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Consolidation among vendors and customer exposure to open source options are disrupting Asia's programming industry
Open source, software-as-a-service and consolidation are just some of the main disruptions rippling across the Asia-Pacific software industry, according to research house IDC.
Daphne Chung, research manager for infrastructure and middleware software at IDC Asia-Pacific, noted that as much as 83 percent of the US$15 billion Asia-Pacific enterprise software market is now exposed to open-source software. This includes areas such as enterprise resource management applications, customer relationship management and operating systems.
Chung said companies across various industries were adopting open source for similar reasons, such as security and cost. "They think open source has better security," she said. "It doesn't mean the products are [the] most secure and do not have any loopholes, it just means customers think open source products are less prone to hackers," Chung added.
The IDC analyst also noted that open source software also helps companies address budget constraints.
"Budget constraints don't necessarily mean a dollar value," Chung explained. "Initially, a lot of people thought open source is free, but that notion has gone away. But, it is still a low-cost way to test something in a new environment or a new technology."
"It gives them the belief that they are getting better value for money," she said, adding that the open source community also gives companies a better and broader range of development tools.
Enterprises also find that open source software has adequate functionalities that suit their needs, without the unnecessary bells and whistles, she noted.
Software-as-a-service (SaaS) is also changing the software landscape, Chung said, noting that the term has been hotting up among IDC's clients over the past year.
"SaaS is a delivery model that software vendors have taken from eBay and Amazon, delivering software on-demand, in a hosted manner," she said. The analyst added that most enterprises have noted an increased impact of SaaS on software licensing. In fact, they are likely to consider moving to a SaaS structure, or have already adopted some form of on-demand software, Chung added.
About 24 percent of the Asia-Pacific software industry is open to SaaS penetration, she said, and cautioned that traditional software vendors may face threats to their installed base if they ignore customer demands for a SaaS delivery model.
"It's not just about having the [SaaS] technology, it's about having the right delivery system that customers want," she noted.
M&A ACTIVITIES DOUBLEConsolidation efforts among software vendors have also been on the rise in the past few years, particularly in 2005, Chung said. The total value of mergers and acquisitions (M&A) deals involving enterprise application developers doubled in 2006, compared to the previous year.
She said software vendors often undertake M&As to fill product gaps or to enter converged industry segments, such as systems infrastructure, storage and security. "We see the market converging into two areas--infrastructure and information--where companies derive intelligence from their data," Chung noted.
M&A deals are not always smooth sailing, however. According to the IDC analyst, consolidation efforts can fail for a variety of reasons, such as uncertainties in product roadmaps or a poorly-conceived acquisition strategy. "But as vendors do it more often, they get better at it," she said.
A successful consolidation, Chung said, can allow the smaller company in the acquisition to expand its footprint into new markets and geographies. "It also gives the two companies cross-sell and up-sell opportunities," she added.