China 2Q08 Enterprise Application
Software Revenues Grow 19.6%, But Vendors Still Challenged On Growth
China's 2Q 2008 enterprise
application software reached 2.25 billion Yuan, up 19.6% YOY. The 2008
Beijing Olympics helped drive larger-scale telecom and government purchases
and software deployment, while some purchases were made in advance of 2Q.
Small and medium enterprise (SME) demand for SaaS grew rapidly, while FM
(financial management) and CRM categories grew the fastest, although not as
fast as vendors hoped. Larger enterprise demand has remained steady, so
vendors continue to look towards the next growth point, SaaS.
IT services are critical to high-end,
Software license revenues share continues
to decline relative to increasing IT services revenue share, which include
consulting, integration and maintenance. Vendors are recouping earlier
service giveaways, but more importantly, customers are realizing the
importance and value of IT services. Large and globally focused enterprises
are demanding customized service, systems transformation, and upgrade
offerings to enable their competitive advantage.
From a vendor perspective, software
vendors are critical, but so are their services partners. Competition is
also between various software and services alliances. For large, high-end
customers, multinational software vendors like
SAP still lead in China, and
are better able to manage their value chain of services vendors. For
example, SAP and its partners
and Accenture are
able to provide a life cycle of technical services and support.
On the other hand, China's domestic
vendors have some catching up to do. While
EAS have done
reasonably well, their consulting and implementation services capabilities
are still challenged when it comes to servicing high-end clients.
SaaS is the mode for SMEs.
At the start of 2007, China had 42 million
SMEs. SME software application needs differ dramatically from large
enterprises. China's SME IT application level is low, with most limited to
finance management and document processing. Few SMEs can realize ERP, CRM,
and collaboration. SME can only afford small initial IT and services
investment, so SaaS is more often applicable. Regardless, realizing China's
SME potential will take time and effort.
There are many SaaS players in China,
including SaaS CRM specialists such as
and 800App.com; Internet platform providers such as
Enterprise application software vendors
have also entered the fray, and they provide enterprise domain expertise
advantages, but they also lack experience in the SME domain. Success has
been mixed and they will have to put continued effort and resources.
done relatively well, having only launched a year ago and already developing
a base of SME clients. On the other hand, UFIDA's
wecoo.com was launched in
2000, which may have been too early in China, as user retention was limited. UFIDA has attempted to diversify with mobile commerce and PLM, but the PLM
portion has been put up for acquisition. The result thus far has been
increased operating costs and profit pressures.
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Unless otherwise specified,
all information provided is sourced from CCID Consulting.