Sometime in the past the Software industry seems to be entering the Golden Age, effecting & changing almost every part of our lives.  You name any upcoming thing & it will have an association of software with them.  Despite this explosion of new software emergence today it seems that the software industry itself is shrinking.  What then is responsible for the software sector’s precipitous market decline?  Like most complex systems, there is no one single factor driving this trend, but a combination of factors.

The software industry is no longer preferred from an investment perspective; it is skeptically viewed as a lucrative, high growth industry by many investors.  This change has led to what Wall Street calls ‘investor rotation’ as ‘growth managers’ are replaced by ‘value managers’.  This change is felt on daily basis from the movements of the market.  In the past, much of the market trend was about license growth and new products, now it seems to center around maintenance pricing and services revenues.

Generally, an IT/ITeS company’s average profitability increase tends to be constant, but the dynamics has changed with global slowdown, rising employee retention cost, currency fluctuation and the flat world competition. Shrinking margins would effect salary increments that experienced employees get & provide more oppurtunities to less demanding freshers. The significant salary hikes given when people in the IT industry change jobs would certainly see a decline in the coming years. The variable pays within companies will be seen increasing.

The rupee's strength against the euro/dollar has long been the bane of information technology companies because although the bulk of sales are made in euro/dollars, their expenses are incurred in rupees this squeezes their margins. Since the beginning of this year, euro has lost around 13.5% against the dollar. Europe is the second-largest market for the Indian IT industry accounting for approximately $15 billion worth of exports. The European debt crisis and a weakening currency in the region are twin worries for India’s $60-billion export-focused IT sector, which has only just recovered from the fallout of the US slowdown. The euro has fallen to its lowest since the Lehman Brothers collapse and while the dollar has strengthened against the euro, it has not strengthened against the rupee to the same extent. In situations like these controlling costs is the ultimate option chosen by CIOs globally. CFOs do play an important role with currency hedging, however when talked of controlling costs we are actually not cutting down budgets but looking at smarter ways of cost saving. This is the time when CIO think of adopting smarter ways like cloud computing, virtualisation, SaaS & choosing Open Source technologies to traditional license ones.

The modern software market was built on the backs of large one-time perpetual license sales.  Charging significant up-front fees for access to proprietary source code not only allowed companies to post huge profit margins, but enabled successful software companies to delight investors by very rapidly growing revenues and earnings.  Sure the whole thing crashed when the company ran out of new licensees, but it was a fun ride for everyone in the market while it lasted.  Unfortunately two major trends are conspiring to make it increasingly difficult to grow revenues quickly: Open Source and SaaS.  Open Source basically flips the revenue model: it gives away the source code up-front and tries to make money on the back-end by charging for support.  Open Source has already put tremendous pressure on revenue growth in areas such as web servers, application servers, and databases, and threatens to do the same in several other places.  In response, many traditional “closed source” vendors have reduced their upfront license fees and increased their maintenance charges.  SaaS (Software as a Service) allows companies to purchase software “on demand” over the web.  As a result, SaaS requires little or no up front investment from a customer and is often purchased on a short term subscription plan.  Lack of large up-front payments makes it difficult to grow SaaS revenues quickly, but companies gain with volumes and quick setup.  As Open Source and SaaS gain prominence it’s becoming increasingly clear to investors that the good old days of sky high revenue growth & uncompromising gross margins are gone and stock multiples are responding by heading south.

CIOs always have the concerns with rising costs and distance. This has been a challenge to the outsourcing software vendors to acquire and or retain businesses from the third world countries. Rising distance brings along many questions from counting on the proficiency in technology to the associated legal complexity. To this a lot of companies now have come up with the one size fits all solution which put an end to all questions, near shoring. In contrast to off-shoring, near-shoring offers virtual development teams that have the ability to collaborate with internal staff in the same or similar time zones and in local language. This means that easy fixes do not have to wait for an isolated team to take a day-and-a-half to turn around a solution. By eliminating the time difference problem, near-shoring providers can offer optimum time-to-market schedules for new projects and new products. From the point of view of the clients, working in the same time zone also leads to more satisfied and stable workforces-including those of the outsourcers.

Aside from the problems caused by the time difference, the geographical advantages of near-shoring can allow a company's internal staff and external developers to meet in person. The great distances between off-shoring providers and their clients make frequent trips rare and expensive. Thus there is very little face-time between project managers and off-shored staff, which often results in misunderstandings about the direction a project is taking.

