In India and China, upstarts aim to erode Microsoft's dominance by delivering business productivity software that's cheaper and more accessible
Prithwis Mukerjee, a professor of management at the Indian Institute of Technology, Kharagpur in eastern India, needed a convenient and low-cost way for his students to create spreadsheets. But rather than turn to Microsoft (MSFT), the granddaddy of spreadsheet software, he opted for a lesser-known maker of free, Web-based software that gives his students more flexibility than Microsoft's Excel. "Many people don't have Excel, and that becomes a big challenge," Mukerjee says.
Aiming to meet that challenge are two California-based upstarts. One is Google (GOOG), owner of the most popular Web search engine, and the other is Zoho, the maker of online business productivity tools that won over Mukerjee as a customer. Microsoft dominates the market for productivity tools in the U.S. as well as developing markets, but Google and Zoho hope to narrow the lead by emphasizing the lower price and broader accessibility of their products. "There's more of an open field that is there for the taking," says IDC analyst Frank Gens, adding, "They don't have to kick out Microsoft."
The market for productivity software in Asian countries, though smaller than in the U.S., is growing more than twice as fast. In 2008, sales of productivity software totaled $1.2 billion in the region, according to technology researcher Gartner (IT), a 13.2% increase from the previous year. In North America, office software grew 6%, to $6.7 billion in the same period. In both parts of the world, Microsoft commands about 95% of the market, and the share hasn't budged in either place for the past three years.
First-Time Users Embrace the Cloud
A key selling point for both challengers is price, especially with budget-conscious small businesses and schools such as IIT Kharagpur. But the entrants also hope customers embrace a new type of software model, where files are created, edited, and shared online, in what's known as the "cloud," rather than via programs downloaded to a PC. Some businesses are growing more comfortable with cloud applications, yet concerns about data privacy and service outages like the one suffered by users of Google's Gmail on Sept. 1 keep many users sticking to pricier, more familiar desktop software.
Because many new computer users in India lack familiarity with Microsoft's Office and other desktop software, they're generally more open to the idea of cloud computing, says Zoho Chief Executive Sridhar Vembu. "There's a whole set of new companies that have no apprehensions" about Web-based software, Vembu says. "We are now starting to see this as a major market opportunity."
Since opening an office in Vembu's former hometown of Chennai, in 1996, Zoho has attracted about 400,000 users, or 20% of its base, in India and China. It now employs more than 300 workers in the office. In China, Zoho distributes its wares in partnership with local company Baihu. With demand for PCs, mobile phones, and broadband Internet growing more quickly in these markets than in the West, Vembu predicts that a decade from now the majority of Zoho's revenues will come from customers in China and India.
By 2013, the number of Internet-connected PCs in India will grow to 73.5 million, up from 32.9 million this year, IDC estimates. Residents can also access Zoho and other online apps through Web-enabled mobile phones.
Expanding 3G Increases Mobile Use
Mobile versions of Zoho software are particularly popular with consumers in India, where mobile-phone sales are far outpacing PC sales. Applications for the mobile Web, as well as customized versions for Apple's (AAPL) iPhone and other smartphones, let students do schoolwork at homes or other locales where a PC may not be available.
Businesses use the software to equip salespeople in the field. In 2008, Mumbai-based data hosting company NetMagic Solutions signed up to use Zoho's customer relationship management (CRM) software to help sales teams in different offices share information about customer leads. At first, a lack of connectivity in many parts of India was a problem. "There were complaints from the salespeople saying that they were unable to connect to Zoho" while traveling, says Jayabalan Subramanian, the company's chief technology officer. Now that several companies are rolling out more 3G wireless broadband network throughout India, NetMagic says that has become less of a concern.
Google is also pushing its online productivity software, called Apps, in India. "The strategy is similar to what we're doing in the U.S.," says Rajeth Sheth, senior product manager of Google Apps. "We're leveraging our Web properties to get people to sign up online and quickly get started." The company's share of the market for productivity software—still a sliver compared with Microsoft's—is slightly greater in Asia-Pacific countries, where it has 0.05%, or $600,000 in annual revenue, than it is in North America, where it has 0.03%, or $2.1 million annually, according to Gartner.
Microsoft Plans Web-Based Applications
Google, which like Zoho charges individuals and companies to use some features of its Web software, counts major Indian business such as legal outsourcing firm Mindcrest, telecom Bharti Airtel (BRTI), and Internet service provider Sify (SIFY) among its clients. Google has also signed up more than 100 universities in India, and recently translated its Gmail service into Hindi.
The desire for Web-delivered software isn't lost on Microsoft. When it launches Office 2010, the company will introduce a slate of Web-based productivity applications. Microsoft also makes a version of its Office software available for smartphones.
But in emerging markets, Microsoft faces an even bigger threat from purveyors of pirated software, says John Cairns, general manager of emerging markets for Microsoft Office. He says the company's strategy in India and China is to make software more affordable to compete with the fakes. Last year, for example, Microsoft dropped the price of certain versions of Office by 40%. "The real competition is piracy," Cairns says.