 from IDC are as follows:
1. India continues to soar. South Asia’s largest economy will continue to lead the pack as the next IT market opportunity. The economy posted a strong 8.5% real GDP growth in fiscal 2006 and it continues to grow. Due to its rapid growth, many global giants in different industries have entered India to set up businesses, thus putting immense pressure on domestic enterprises to stay competitive. One major challenge right away is that the IT infrastructure of the incumbent companies, lags behind these foreign entities. Consequently, a major wave of IT investments has started to take place across banks, financial services institutions (FSIs), telecom, manufacturing, government, resource, education, and other industries. This is probably why India is the fastest-growing country by IT spending in 2006 (22.4%) and is forecast to remain so in 2007 (21.5%) when it reaches Rs. 75,891 crore.
2. Dynamic IT to enter Phase 2 in 2007: From Consolidation to Virtualization and Service Oriented Architecture (SOA). Enterprises in India have matured to the extent of consolidating their IT infrastructure acquired over the years. Cost pressures are forcing large enterprises to evaluate and closely assess the utilization and productivity of these IT assets. At the same time, as business has become more dependent on IT, organizational goals have started to get linked to the IT roadmap of the enterprise more intimately than ever before.
2007 will witness Indian enterprises graduate to the second level of Dynamic IT infrastructure – where IT infrastructure would be able to effect changes instantaneously and dynamically in response to the changing business scenario. The key technology components that would come to the fore to attain this state would be virtualization, SOA and application integration.
3. Disruption to set in for Small and Medium Business (SMB) focused go-to-market strategies – new delivery and usage models will evolve in 2007. The New Year will mark the beginning of an aggressive focus from all major vendors to broaden and deepen their coverage of the SMB sector. Vendors will experiment with new models like On-premise hosted applications, hardware on lease and Software as a Service (SaaS). Major application vendors like SAP, Oracle and Microsoft will expand their SaaS offerings with a broader range of applications and greater scalability, setting the stage for more partners delivering complementary solutions via the SaaS model. SMBs will contribute almost 50% to the enterprise applications market in 2007 in India.
IT Services vendors will also bring to market packaged services that are pre-scoped, pre-priced, pre-quality assured, shrink-wrapped offerings, ready to be implemented at the client site. The focus will be midsize enterprises, which require speedy implementations and target a reasonably quick return on their IT investments. The one-to-many hosting model put forth by hosted application management (HAM) vendors would create a new profitable delivery model for application outsourcing services to mid-market customers. HAM will grow at a growth rate of 33% in 2007.
4. Connectivity, Content and Convergence will run parallel courses, but their real orchestration into a fully evolved ‘digital home’ phenomenon will remain elusive in 2007. IDC expects the Internet subscriber base in the country to grow at 50% in 2007, with broadband subscribers accounting for 30% of the total. Thus, the number of broadband subscribers can be expected to touch around 3.5 million by June 2007, and cross 5 million by December 2007. In the same period, the mobile subscriber base in India is expected to cross 220 million by December 2007.
Service providers, content companies (media, news, gaming, services) and device manufacturers are also expected to team up in a big way to provide services like IPTV, online music, online gaming, online shopping, online banking and other public utility services.
Home and SOHO customers in India are also expected to continue to lap up more and more lifestyle and entertainment IT products such as multimedia desktops, notebooks, mobile phones/PDAs, MP3/DVD players, digital cameras and broadband connections.
These developments around the three themes of Connectivity, Content and Convergence will accentuate and define the lines around which the digital home of the future will emerge. However, in 2007 the digital home will remain just that – a fast approaching, but yet not fully developed market segment, where the seamless confluence of product, content and connectivity heralds a tantalizing promise for the future.
5. Vendors will adopt a ‘productized services’ delivery model in 2007 to achieve standardization and enhance profitability. In 2007, System Integration (SI) partners will aim to minimize costs by breaking down activities into smaller modules. With the creation of ‘services products’, vendors would be in a better position to evaluate the feasibility and margins of contracts, thus being in better control of their own profitability as well as better managing expectations in the minds of their customers.
The next level of maturity would come from the conversion of services into standalone standard product modules. Vendors will be able to replicate the services products across multiple clients, which traditionally had been highly customized for specific clients. Vendors like IBM have already come to market with such offerings. TCS, Wipro and HP are expected to follow suit in 2007 and this trend is expected to gain further momentum through the year. The market spending on SI services in India for 2007 is expected to be around US$ 872 million growing at 19% and contributing to 21% of the total IT Services market. This change in delivery model will not have a huge impact on spending, but will definitely improve vendor earnings and client confidence.
6. Internal security concerns will drive the enterprise security solutions market in 2007. IT managers have long realized that enterprisewide security is not a one-time, single-point activity; rather it needs to be continually evolved by pro-actively visualizing and nullifying future threats and intimidations. It also has to be integrated and made holistic while moving ahead with the business plans and goals of an enterprise. With the changing nature of threats being faced, organizations need to lay equally strong emphasis on all the three critical elements of business, i.e., People, Process and Technology to achieve the state of a truly resilient enterprise. 2007 will witness enterprises defining their internal processes in detail and putting in place policies to safeguard the core business operation. The Identity and Access Management (IAM) market will continue to grow at 31% in 2007. Security vendors will focus on pro-active security with strong focus on manageability and an integrated view of the whole security environment. Process automation, workflow and information management vendors will strengthen their security offerings, while closely integrating them with the internal processes of an organization. New vendors will enter the markets with security offerings specific to application vendors.