Being public software company in these days is not easy, especially a software company that lavished options on its employees and played it a little loose with revenue recognition from time to time.  Like most tech companies, software companies are seeing their margins hurt by higher compliance costs and steep charges for options.  Because software companies have relatively high margins on low revenues, these incremental operating expenses tend to have a bigger impact on overall margins.

Despite these trends, the software industry will still survive and may, at some point, begin to thrive again.  Areas such as web services, mobile computing & banking, systematic analysis, Storage management, social networking, virtualized/cloud computing hold significant promise for future growth, but that growth will have to occur despite the long-term headwinds posed by the trends outlined above.

Outsourcing need emerges when you want to enhance your capabilities to compete globally & control rising financial pressures. Organizations should brainstorm the merits of outsourcing on regular intervals with changing market conditions and technological changes. Outsourcing should be for appropriate reasons without losing control of resources and personnel, knowledge of whom is integrated with the organization's business practices & who has become a part of the organizational family.

Outsourcing evaluation questionnaire should contain questions about the company’s core competencies, services related to core competencies, corporate culture barriers, cross-functional impact, is outsourcing an absolute necessity, additional accomplishments by a vendor, outsourcing goals, people issues, etc.

The process of deciding whether outsourcing is warranted involves numerous steps or phases. The questionnaire should consider or answer the following- identifying challenges, preparing and distributing a Request for Proposal (RFP), examining proposals received, evaluating vendor capabilities, negotiating contract terms, and implementing outsourcing. It is important to adopt an explicit methodology involving steps to be taken and outlining the project plan evaluation.

The Phases of Outsourcing Evaluation plans are as follows:

• Planning Phase -The objectives and nature of outsourcing are defined. The feasibility plan for outsourcing is tested before making a decision to proceed. The efforts are planned in terms of time required, budget estimation and resource allocation.
  
• Analysis Phase - Key Performance Indicators (KPI’s) are determined; service levels expectations from vendors are specified. Relationships between the function/’s to be outsourced and functions that will remain in-house is clarified. This helps the company and the contract with the vendor to include proper integration with in-house services. The request for proposal is developed, responses are collected from vendors and analyzed, and a vendor is chosen.
  
• Design Phase - Negotiations proceed with the vendor and a contract is developed and signed.
  
• Implementation Phase - The transition from in-house provision of services to outsourcing is made.
  
• Operations Phase - The outsourcing relationship with the vendor is managed and any maintenance or changes in the outsourcing relationship are negotiated and implemented.
  
• Termination Phase - At the end of the contracting period the decision is made to negotiate another contract with the vendor or a new vendor all together, and the cycle begins again. Alternatively, a decision may also be made to bring the function back to the organization.

Managers who have made the decision to outsource should be able to predict the likely impact that outsourcing will have on the organization's stakeholders, who include stockholders, customers, suppliers, and employees.

For Larger outsourcing plans the top management should play a key role. For smaller initiatives the middle-level managers might do the project planning with the guidance & supervision of the higher managers/Management. The Outsourcing team should combine a mix blend of managerial and technical strengths. The team may also require indulgence from representatives from specific areas that will be directly and heavily impacted by the outsourcing. The user views always guide the balance between projected benefits and helps assessing risks involved.

The size of the team depends on the nature and size of the project. Smaller teams are generally more effective than larger ones. The team could be small in the planning phase and may expand when the analysis begins. Teams should comprise of full-time members instead of part-timers, as they are more focused and effective, although full-time allocations makes sense for Large-size Outsourcing Projects. Personal experienced in outsourcing are highly recommended on the team for the insight they bring to the issues and realism to cost and benefit estimates. External consultants are highly recommended.

Once the decision to outsource is finalized, identify the individuals who will be shouldered the responsibility for supervision, management and vendor relations after the contract is signed. These people should be part of the team that formulates the contract. Their inclusion is critical for several reasons. First, there is no better way to understand the issues involved in outsourcing than in all aspects of the deal. Second, relationships with vendors start at the moment the discussions begin.

When outsourcing threatens to upset the status quo in an organization, instances of outsourcing as of arising high costs or poor performance, internal sources may not be the best option for accurate estimates of costs or effectiveness. Under these circumstances an objective outsider for the assessment work is recommended.

