Software business focus changes
By Liu Baijia (China Daily)
Updated: 2004-03-25 09:48

Xiao Wang has been using the Oriental Express English-Chinese and Chinese-English translation software for more than six years in his work, but recently he found there were fewer and fewer updates of the word definitions in the electronic dictionary.

Later he found out that the developer of the software the Beijing-based SJTU Sunway Software Industry Ltd had already shifted much of its attention to opening chain translation workshops, and was focused on business users.

Sunway is not the only venture to shift its focus from the application software market, where domestic companies are strong.

Representatives from Beijing Kingsoft Software Co Ltd, famous for its strenuous efforts to fight piracy and competition with Microsoft in the office software sector, also said the online gaming business will be its top priority in the future.

While many people think the prospects for the domestic application software industry are hopeless and companies like Sunway and Kingsoft are fleeing from the market due to dwindling profits, these companies have other opinions.

Kingsoft

Anti-piracy was a word that Kingsoft President Lei Jun said most frequently at various meetings three years ago, but online gaming has taken its place now.

As president of China's biggest application software company, he has his own understanding of the development of domestic software companies.

"The domestic industry is still in an infancy stage, as we do not have many big software companies and a lot of products in the market," Lei said.

"But the real challenge for us is how to transform the users of our software to becoming our consumers."

He believed online gaming and China's efforts to build an information-driven society have provided good opportunities to overcome that challenge.

According to a report by the US-based market research firm International Data Corp in January, online gaming sales last year grew by 45.8 per cent to 1.32 billion yuan (US$159 million).

The report predicts the average annual growth of the market will be almost 50 per cent from 2002 to 2007, and will reach 6.7 billion yuan (US$809 million) in 2007.

Due to less piracy, rising enthusiasm from game players and higher profits, Kingsoft has put a high priority on the development of online game development and operation, and decided to stop all development activities on personal computer games.

Although the company only made the commercial launch of its first online game in December, Lei vowed to make the business the biggest revenue pool for the company, contributing to half of its total sales.

In its traditional office and security software businesses, government departments, education organizations and enterprises will be Kingsoft's major target industries.

The software company signed an agreement with the People's Bank of China in December to supply more than 10,000 copies of its WPS Office software to the Chinese central bank.

The Shanghai municipal government also decided last year to use WPS Office in more than 2,000 schools in the city.

Lei added that his company is also gaining ground in the enterprise information security market, which was dominated by foreign companies like Symantec and Computer Associates, and more than 1,000 copies were sold last year.

Security and application software were Kingsoft's biggest breadwinners last year, contributing to 40 per cent of its total revenues.

But online games will take their place and become the biggest this year.

Jiangmin

While Kingsoft chose to diversify its businesses for a broader future, Beijing Jiangmin Software New Technology Co Ltd decided to focus on its core business.

"There is still huge potential in the information security market, but it is also a fiercely competitive market, so our new focus will help us to be more competitive," said Chang Jinxi, general manager of Jiangmin, one of the earliest Chinese anti-virus software companies.

Chang added his business will concentrate most of its resources on government and educational organizations, as well as small- and medium-sized enterprises.

In December, the company, named after its founder Wang Jiangmin, decided to give three-month trials of its KV Network Edition to 10,000 government departments and enterprises.

Prior to that, it also released 500 copies of its KV Network Edition software to the market and cut the price from 10,000 yuan (US$1,200) to 999 yuan (US$120) to stimulate user demand and awareness.

Chang believed services will also become another area with great potential in the future.

Jiangmin released prepaid cards last year, which allow users of its KV anti-virus software to get one-year virus definition upgrading.

The move will lower the cost of the ownership of an anti-virus software package from about 100 yuan (US$12) to 30 yuan (US$3.60), as many Chinese users are choosing to use pirated software just because they think buying copyrighted software is not worthwhile.

"Our technology and services will be two major strengths in competition," said Chang, head of the third-largest anti-virus software company in China last year, according to the domestic research company CCID Consulting.

Besides having its focus on certain industrial sectors, Jiangmin will also make aggressive moves in overseas markets.

The company sold 500,000 copies of its Virus Doctor software in Japan and was reported to be the fourth-biggest anti-virus software vendor in the country.

Chang said his company is also trying to find a distributor in the United States and has already set up servers to get ready to provide support and upgrading services.

The Republic of Korea, Thailand and Europe are also some target markets for Jiangmin.

Although overseas sales only accounted for about 1 per cent of Jiangmin's total, Chang believed his company will see some breakthroughs next year.

Jiangmin is not the only company eyeing overseas markets. The State-owned China National Computer Software and Technology Service Corp (CS&S) has also decided to make software outsourcing a top task.

Company President Tang Min said CS&S will develop its software unit into an outsourcing and development base, mainly targeting Japanese and US markets.

She said a partnership with US giant Microsoft has brought a wealth of experience in getting outsourcing orders and helped train software professionals.

The US software firm promised in an agreement last year to train 200 software developers and 100 software architects for the Chinese software company in one year.

A natural move

While the transformation of Kingsoft and CS&S is believed to be an evacuation of domestic software companies out of the application software market, analysts said it was just a natural move within the industry.

"It signifies the domestic software market is mature," said Louisa Liu, a senior software analyst with US-based market research firm Gartner Inc.

She pointed out that it was good for domestic companies to get rid of their idealist agendas involving developing software only for the interests of their founders.

CCID Consulting Senior Vice-President Huang Yong also added that although China has made significant progress in curbing software piracy after its accession into the World Trade Organization in 2001, domestic software companies cannot expect piracy to be eliminated in one day and consumer spending will rise immediately.

"Their focus on enterprise and government markets is a natural and correct choice," Huang said.

According to CCID Consulting, application software will become a major driving force for the fast growth of the whole software industry, as both government departments and companies are spending more and more resources on their information systems, of which application software is a key part.

CCID Consulting data shows that application software accounted for 63 per cent of the total sales of software market last year and stood at 26 billion yuan (US$3.14 billion).

The company predicts the application software market will grow at an average annual rate of 19.6 per cent from 2004 to 2007, slightly higher than the 19.5 per cent growth rate of the whole software market.

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