Software & Services

In 1Q 2008, China's enterprise application software revenues reached 1.631 billion Yuan, up by 17.8% YOY. The growth was driven by Chinese enterprises' cost savings needs and upgrading of existing applications. Growth by category has been primarily in CRM, HRM, and SCM. Below is the current 1Q08 revenue share by software category.

Source: CCID Consulting, April 2008

1Q08 Review

Increasing costs drive need for enterprise software.

Human resource and raw material costs are going up in China. Enterprises are focusing on how to optimize their existing assets, and enterprise software enables them to better manage such assets. The Chinese enterprise is also getting smarter about IT. That means more projects optimizing, integrating, and upgrading of existing software implementations. As a result, we see the overall enterprise software growth slowing.

A shift in emphasis from product to services.

For large Chinese enterprises, their software implementations are getting larger and more complex as their needs become more sophisticated. More customization of software is needed. As a result, services have become critical. More customers are willing to buy professional services, with a services lifecycle model of consulting, implementation, and then maintenance.

Product vendors respond by shifting from software license sales to more and more services and maintenance. There will be more professional services firms and systems integrators vendors to also fill the services need.

SaaS continues to unlock SME demand.

Small and medium enterprises (SMEs) are turning to the SaaS model because of its relatively quick deployment, plug and play features, and cash flow advantages (no hefty license fees up front). This trend will continue.

Chinese domestic enterprise software vendors shift to services and solutions.

In the early 2008 domestic software providers release new development strategies based on the rising demand on services.

In January 2008, Ufida announced a shift to a new direction, from product-focused of old, to the new "customer-centricity". Its new release of U9 is more industry-specific, and the company plans to further execute its customer-centric model by acquiring needed solutions and services firms.

Kingdee also announced a similar initiative of transitioning from a software to a solutions and services provider. Products will span a more complete solution set, from enterprise software to middleware, and the company launched its SaaS offering, www.youshang.com. Moreover, Kingdee invested in a new software park in Beijing, with the goal of attracting high-end software talent.

Multinational vendors go even more local in China.

By late 2007, Oracle extends its China presence from China's more urban regions by establishing offices in Chongqing, Shenyang, Jinan, Hangzhou, and Xi'an. In March 2008, Oracle in Beijing changed its Chinese company name from "Beijing Oracle Software System" to "Oracle (China) Software Systems".

In March, 2008, SAP continues to execute its "Raising the Core" initiative in Tianjin, to further penetration into China's more regional markets. The goal is to guide enterprise software deployments by industry and region, and highlight specific customer success stories.

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Unless otherwise specified, all information provided is sourced from CCID Consulting.

Ó 2008 CCID Consulting Co., Ltd.