Executive Summary: Cloud Computing Landscape in India

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India IT & Cloud Market Landscape: Snapshot

Software Market in India, FY2010-FY2015E
The Indian Cloud Computing & Cloud Services Market holds a potential of USD 1 Billion by 2012

1
Key Players in SaaS Market India

On-Premise, USD billion

SaaS, USD million

5.7 2.7
FY2010

3.5

Citrix Google Microsoft Netsuite Oracle Ramco Rightnow Salesforce.com TCS Webex Zoho

FY2013E

FY2015E

FY2010

FY2013E

FY2015E

Hardware Market in India, FY2010-FY2015E Hardware* Sales, USD billion

14 13.0 11.2 9.0

Key Players in PaaS/ IaaS Market India IaaS, USD million

PaaS, USD million

12
10 8 6 4 2 0
FY2010

FY2013E

FY2015E

FY2010

FY2013E

FY2015E

FY2010

FY2013E

FY2015E

Amazon Web Services Cynapse Google App Engine Force.com IBM Netmagic Solutions Orangescape Rackspace Reliance Data Center VMWare Windows Azure Wolf Frameworks Zenith Infotech

Note: *Hardware Includes Desktops, Notebooks, Printers, Servers, Storage & Security, Networking Equipments & Other Peripherals Source: NASSCOM Strategic Review, 2009-10 & 2010-11; IDC, Zinnov Analysis

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SaaS: Landscape Snapshot

The domestic market for SaaS is estimated to be about USD 50 million and is currently dominated by Collaborative Applications and CRM workloads
Workload-wise Distribution of SaaS Market in India, 2009
Total Market: USD 50 - 56 million

Indian SaaS Market: Customer & User Segmentation, 2009 100% 80% 60% 40% 77% Customers

69%

Users

20%
1% 2% 0% Micro Share of Competitors in the Indian SaaS market, 2009 SMB

18% 19% 4% CMM

11%

Enterprise

Drivers & Constraints to SaaS Adoption in Indian Market

XXX 30% XXX 2% XXX 5%

XXX 29% XXX 5% XXX 2% XXX 16%

XXX 4%

XXX 4% Information masked for confidentiality reasons.

XXX 3%

Data Security Concerns Reliability Issue Lack of Customization Resistance to Change Lack of Brand recognition for new players Lack of market reach Lack of training & tech support Broadband Penetration

Improving IT & Communication Infrastructure Increasing need for cost optimization Pricing & Support Innovation Development of Support Ecosystem Increasingly leveraging reseller channel

Please contact Zinnov for more information

Note: Confidence Level for Market Size is 85 90 percent, * Collab. Applications Collaborative Applications include web conferencing, productivity suites etc. Source: Zinnov analysis

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India contributes only a small fraction of global revenues for Google, but offers one of the fastest growing markets
Google India Google HQ Headcount Google India is the largest outside of the US headquarters for Google (10.1%) Hiring standards in India are same as that of the US and engineers in Bangalore have the freedom to move 2000 19,835
to other Google R&D centers worldwide Google engineers can rise to the level of a vice president based on technical accomplishments without even owning a management degree

Google India Revenues contact Zinnov for complete report Google India makes approx. USD XX million, less than 1% of the global revenues . But the revenues have been tripled over the last 2 years Majority of Google India revenues come from online advertising, whose market in India is about INR 1,250 Crore (5% of the total ad-spend in India) and 80% of that market is drawn by Google The country is a top priority market at the board level, no significant revenue impact but the India business is regularly reviewed by the board 4/5 top leading web properties in India are controlled by Google (Orkut, Google search page, YouTube and Gmail) The 5th seat is captured by Rediff in India Average Indian users spend about 30% of their online time on Google sites 3 times the world average Category Search Social Networking Maps Photos Blogs Multimedia Email Google Products Google Sites Orkut Google Maps Picasa Network Blogger YouTube Gmail Google India Share of Time Spent 88.4% 68.2% 63.9% 16.2% 47.6% 82.8% 46.8%

For other case studies and insights, please

Google SMB Focus

Product
Lead product for Google in the SB segment is Google ad words. Not focusing on pushing apps and believe that driven ad words adoption is the key to long term success

Marketing
Google marketing the offering by providing Rs.2500/- worth of free ad words vouchers for SB customers. Being distributed through multiple marketing channels like HSBC Bank, DELL, Airtel, TradeIndia. Exploring marketing partnerships with Tally, Utilities services providers and India Post. They have also looked to leverage DHL as a possible partner.

