Piracy and freemium killed the Indian software buyer

Nobody in India buys software.

If the above sentence draws your attention, read on! If you are based out of India, think of the last time you bought software (yes packaged products). Now think of all your friends and guess when they bought software. Now, here’s the clincher, “When was the last time you bought software made in India?”. 99% of the people, irrespective of their socio-economic status will respond in the negative.

Product evangelists will now talk about the cloud/SaaS and the subscription economy, and how it is the great leveler when it comes to software products. As an entrepreneur selling a SaaS software in India, let me be the first to tell you that it is really hard work. Most entrepreneurs have told me that the Indian customer is price sensitive, I say, a majority of them are insensitive. Now don’t get me wrong. I don’t wish to rant. I am trying to catalog and present reasons why selling SaaS software is hard. Here’s what I think it is:

Let’s talk a little bit about the Indian software market

In the last two decades, India has seen two revolutions which helped create a large software market. Firstly, the economic deregulation in the 90s which enabled a steady growth of the economy, disposable income and import of technology. Secondly, the telecom, and subsequently the PC and mobile revolution that has created a (supposedly) large software consumption market. PCs, Laptops and tablets are now commonplace in Urban and Semi-urban India and the latest numbers indicate 15 Million broadband and about 100 Million mobile internet users. A look at these gargantuan numbers and you might begin to assume a large consumption market, but to give you a sense of reality, let me ask you the same question one of my mentors asked me – “Name 5 large Indian software product brands selling in the Indian market”

Enterprise software is probably your best bet

If you are selling software, the enterprise market is probably your best bet. Bharat Goenka, co-founder of Tally solutions, said that “In developed economies, SMBs act like enterprises and in emerging economies, SMBs act like consumers“[2]. Many of our customers are SMBs who are looking to use technology to grow some component of their business. And most of the times, we don’t deal with the company, but with empowered employees. The ones who have a budget at their disposal and are forward looking in their outlook. What we found was that the same stigma that existed in the 70s and 80s in the US software markets exists in the Indian SME customers of today. A lot of them look at software as something that will displace them in the organization and are extremely defensive in the matters of adoption. But we all know how that worked out in the US and UK markets and I am hoping India follows a similar trend.

Oh wow! I never knew you could do this

A lot of people we have met have been genuinely surprised at what our product does. It’s tough to manage these customers because we spend a lot of our acquisition time on sensitizing them about the problem before we present the solution. Even if you are doing something radically new, it is easier to bucket yourself into a genre that is popular and accepted. For example, we are a customer conversations player, but it helps if we refer to ourselves as a Social CRM or a marketing insights product. Ignorance about a genre of products has a big pitfall – customers don’t know how much to pay for the solution. This is really tricky because it usually leads to a customer deliberating on paying for the solution.

“But we can do this for free on Google”

Freemium is both a good and bad thing. Almost every customer of ours expects a free trial for a few days. In the products eco-system it’s become a norm, but a lot of productized service companies I know have been asked for a free trial on bespoke software. Most users don’t understand the price they are paying when using services like Google or Facebook and usually expect the same when we tell them about our “use on the browser” service. Usually this means we have to get into a lengthy explanation about why our product costs so much. The best experience I have had was when a customer, who understood the online advertising economy, asked us if he could use an ad supported model of our service for free!

Freemium might be a viable option early on but when looking at growth and scale, I don’t believe freemium is a sustainable economic model. It is a marketing tactic at best!

“muHive crack codes”

One morning, while peering through our website analytics, we were surprised to find a search keyword “muHive crack codes” in the list. This was a good and a bad thing: good because some customer actually found our service good enough to look for a cracked edition, and bad because we knew this customer wouldn’t pay. And yes, if it’s crack worthy, then it is probably good software – that’s the Indian psyche. Industry estimates put the total value of pirated software used in India to be upwards of $50 Billion[3]. Why won’t we pay for software? That’s a long post in itself, but to be brief: piracy was not controlled in the early days of the PC revolution and hence the assumption that software is free. Also, cost of software has always been calculated based on the affordability and costs in developed markets. To illustrate my point, I will end this section with a question – If Microsoft Windows were to cost Rs 1000 instead of $149 (Rs 9000) would the piracy numbers be different?

