Why ManageEngine is bullish about India's IT market

For Zoho Corporation's IT management division, the average revenue per customer in India is 2.5 times the corresponding figure in the US. But the nuances of India's software market matter.
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Zoho Corporation completed fiscal year (FY) 2021 with consolidated income of nearly $715 million (Rs 5,442.43 crore), growing 24 percent over the previous year.

The Chennai-headquartered company, co-founded by Sridhar Vembu, has more than 10,000 employees in India. But few know about ManageEngine, Zoho's other half that employs more than 4,000 of Zoho Corporation's employees in India.

While Zoho is renowned globally for its CRM (customer relationship management) software as well as financial and accounting software Zoho Books, ManageEngine is a 20-year-old IT management division of Zoho Corporation.

Globally, ManageEngine provides software tools for network and device management, and service desks to 280,000 small and medium sized businesses (SMBs). In FY21, its domestic revenue grew 63 percent year on year, and 213 percent since FY17. The surge made India the third-largest market for ManageEngine after the United States and the United Kingdom.

"We began to realise there is a shift in the consumption pattern in India only in the past five years, primarily because companies are maturing in terms of their digital adoption," says Rajesh Ganesan, President of ManageEngine.

India contributes to 10 percent of ManageEngine's revenue, and comprises over 2,500 paying customers, he adds.

Curiously, the average revenue per customer in India is 2.5 times the corresponding figure in the US. And this has a lot to do with the way SMB clients consume software in India.

ManageEngine has engagements with 20,000 customers in India on its platform. Of this, 12.5 percent have converted to become paying customers.

The top five industries that contribute to ManageEngine's domestic revenue are IT services and solutions, followed by banking and financial services, manufacturing and engineering, education, and healthcare and pharmaceuticals.

The US market is much larger in terms of paying customers, and most of the consumption is on the cloud. In this respect, the India experience has been different for ManageEngine.

"In the US, the users operate more on a self-serve mode, and the culture there is one of self-service. This is also true of the UK and Canada," Ganesan notes. In India, there is a services component on top of the software that customers buy. "We charge for services in India."

"Our biggest investment is in building the services team that will help customers in solving problems after implementing the software," he explains. "These people are placed close to the customers."

In effect, the revenue in India includes the price of the software, and services. This has been a difficult transition for global software companies like Intuit, which recently announced that it will discontinue its accounting software QuickBooks for Indian customers from January 31, 2023.

Green shoots for IT

The demand for IT management software and services has actually surged since the pandemic began, Ganesan says, citing a couple of factors.

First, there is a strong push from government and regulators, he says. "In banking and financial services, the Reserve Bank of India has mandated all companies to deploy technology tools. This is a great driving factor," Ganesan explains.

Second, access to technology has become easier. "There are no more barriers for businesses of any size, leading to a clear mindset to invest in software," he says. Given the nascency of demand, ManageEngine provides both on-premise and cloud software for the domestic market.

However, there is customer churn in the market primarily because IT decision-makers tend to move organisations. "Companies have had the budgets to retain their IT talent only in the past few years," he says. "Engineers from India first want to be developers. People actually work on fixing IT issues, but also look to jump organisations for growth."

Even as India has grown on the revenue front, ManageEngine and Zoho are looking to boost the supply side for a services-oriented market.

ManageEngine plans to hire around 1,000 employees this year for development, R&D, and customer-facing roles, says Shailesh Davey, Co-Founder and Vice President of Engineering of Zoho Corporation.

"Post pandemic, we are expanding on the remote-first employee mindset, particularly to bring in young talent," says Sridhar Vembu, Co-founder and CEO of Zoho. The company's philosophy is to unearth developers with the best IT talent from local communities using a hub-and-spoke model.

So, as Thanjavur, Coimbatore and Madurai evolve as hubs, the rural parts around each of those cities will produce the technology talent, Vembu says. Zoho is also identifying hubs in the northern parts of India.

In Zoho's experience in Japan and China as markets, English proficiency hasn't been a critical factor, Vembu notes. For the Indian market too, local languages will complement the IT proficiency of the talent unearthed by Zoho and ManageEngine, he adds.

For sure, boosting the IT talent supply will help Zoho Corporation expand its margins in the domestic market, even as its revenue has grown robustly in the past three years.

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