Sales
Currently just one product marketing manager supported by a 50 Member tele-sales team from partner site. Tele-sales team does account training, activation and proactive support. Reactive support is driven by Google Hyderabad office Google has been trying to leverage the VAP channel to bundle ad words and sell the same to their customers along with websites they develop. Channel partners are given 5% commission for this.

Payment options
Google currently provides INR billing with internet banking, credit card and cheque payments

Source: Zinnov Interviews

Zinnov Confidential

Over the years Google India has driven several localized initiatives targeted specifically for the Indian user

Entertainment

Through YouTube, Google has also ventured into the entertainment business. The IPL on YouTube was a key moment. Not only was it a global board level decision, but also elevated the level of dialogue. It went to 200 countries and is already the most viewed live event Google has done The premium sponsors for the live online streaming of IPL matches are Royal Challengers, HSBC Bank and Hewlett-Packard. Airtel, Coca-Cola and Samsung are also participating. Google has also struck up lucrative deals with UTV, Rajshri Productions etc. for the YouTube

Key India Investments

Google is planning to launch a mini version of the Nexus One phone in India that may not have all the features but it would certainly be less-expensive than the US model

Local Language Opportunity

Google Indias R&D chief, Prasad Ram, claims that no more than 7% Indians are proficient in English. Google looks at the Indian language market as a huge opportunity and offers search in 9 local languages

New Growth Verticals

Google Indias biggest revenue contributor have been in search advertising in verticals like airlines, travel and banks. However, education and auto has started to show signs of growth for Google. Google expects to grow in verticals such as FMCG, education and Government in 2010

SMB Focus

Internet penetration is increasing in small and medium enterprises that do not advertise in general. However, the internet is a natural cost-effective way of connecting and partnering with these SMEs in small towns Partnered with firms such as TradeIndia.com to offer Rs. 2,500 worth Google Ad campaign free for subscribers Zinnov Confidential

Source: Zinnov Interviews with Google Ex-Employees, Partners, Industry Analysts

Zoho has been focusing on providing free subscriptions with a limited number of users, to reach a critical mass of user base
Solution India SaaS Revenues Market Share

Zoho

Product : Zoho CRM, Zoho Meeting, Zoho Project Management, Zoho Business Suite (email and office CRM USD XX Mn XX% suites) Business Suite USD X Mn For other case studies and insights, please contact Zinnov for complete report Customer & User Base Distribution

Sales Strategy :
Zoho offers free versions of its applications to induce usage Zoho has also run innovative advertising campaigns using auto rickshaws as mobile billboards, having Zoho posters on them, showcasing the different features available

Channel Partners :
4 active channel partners; Pegasys, Bennett, KVP Business Solutions and SNR Technologies

Channel Partner Sales Strategy :

Current focus on Zoho CRM Incentives : Revenue Share/ margin
Price Points: CRM (Rs/User/Month) Business Suite (Rs/User/Month) Min: xxx Max: xxx

Min: xxx
xxx XX (XX) XX (XX) Web Marketing Channel Partners
Weak

Max: xxx

Technical Support & Training :

Cost of support is included in the pricing Training costs are additional; negotiated on a case to case basis

SaaS Product Sales Team : Indian Customers (Users) CRM: Indian Customers (Users) Business Suite :

Direct

SEO

Zoho has not yet been able to capture a paid userbase in a large quantum

Delivery Platforms
Strong

Datacenter : Own Payment Modes

Online

Source: Primary interviews with stakeholders; company website, Zinnov analysis

Zinnov Confidential

Market: Vertical focus for Cloud Opportunity

Telecom, IT-BPO and Retail have the highest spending on IT as a percentage of revenues, however
IT Spend as percentage of Revenue Across Verticals
IT Purchasing budgets in 2010 vis--vis 2009

Telecom IT-BPO Retail Transport/ Logistics Healthcare/ Pharma BFSI Automotive Manufacturing Energy 0%
0.9% 0.9% 0.6% 0.7% 0.6% 0.6% 0.8% 0.6% 0.4% 0.4% 1.7% 1.5% 1.4% 1.3% 1.2% 1.3%