The pricing slope

Researchers put the Indian middle class at earning $10/day or roughly $300/month. To give you an estimate of why this matters, the urban poverty line stands at $14/month – yes, a month. The Indian middle class is about 100 million people and $300 per month usually supports 2 to 3 people on an average. Now when you think in these terms, you can imagine what the cost of ownership of a $149 software sounds like. Add the fact that software is a non-tangible artifact and you understand why Indian customers are extremely cautious when it comes to software purchases.

Even with enterprise customers, your pricing strategy has to be “just right”. And you have to account for discounts. A majority of the Indian customers we meet ask for some form of special pricing. Now, this might not be a trait which is unique to the Indian market, but understanding the cultural and economic context of the demographic becomes very essential when it comes to pricing. Marketers talk about using tricks like prepaid accounts (India has a large prepaid mobile subscriber base), daily subscription and data based pricing but all of them have the underlying assumption that the customer is willing to pay and understands the cost of the solution.

In conclusion

All these are what we have found to be the issues with selling software in India. Even though we have good answers to some of the questions our customers pose, in my opinion, it will still take a long time for the Indian software buyer to evolve and for good product companies to make a mark. Rather than end on a dismal note, I will now list down what actually seems to be working for us, and also some insights from other producteers.

– Customer don’t mind paying for bundled software. Hardware, especially mobiles and tablets might actually help in software sales.

– Customers will pay for immediate utility. What someone referred to as “First order business” solutions; meaning something that can make them more money instantly. Example: Email and SMS marketing solutions. Customers don’t mind paying for advertising and reach.

– Customers usually pay when they feel they are missing out on revenue or an opportunity. A loss averse technique to selling is what we have seen work best.

References:

freemium payments piracy pricing product ecoystem saas software products

Srinivasan

Whatever Indian providers do, let them not make end users not to trust them. See the mistrust in education institutions and mobile users. “Bundled software” cannot be sales strategy without actual value.
- Ritesh M Nayak
  
  Absolutely! trust and value are something that is imperative in the products world. By bundling, I meant multiple things like a plugin/integration approach (for example, a CRM player integrating with Salesforce), so you buy Salesforce and the CRM as a bundle. Bundled device is just one of the strategies.
Sandeep Todi

Ritesh, thanks for a great perspective on the buyer mindset.

One point which you could have covered is the sales cycle’s dependency around the nature of the product. If it involves concept selling to an uneducated buyer, then it’s a harder sell. Here you have to first make the need felt and then go about justifying the price. Even once this is done, stickiness (or customer churn) is always an issue if the customer does not remain engaged.
- Ritesh M Nayak
  
  @sandeeptodi:disqus thanks for your feedback. I have written about it in the “Oh wow! I never knew you could do this” section. This was something that I wanted to write ever since we started out beta program 🙂
  - Sandeep Todi
    
    Ritesh, the Oh Wow customer as you’ve described is exactly the one who does not feel the pain. Don’t we all run away from such prospects 🙂
    
    On a more serious note, this could be both because of the individual at the other side of the table (in which case, go find another influencer) as also could be a positioning problem with the product itself (due to which the customer is not able to put a value tot he problem being solved).
Sameer Agarwal

Awesome Ritesh ! Loved the way you caught my attention in the first 8 seconds ! 🙂

A very busy/successful Veterinary doctor (Dr. Hatekar, Pune) was very amused to learn his customers could get ‘rewarded’ for repeat purchases from him – and that such FREE software exists today – just an email ID away. He has about 3000 customers across India and currently they’re not managed or communicated with.

