By Aaron Tan, ZDNet Asia
23/4/2007

URL: http://www.zdnetasia.com/news/software/0,39044164,62007650,00.htm

SINGAPORE–Open source, software-as-a-service and
consolidation are just some of the main disruptions rippling across the
Asia-Pacific software industry, according to research house IDC.

Daphne Chung, research manager for infrastructure and middleware
software at IDC Asia-Pacific, noted that as much as 83 percent of the
US$15 billion Asia-Pacific enterprise software market is now exposed to open-source software. This includes areas such as enterprise resource management applications, customer relationship management and operating systems.

Chung said companies across various industries were adopting
open source for similar reasons, such as security and cost. “They think
open source has better security,” she said. “It doesn’t mean the products are [the] most secure and do not have any loopholes, it just means customers think open source products are less prone to hackers,” Chung added.

The IDC analyst also noted that open source software also helps companies address budget constraints.

“Budget constraints don’t necessarily mean a dollar value,”
Chung explained. “Initially, a lot of people thought open source is
free, but that notion has gone away. But, it is still a low-cost way to
test something in a new environment or a new technology.”

“It gives them the belief that they are getting better value
for money,” she said, adding that the open source community also gives
companies a better and broader range of development tools.

Enterprises also find that open source software has adequate
functionalities that suit their needs, without the unnecessary bells
and whistles, she noted.

Software-as-a-service
(SaaS) is also changing the software landscape, Chung said, noting that
the term has been hotting up among IDC’s clients over the past year.

“SaaS is a delivery model that software vendors have taken
from eBay and Amazon, delivering software on-demand, in a hosted
manner,” she said. The analyst added that most enterprises have noted
an increased impact of SaaS on software licensing. In fact, they are
likely to consider moving to a SaaS structure, or have already adopted
some form of on-demand software, Chung added.

About 24 percent of the Asia-Pacific software industry is open
to SaaS penetration, she said, and cautioned that traditional software
vendors may face threats to their installed base if they ignore
customer demands for a SaaS delivery model.

“It’s not just about having the [SaaS] technology, it’s about having the right delivery system that customers want,” she noted.

M&A activities double

Consolidation efforts among software vendors have also been on the
rise in the past few years, particularly in 2005, Chung said. The total
value of mergers and acquisitions (M&A) deals involving enterprise
application developers doubled in 2006, compared to the previous year.

She said software vendors often undertake M&As to fill
product gaps or to enter converged industry segments, such as systems
infrastructure, storage and security.
“We see the market converging into two areas–infrastructure and
information–where companies derive intelligence from their data,”
Chung noted.

M&A deals are not always smooth sailing, however.
According to the IDC analyst, consolidation efforts can fail for a
variety of reasons, such as uncertainties in product roadmaps or a poorly-conceived acquisition strategy. “But as vendors do it more often, they get better at it,” she said.

A successful consolidation, Chung said, can allow the smaller
company in the acquisition to expand its footprint into new markets and
geographies. “It also gives the two companies cross-sell and up-sell
opportunities,” she added.

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