7. Despite huge investments slated for telecom network infrastructure, 2007 will be a year of buildouts rather than rollouts for 3G and WiMAX services. India is expected to add around 85 million new mobile subscribers in 2007, beating China for the first time. This sharp growth in subscriber additions would call for a huge network expansion drive, which is expected to result in investments of the order of US$ 10 billion or more. Around US$ 8.5 billion of this would be investments flowing into mobile service networks alone. Broadband, IP VPN and others would account for another US$ 2 billion of investments.
There will be a big marketing buzz around 3G and WiMAX, as each lobby works hard to prove its superiority over the other. Initially, 3G operators are expected to position 3G mobile telephony as a premium service to boost their ARPUs (average revenue per subscriber) and focus on its adoption in urban areas. In 2007, operators will test 3G and WiMAX services on a much wider scale, but may have to delay their commercial rollouts until early 2008, when the spectrum-availability issues are ironed out.
8. IT retailing to gain momentum, but 2007 will be remembered more as an year of experimentation. IT retailing will undergo extensive experimentation in 2007. Organized format retailing, which accounted for around 23%* of desktop market shipments in India during the April-June 2006 quarter (*Source: IDC’s India Quarterly IT Hardware Retail Program 2006, 2Q 2006, August 2006 release) is expected too witness experimentation with and evolution of a whole new set of go-to-market routes in 2007. Vendor and channel partner efforts will focus on converting casual, walk-in SOHO/home individual customers into impromptu buyers. Experimentations will be seen in retail formats, in-store and on-site promotions, product bundling, and alternative payment options. This will require efforts on the part of vendors for backward and forward integration with other vendors, retailers and service providers within or outside the organization. Vendors will try to offer compatible digital products to familiarize and engage SOHO/home customers on a long-term basis. Such experiments are likely to throw up a huge variety of entertainment, lifestyle and convenience products for personal and home use in 2007. While not all of these experiments are expected to be successful, these promotions would define the road map for the future of IT retailing in India.
9. Emerging Asia approaches BRIC-like performance. While Asia is home to India and China, two of the dynamic BRIC economies, the region contains a number of other countries with potential to outpace the BRIC economies in the coming years. These Emerging Asian Countries (EACs) include Pakistan, Sri Lanka, Bangladesh, Thailand, Malaysia, Vietnam, Indonesia, and the Philippines. The GDP of this massive region that contains almost 800 million people is expected to reach US$ 912 billion in full-year 2006. Within these EACs, overall GDP growth is expected to flatten through 2010 to a rate of around 5.4%. Stellar markets, however, exist among the rapidly growing EACs – Pakistan, Sri Lanka, Bangladesh, and Vietnam, are together expected to clock a GDP rate well above 5.4% in full-year 2006. IT spending will expand dramatically, with a market wide compound annual growth rate (CAGR) of 12.5% over the same period, or 80% growth over the market size in 2005. In addition, the higher growth in Pakistan, Sri Lanka, Bangladesh, and Vietnam are expected to account for a combined 16.1% of the US$ 15.6-billion IT market in 2007.
10. Worldwide IT spending will be marginally higher in 2007, driving vendor risk taking. Worldwide IT spending will grow 6.6% in 2007, up from 6.3% in 2006. Below this top line, IDC predictions for spending in the three major product/service categories are: a) Software will lead growth again, with 8% spending growth in 2007, b) Services will remain stable, with 6% growth, c) Hardware will bounce back in 2007, where IDC predicts 6.5% growth, up from about 6% growth in 2006.
The bottom line – worldwide IT markets continue to be in a long-term period of almost boringly moderate IT market growth. But this does not mean that 2007 will be a boring, "mature" year within the IT market. On the contrary, IDC predicts that this cap on total market growth is, once again, setting the stage for vendors' relentless hunt for growth pockets and accelerating their adoption of new disruptive business models.
– ENDS –
About IDC
IDC is the premier global provider of market intelligence, advisory services, and events for the information technology, telecommunications, and consumer technology markets. IDC helps IT professionals, business executives, and the investment community makes fact-based decisions on technology purchases and business strategy. Over 850 IDC analysts in 50 countries provide global, regional, and local expertise on technology and industry opportunities and trends. For more than 42 years, IDC has provided strategic insights to help our clients achieve their key business objectives. IDC is a subsidiary of IDG, the world's leading technology media, research, and events company. You can learn more about IDC by visiting www.idc.com.
About IDC India
IDC (India) Limited, an ISO 9001:2000 company, is the country's most comprehensive, dependable and respected source for market intelligence and consulting in the fields of IT, telecommunications and consumer technology. With its head office at Gurgaon (near New Delhi), the company has branches at Bangalore, Chennai, and Mumbai. Additional information about IDC India's research, advisory and Go-To-Market service offerings can be found at www.idcindia.com.
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