His office only has a weighing scale (for the customer’s pets) and his clinic has the latest gizmos from Xray to Blu-ray.

But he knows squat about software. He has the money – knows enough about the value – but isn’t interested.

When I asked him to give that loyalty-software a free trial – here’s what he said:

” I don’t care what software does and doesn’t do. I want to squeeze when I’m angry – and there better be someone’s manhood in my hand when I’m squeezing. That’s why I pay the hard-earned money and that’s how they earn that hard-earned money. ”

I hate to be a ball-buster but people DO pay for software. But when it makes money for them – or saves their ass. Areva – the company that charges a few Billion for a Nuclear installation, uses a 3D modelling tool from an Indian company. (at least last I knew they were paying customers)

Paying for software isn’t the same as paying for value. Its also not the same as paying for a solution.

Ritesh, in your experienec – between code and people – which one solves more problems than creates?
- Ritesh M Nayak
  
  Hi Sameer, it was fun to read about the doctor. In my experience, at least in India, people solve more problems than software or systems. And I think it is due the large labor pool available in India. I mentioned this at a public setting recently that we, as software providers, are not competing with other software companies, but people. We are competing with an educated person from a tier 2 or 3 town, with a graduate degree, who promises to do what a software does and get you coffee at the same time. And all this for a salary lesser than a monthly software subscription. And yes, the “manhood” part still holds up when you hire a person. It is then a matter of comparing apples and oranges.
  
  As the labor pool become more and more expensive in the urban Indian market we might see consumers (businesses to start) rely more on systems instead of people. But a large consumption market is still at least a decade away. The market is ready for productized services though. A good example of this is the utility services, VAT filing, ECS facilities for bill payment and others in this category. A thing that usually required office boys and peons is now being replaced by systems.
  - Sameer Agarwal
    
    I can vouch for that with a shameless plug that we are a traditional services company occupied with the pursuit of finding the right product for our customers. What was being done by people – is being done by code.
    
    Is IndiGo (the airline) a Product business (web, seat-man-mile, efficiency) or a Services business (smiles, hugs, free food, emotions)? I love the brand so much that I feel guilty of rejecting one of the options above ! What do you think?
    
    Here’s the thing – should we build a product to solve a problem – or address an opportunity? My take is the latter. If the customer isn’t aware of the problem – why build its solution?
    
    If you look at why China wins – that’s because they can quickly adapt to changes in global specifications and standards. Its an awfully people-intensive ecosystem – but people (can) behave as well as code. Almost…
    
    Its when they ‘unplug’ from the system – too many options emerge for the customer. Tons of new products sprout – everyone’s speaking – no one’s listening.
    
    Buying a CRM solution has never been so difficult – and similarly selling one. And that’s where your note – no one buys software in India.
    
    Mankind’s trust on machines isn’t as high as we’d like it to be.
    
    And when everyone is talking, the customer would close his ears, shut his eyes, and ask a ‘trusted’ friend to help her choose.
    
    Channel of communication – Social Media.
    
    Which is what your software makes easy to do for a brand right ?
    
    Try telling this to your customer…
    - Sagar
      
      > If the customer isn’t aware of the problem – why build its solution?
      
      Ummm … I am ambivalent about this Sameer. There are a fair number of scenarios where a customer could be suffering from a problem without being aware of it OR it could be that your solution is a faster/cleaner/cheaper solution to a previously solved problem.
      
      At muHive we are faced with the awareness problem all the time but in a different manifestation. The customer is aware of the value we propose but they haven’t a clue about the social media generation and how it interacts. Our awareness exercise with quite a few people has started by literally educating them about how to create a Twitter account.
      - Sameer Agarwal
        
        Understand. You’re doing your competitor’s work though…
        
        Do YOU pay for a problem that you’re not aware of?
      - Sagar
        
        No, but I do and even in the future will pay for a solution if I am made aware of the problem, which was my point and am sure you will agree 🙂
        
        As far as doing “competitor’s work” like you have put it I guess it is a part of the game. I’m OK with failing as a first mover than never having tried. Having said that if you have a better way of doing this then I am all ears 😀
      - Sameer Agarwal
        
        Brave words – I like that about your product. You’re not shy of expressing your beliefs. Thanks. 🙂
        
        There is always a better way of doing everything. If I had answers to your problems – I’d be doing your business.
        