2.2% 2.0% 20% to 40%

38%

40% and above

15% 5% 10%

Spend Substantially less

Spend nearly the same

32%

Spend slightly less

Survey of 120 CIOs/ IT heads

FY 2010 FY 2009

1%

2%

3%

Zinnov Confidential

Market: Vertical focus for Cloud Opportunity

Government, Telecom and BFSI are highly mature with their IT adoption and show higher potential towards cloud adoption going forward
IT Maturity of various verticals in India FY2009 Potential for Adoption of Emerging Technologies

Cloud/ SOA/ Virtualization

Telecom: New pricing changes, number portability, per second billing, new entrants and expansion of circle by existing players Government: Estimated spend of $ 9 billion on Government to consumer (G2C) projects (state/ central level) including hardware infrastructure and public services (Department of posts, railways etc.) Banking: Implementing and maintaining core banking solutions (esp. by public sector banks, mobile/ net banking, reduce transaction cost, compliance Insurance: Claims management, policy administration, underwriting and sales/ CRM, premium payments/ renewals Retail: Supply chain automation/ management, warehouse management, inventory audit/ loss prevention, online retailing, BI and networking Healthcare/ Pharma: Servers and Data center for hospital upgrades, HIS, Electronic records, image archiving, data storage/ mining, telemedicine, remote diagnostics, etc

Based on the IT Maturity, Vertical-wise IT spend and Adoption Potential Government, Telecom, BFSI and Manufacturing emerge as the top verticals for further analysis
Note: Public Sector Enterprises are spread across verticals other than Government Source: NASSCOM Strategic Review 2010, Zinnov Analysis

Zinnov Confidential

India Landscape

Macro trends suggest a significant increase in overall IT adoption is impending in India (1/2)

PC and Mobile Penetration in India, Millions 1,000 800 600 400 200 0 2009 2015E 400 Internet and 3G Subscribers in India, Millions 400 300 200 100 0 Active Internet Users* Broadband Subscribers** 58.1 8.0 66.4 1.5 0 3G Subscribers 2001 2003 2005 2007 2009 2010 2009 2015E
Mobile (US)

PC install base Mobile subscribers

520.6

826.9

Million Subscribers

Absence of legacy systems will allow market to jump technology curve and results in first mover advantage

600 ~15 million mobile subscribers

42.1

100.1

500

added per month in India, 8 million new mobile shipments per month ~25% of all phones sold in India are smart phones

App store Access to 3G Low cost smart phones

Mobile (India)

MVAS related revenues to account for 20% of operator revenue, a 2 fold increase since 300 2006 in India

Wireline (India)

292.3

200
Wireline (US)

129.5

100

Note: *Includes all devices; **Bandwidth of 256+ Kbps, includes Broadband Wireless Access; ***Micro, Small, and Medium Enterprises Source: Telecom Regulatory Authority of India (TRAI); Union Budget FY2010-11Transcript; IDC; FICCI BDA Report 3G and BWA; Gartner; Data monitor; NASSCOM Strategic Review, 200910 & 2010-11; Zinnov Analysis

Zinnov Confidential

India Landscape

India witnessed a surge of almost 40 percent in its mobile internet traffic from Q4 2009 to Q1 2010, leading to the highest mobile internet traffic in Asia
Active Mobile Internet Users
Mobile Subscriber Base

Ad Requests** by Country, 1Q 2010, In millions

In March 2010, Asia contributed to 25% of the total mobile internet traffic globally 1,872 The top 3 countries, India, Indonesia and Australia generated over 74% of traffic in the region in Q1 2010

3000 2500

2,838

471 Million*

2000 1500 1000

655

650
404 298 185 161 133
Thailand

Mobile Phones Capable of Accessing Internet 27% of Total = 127 Million

500 0
India

Indonesia Australia Philippines Vietnam Singapore Hong Kong Malaysia

Operating System Share of Smartphones in India

Used Mobile Internet in Last one Year ~ 12 Million

Wireless data subscribers in India increased from 101 million in QE Dec 2008 to 149 million in QE Dec 2009

100%
80% 60% 40% 20% 91% 89% 91% 93%

Surged by the total number of additions in mobile subscribers in India over the quarter the mobile internet traffic is soaring

Active Users = ~2 million

0% Dec-09 Symbian OS Jan-10 iPhone OS Feb-10 Windows Mobile OS Mar-10 Other

In March 2010, smartphone traffic share of mobile internet traffic in India was 26%

Note: *As of Sep 09; **AdMob serves ads for more than 18,000 mobile Web sites and applications around the world and provides metrics based on this data Source: AdMob, TRAI, I-cube

