Wednesday, May 12, 2010

Hottest Microverticals: The Magnificent Seven

By M H Ahssan

As ad hoc tactics of a micro vertical seem to be working in more cases than not, Dataquest presents a list of the hottest micro verticals that IT vendors need to seriously start focusing on.

Between 2009-10 to 2016-17, Indias domestic air passengers number is going to swell from 105 mn to 321 mn. During the same time international air passengers number is expected to go up from 40 mn to 101 mn. Similar kind of growth is expected in cargo movement too, according to Airports Authority of India. Consequently, there has been a tremendous focus in development and modernization of airports. The 11th plan (2007-2012) itself estimated an investment of Rs 30,968 crore in development of airports, with as much as Rs 21,630 core coming from the private sector.

However, going by the recent experience of modernization of Delhi and Mumbai airports, the actual cost is significantly higher than what was estimated. In Delhi alone, DIAL, the GMR-promoted company that is modernizing the airport, has done significant upward revision to the final cost, taking it up by almost 42% to Rs 12,700 crore. Same has happened with Mumbai airport with final cost rising to Rs 9,802 crore from Rs 5,826 crore or 68%. With greenfield airports planned at Goa, Navi Mumbai, Pune, Greater Noida and Kanpur, and plans for thirty-five non-metro airports being modernized, the investment in this segment is going to be huge.

But unlike the earlier phase of infrastructure development, where it was all brick and mortar, the new infrastructure development is happening with keeping the customer experience in mind. And hence IT has become an integral part of the modernization. New airports are expected to spend anywhere between 2-3.5% of the total investment in installing/upgrading IT systems.

Not surprisingly, airports feature on top in our list of seven micro verticals to watch out for the IT industry.

So, what does that mean? Does it mean that these are the sectors that would spend the highest amount on IT? Does it mean that these segments would record the highest growth in IT spending?

Strictly, the answer is neither. And to some extent, the answer is a combination of both.

These seven micro verticals, our editors believe, are the areas where most IT vendors should focus their market development activities. So, they may not be the highly mature segments like PSU banks or existing telecom operators who are already the cash cows. At the same time, they are not so small that they will probably grow in the next six to seven years.

These are the segments that would increasingly spend significant amounts on IT in the next two to four years. All the three italics are important, we believe, for the IT vendors to develop specific market development strategies.

So, according to Dataquest, beyond business as usual, if there has to be significant marketing/market development activities by IT companies, then it should be in these micro verticals.

That, in short, is what these seven micro verticals stand for. But that too must come with a few qualifiers. This does not mean that the ease of market development in each of these are similar. This also does not mean that each of these segments, by themselves, would be very heterogeneous. Take cooperative banks, for example. Some of them have deployed core banking solutions much before many large PSU banks did. Some others do not even have basic branch computerization.

And one disclosure: one of the micro verticals is actually not, in the strict sense of the word: greenfield telecom operators. It is just a subset of a vertical, not a micro vertical. But we believe from market development perspective, the IT vendors would do better to treat it as a micro vertical.

Why & How We Did It
One of the most common complaints that we hear from the sales guys in many IT vendors is that a vertical is too heterogeneous to develop a selling strategy for it. And we discoveredquite accidentallythat most vendors who have done well in a segment have, in a tactical way, taken a micro vertical approach. In some cases, it is organization-wide. In some cases, some smart middle level sales managers have done that and succeeded. We formed that into a hypothesis and tested it by talking to both vendors and users. In more cases than not, the hypothesis was proved to be true.

That is when we decided that a micro vertical approach is a tactics that could be turned into a strategy. And that is when the idea of this story was born.

The next challenge was to identify the micro verticals. This is where we followed an informal process of just creating a shortlist of more than fifteen micro verticals which came from our panel discussions, informal discussions, as well as by following the general macroeconomic indicators and government policies. For example, if infrastructure is a thrust of the government, there has to be growth in that sector. But does rapid growth and higher spending automatically lead to higher IT investments? Not always.

That is when we decided to follow a formal filtering process. We identified four important parameters to judge the hottest micro verticals.

The growth potential of the segment: This was the most important parameter. The assumption here was most businesses today consider IT to be strategic and the growth of business and investment means growth of IT. We assigned the highest weightage to this parameter.

The importance of IT to business: While all businesses today consider IT as strategic, some of them are far more dependent on IT than others. Some may run without significant IT investment. For example, even in one of our identified micro verticalshospitalsIT is still not that strategic, as compared to say, telecom, which runs on IT. We assigned the second highest weightage to this parameter.

Size of the segment: This was more of a filter than a parameter. If there is a completely new segment with lots of IT deployment potential but is too small to make an impact, does it make sense to invest marketing time and effort on that at this time? Probably not. That was the reason behind introducing this filter.

Applicability of generic IT solutions: This was another parameter that we decided to introduce after much debate. Strictly speaking, we could have done without this. But since we wanted our story to appeal to a larger section of vendors, we wanted to exclude micro verticals with closed/dedicated solutions. The reason is not to undermine their importance but treat them separately as stories.

Introduction of this filter resulted in one immediate casualtyfilm productionthat is included in the table as the eighth micro vertical. This, naturally, had the lowest weightage.

Then we assigned scores to each of the short-listed micro verticals. This required some primary and secondary research. Based on the score and weightage, we arrived on the seven micro verticals to watch out for.

We also present, the individual ratings of each micro vertical.

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