        Making someone aware of a problem is easy. Tie them up and put a gun to their head. Then make them watch a 10 min film. Tape their eyes open so they cannot blink.
        
        However, them believing that YOU are the solution – is challenging.
        
        In my experience – a proposition is happier swimming downstream or even perpendicular than swimming upstream. There’s genuine physics at work.
        
        What you’re proposing is that you’ll walk upto the customer, take 30 mins of his life, EXPLAIN the problem, instil the confidence that your solution works, tell him to pay for it, and then support him through his life.
        
        Wouldn’t you be better off telling them where they can make money? It’s universally accepted as a conversation starter. And your product already does that !
        
        Once they want to talk about THEIR benefit – you open the Mahabharata – ask them what features they’ll pay for. And bin what they don’t want. In 10 such cases – you’ll find the overlapping features. Which means you’ll find what your customer wants to pay for.
        
        And you’ll perhaps remove this post and rewrite – WHY customers pay for software. 🙂
        
        @GVT – I and my customers are working on joining the dots – video content and money. Traditionally its a unidirectional vector. We’ll get there – but for now – our website just has a verbose pitch. 🙂
        
        I must tell you that I’m inspired by your product. You’ve got it going… but its perhaps more than 8 seconds away from the visitor.
      - Sagar
        
        Wow! Thanks for all the complements and praise Sameer, that is very kind of you. We are newbies to the game so your encouragement means a LOT!
        
        I will not discount the marketing and sales challenges we are facing. Believe me when I tell you that we are working very hard to come up with the right value proposition that will make instant sense to a customer in the few seconds they spend on our website. We do use variations of that in our elevator pitch (in personal meetings) and those, like you have rightly said, make sense to prospects.
        
        Cracking the web message is a puzzle. I believe we will also get there the more prospects we speak to so I guess we are in the same boat 🙂
      - Sameer Agarwal
        
        Common bro – you deserve it. Building a product is tough. And you’re doing a fab job – stay at it. 🙂
        
        What are Social Media agencies saying? Have you considered offering a service on top of your tool?
      - Sagar
        
        We have actually. There are a couple of agencies who are using us but that channel has infinite potential – the more the merrier!
      - Sameer Agarwal
        
        I’ll share something I learnt from Sharad Sharma – There are companies that need 200 customers / year . There are ones that need 50,000 customers/year. And then there are some who need 10 Million customers /year.
        
        What do you want to be?
        
        I don’t think its an easy question to answer – but perhaps your closure is hiding here.
Vikram Bahl

Good news is that you’ve identified the problem. Bad news is that the solution is not an easy one either. Entering into international markets comes with its own set of challenges but its definitely a step (leap!) in the right direction. Go get em’ Tiger!
- Sameer Agarwal
  
  Vikram – saw your comment to Sandeep in some earlier post and saw your website. Loved the comment and it prompted me to go straight to your website !
  
  However, sorry – but found a disconnect. Your comment says:
  
  “We at Yavvy have taken a similar approach, putting a simplified, drag-and-drop UX to CRM-ERP application space.”
  
  Your website says:
  
  “Mobile & Cloud apps to get new customers & retain existing ones”
  
  Your website message is much clearer. But the comment caught my attention.
  
  Why don’t you consider putting up a FAQ and answer a bunch of questions people are asking.
  
  Maybe this might help:
  
  (1) Does Yavvy work with Google Apps?
  (2) What kind of Apps can I integrate?
  (3) Is there a free trial ? How long ?
  
  BTW – please do feel free to trash my website too ! :-