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India Landscape

In order to leverage on the huge telecom subscriber base and to compensate for the low rates of basic call tariffs, telecom players in India are increasing focused on the applications space
Telecom Service Providers App Stores
Bharti Airtel launched their own app store, Airtel App Central earlier this year Airtel App Central provides 1250 applications across 25 different categories including games, business, social networking etc as well as India-specific religious applications The cost of the applications is either added to the subscribers bill or deducted from the available talk-time, with the applications costs starting as low as INR 5

10

Indian App Companies

Sourcebits is one of the most successful Indian companies in the space, having developed over a 100 applications for the iPhone, iPad, Android, Blackberry etc and nets USD 3 million* per annum iRemedi is also a major player in the market having sold more than 200 Amar Chitra Katha comics for the iPhone and the iPad Robosoft Technologies, a software company, sells its game apps as well as utility & productivity apps for iPhone, Android and Nokia phones. The company which sells apps under the brand name Global Delight hopes to make USD 9 million from the apps alone. Rocke Talk a free app that allows users to create their own voice, photo, video content and share it, has a subscriber base of 1.5 million users Rapidsoft, Spiel Studio, Interchain solutions and Nexmoo are some of the other Indian companies

Reliance Communications has a total subscriber base of 100 million across its GSM & CDMA networks It has entered into a deal with GetJar to provide access of 65,000+ free applications to all its 100 million subscribers via its VAS platform R-World GetJar offers applications that work with almost all handsets and OS including Symbian, Blackberry, Windows Mobile, Java & Android

Vodafone has launched its application store for Indian customers with 800 applications available currently, of which 25 percent are free The paid applications have been reasonably priced between INR 5 and INR 30

There are an estimated 50 Indian companies employing 1000 developers engaged in applications development across platforms

Note: *Assuming 1 USD = 50 INR Source: Company Websites and News releases, Zinnov Analysis

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Drivers for Adoption of Cloud Services

Flexibility in terms of on-Demand scale up/ down with no upfront capital investment makes the cloud offering highly attractive for the enterprises
Drivers for Cloud Solutions in India

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This will help to meet customer expectation very effectively Sukanta K Nayak, AVP, IT, Usha International

Easy Exit for customers in case of failures Vikas Prabhu, CIO, The MobileStore

Top 5 CIOs Investment Priorities for 2009-10*

90%
69% 68% 64% 45%

Softwareas-aService (SaaS)

Business Intelligence and Datawarehousing

Unified Communications

Virtualisation

Open Source

It has potential. As the capex dollars are diminished, IT management is going to look for on-demand models for keeping the costs down

Its an innovative business technology with significant benefits coming from the absence of the client/server software installation or maintenance

Prashant Cherukuri, CIO, Aditya Birla Minacs

N. Varadarajan, GM, IT, Madras Cement

Source: *IDC Indias Identifying Opportunities in the Current Economic Scenario report (March 2009), dqindia.ciol.com, BizTech2.com, expresscomputers.com, networkcomputing.com, Zinnov Analysis

Zinnov Confidential

Constraints to Adoption of Cloud Services

Data Security and Lack of customization are reported as the biggest challenge in the adoption of Cloud computing in India
"Security is the biggest concern. Barring core applications, other productivity applications such as CRM and email can take advantage of this technology, Ajay M Patil, the vice president of IT at Bharti AXALife

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We faced challenges in terms of training the users to the new technology Venkat Iyer, director, business technology, Pfizer India

Top 4 Challenges with Cloud Computing*

Challenges Reported by CIOs with Cloud Computing

Compliance & Governance Concerns on Data Security Apprehensions on SLAs and Reliability Lack of Customization Risk of Vendor Lock in

Need for Internal Training

25%
Costlier in longer run

20%

18%

14%

Poor Connectivity
Existing Legacy Systems

Data Performance Data Transfer Data Lock-in confidentiality Unpredictability Bottlenecks and auditability

For large organizations, the Value for Price model is yet to emerge Upal Chakraborty, CIO, DLF

CIOs need to keep in mind levels of complexities of his business processes as well as customization required, since the SaaS model may not permit too much customization N. Varadarajan, GM, IT, Madras Cements

Security, uptime and SLA will be the important aspects of the deliverables J Ramesh, CIO, MIRC Electronics

Source: *Saltmarch survey of 1100 Indian Business Technology professionals 2009, dqindia.ciol.com , BizTech2.com, expresscomputers.com, networkcomputing.com, Zinnov Analysis

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