What are the changes the software scene has witnessed in the last couple of years
The biggest thing that has changed over the last five years is the buying pattern of customers. Since the markets crashed, there has been a reluctance to buy more licences. Customers are demanding more proof of concepts and a quick return on investments. This, I think, has been tough for application vendors, especially, if its a long deployment cycle and requires a lot of re-engineering.
HP has been focusing on infrastructure software and its manageability, which is more of a necessity rather than a luxury. In terms of purchases, the bigger deals are a lot more difficult as there is more competitive pressure. Competitors are dropping their prices, and moreover customers are not buying the whole package at one-go. They are buying in bits and pieces. And this, I think, is one of the major changes in the industry.
What are the trends that have stemmed from this change
The main trend is of customers demanding smaller implementation schedules. Implement it for 60 days, see the status and then implement it for another 60 days. Then see where you are versus the trend in the market. When the market was booming, customers would do enterprise-wide licences that would span for five years. Now its only return on investments trying to do more with less.
How has HP adapted to this
The good news is that we did not have a software that could be labelled a luxury. Ours was never a discretionary purchase. Complicated systems have to have manageability in them. Besides, customers want modular solutions they want to buy a little at a time and we had already built our products in that sense. So you can buy as little or as much as you want. So we did not really have to adapt that much. So in the boom time, we were really the boring people that focussed on returns on investments and the things not in vogue. Now that period has passed and we already have those things. So we have not really adapted.
Luckily, the market has been favouring us. Mainly because we are a very large company. The market favours large companies. The software industry hasnt consolidated yet and the customers are very wary of small software companies right now as many of the start-ups will not survive.
If it all boils down to services, then where does HP stand
Oh yes, it is all about services. HP, as a company, before the merger with Compaq, was really keen on offering more services. So not only do we do installation services, we are moving up to more business process consulting and more higher-level services. We had engaged in talks with PricewaterhouseCoopers that fell through. We were No. 7 in the services market and since the merger with Compaq, we are No. 3 three and have added a lot of capability, largely because of Compaqs prior merger with Digital. Our emphasis on services is not new.
So what else has Compaq brought to the table
Just as the market in software favours big vendors, likewise in the hardware services market. So I definitely noticed the strength and depth of our partnerships in what we were doing. So this is certainly an edge from the customers perspective. In terms of strategy, our strategy can be implemented much quicker by merging. We decided that competing together was easier than competing against each other.
In terms of software, Compaq had built an incredible amount of software that managed the telecommunications network. So in the telco side, companies like Reliance have disparate telecommunications networks from Lucent and Nortel. This has to be managed, and products from Compaq let you do that. HP was doing management, but was more into data network with the Cisco routers.
How would HP rate the bigger players in India like Infosys and Wipro in light of the various changes
We are really impressed with the quality of partnerships that we have in India. Just like you have branding in terms of made in Japan, there can be services from India. So I think its a great thing for India. In terms of management software, the more contracts the integration companies have, the more management software will sell. So we are really excited about them expanding into these areas. Being No. 3 in services, we rely on a whole network of partners whether they are Infosys, Wipro, Digital Globalsoft or our own consulting arm. So we cannot grow further without partnerships
How does India fit into HPs vision for the software world Will the company set up another development centre
India is an important part of the software world. Initially, we looked at India as a way to get some of our engineering done less expensively. Today, we have significantly increased the size of our laboratory work here. India has moved up from doing maintenance work to conceiving new products that we will be offering the marketplace this year. Around 30 per cent of our research and development (R&D) work in storage is done in India. We hope to see this going up substantially in the next five years.
In addition, we are also using our engineering centre as a software showcase centre for the rest of Asia. We are setting up this Advanced Technology Centre where we are currently installing state-of-the-art manageability tools and are looking forward to launching this from our Bangalore facility. It will be our gateway to Asia. Our customers from Asia-Pacific can test their software and applications live before installing them in their environments. This will be rolled out in a couple of months.
We considered setting up a development centre in India. However, today we have a nice critical mass in Bangalore and at this point, we want to keep the critical mass together and not distribute it. We also decided to have another engineering lab in China. So while we are not considering India for new plans, if it makes sense, we will.
Do you see the revenues of India contributing significantly to the revenues of Asia-Pacific
India and China have been posting significant growth rates. India is significant in terms of revenue, as well as strategic for us because of its growth rates. So we are increasing our presence, increasing the number of people we have had since the merger, and increasing the R&D investment. The potential here is huge and the revenues are important to us.
You touched upon M&A activity and some of them falling by the wayside. How does that lead into India
We do mergers and acquisitions (M&A) when it fits into the strategy naturally to augment into the field that we do not have. All I will say is that there is a number of Indian software companies with Silicon Valley connections that we are aware of that may or may not have unique intellectual proposition (UIP). So we do not really have a strategy governing acquisitions. If its India technology that makes sense to the portfolio, then its something that we may consider. The only time we look at geographic M&A is when we need to get market presence in terms of distribution channels or in terms of services. Our CEO seems to be considering two areas one is managed services and the other is software. Other than that we cannot go more granular.
How does HP view the Indian market in terms of deployment
I find the consumer side very lucrative in terms of printer scanners. I see these possibilities increasing very rapidly. In terms of IT, I think telecom deregulation has really helped. We definitely see it as an emerging market. And its important in terms of being amongst the top four revenue-generating countries. I will say that at the rate at which India has transformed over the last five years with the telecommunications companies and the speed at which these companies are reacting, we might see India growing even faster.
The pace here is quicker with deregulation and the number of users of cellphone rivals that of most countries. If you look at the subscribers per month and how the numbers are changing, its just phenomenal and with the right conditions, growth will spurt even further.