Contracting relationships is a continuum of proposals, negotiations, SLA’s & KPI’s changing, redesigning along with redeployment. Organization always have a choice of choosing from vendors capable of performing the work, in relatively short contract durations, all if no then the choice to switch to another vendor at the end of a contract with little or no cost or inconvenience. At the other extreme are long term partnerships in which your organization contracts repeatedly with the same vendor and develops a mutually beneficial relationship that lasts a long time. The middle of the continuum is occupied by endurance of relationships that remain harmonious till the assignments are completed; these are termed "intermediate" relationships. Since it is a continuum, there are relationships that are closer to market relationships and relationships are closer to partnerships, as well as those that are midway between the two extremes.

There are several critical components of a versatile outsourcing agreement. The emphasis from the outset should be negotiating a fair and reasonable contract for both parties. Each aspect of the outsourcing relationship is governed by the contract, the organization and the vendor need to have a common understanding. This also means that managers must think of every possible business contingency and continuity to be covered in the contract. Steps governing dispute resolutions should be negotiated on a fair and equal opportunity basis. Outsourcing contractual agreement should not take the form of an open-ended assurance of goodwill, it should rather delineate who, what, when, and where of conflict resolution.

Some of the important contract considerations are Terms of the agreement, Minimum Services Levels, Ownership and Confidentiality of data, Warranty, Exhibits, KPIs and Incentives, Disclaimers, Bankruptcy, Non-Solict and Non-Compete, Super accelerated Events/ Act of God, Performance Measures, Status Reporting, Anticipating Change, Success Factors, Mainteance, Post Production Support, Payment Terms and Jurisdiction.

Microsoft has made the technical world very simple and smooth. Ever since Microsoft has come up with ASP.NET there has been a widespread debate among programmers as to whether it is better than any existing open source language like PHP. If we compare ASP.NET with PHP, ASP.NET wins as being an object oriented it is more organised and maintainable than scripted PHP. Newer version of PHP supports OOP but its very limited compared to ASP.NET. When we talk about flexibility too ASP.NET  is one step ahead of scripting languages. ASP.NET is much faster and has a great debugging support. PHP being a scripting language promotes messy code which lead to poor handling capability. We have experience with ASP.NET as well as PHP and over the period realized .NET is much better for high tech web applications. Once we had to convert a PHP based jewelry website to .NET. After this conversion, we compared the load test and realized that there is slight reduction in hosting cost because of inbuilt support in ASP.NET for session scaling like state server and SQL server based sessions. PHP need more processing power than ASP.NET. Scripting Language like PHP is scalable but ASP.NET is more scalable & provides a good support.

Its not that PHP does not work well but its like PHP is simpler, quicker to learn, faster to deploy smaller applications, but when we talk about large applications ASP.NET is prefered due to its robust programming  model and excellent support. When we search about the speed of PHP and ASP.NET, PHP wins the race theoritically and is total a myth, actually when we practically observe ASP.NET is much faster.It has become much like religious arguments that ignores facts .

Not only this there are many questions that come when we think of Microsoft technologies. Will OSS ever displace traditional Software from its market leadership position? We already discussed the framework now lets see some points regarding operating system too. If we take Operating System Linux, a OSS and Windows, the Microsoft product, both differ in philosophy, cost, ease of use, versatility and stability with each seeking to improve in their perceived weak areas.

One big advantage to Microsoft technologies is the Market Share and the popularity. But still neither side is likely to be forced from battle field. OSS offers too many benefits to the users even then most important thing that is the market share which is with Microsoft technologies. Because the value of Operating System that is Linux or Windows depends on the number of users so traditional  softwares has an advantage here. Sometimes the behavior of these technologies are like the customs and religions . People are following certain trends and traditions because it is coming in hierarchy , ancestors are following the chain cycle . Similar happens with the traditional software which people are using and do not want to change ,they think it is providing all facilities that the new OSS are providing them so why to switch to new one to waste time and energy. Cost  assymetries plays a great role, since OSS are freewares. So here in the absence of cost assymmetry windows took the first movers advantage. Oss can never displace Microsoft technologies of its leadership position. Now the question arises to make this cost factor symmetric. Can the Microsoft use piracy strategically to improve its market position?  Now we check the effect of piracy on Microsoft. When we compare the piracy rate of Microsoft and penetration power of other new OSS. We find the piracy is highest. Now this shows Microsoft can use piracy and people are using them instead of using available open source softwares. 

Open source softwares are coming into market showing their importance  but it cannot displace Microsoft Technologies from its market position. Every successful Corporation like Microsoft takes the responsibility to provide more user friendly, robust and scalable platform to its customers and leave a positive impact on the world and its people.

We @ Rigel Networks are Microsoft Partners delivering robust software solutions based on Microsoft Technologies as well as OSS.