Scenarios of Software Market Development in Ukraine

1. Scenarios of Software Market Development in Ukraine Research Findings Presentation GfK-USM Commissioned by The Coalition for Intellectual Property Rights

2. GfK-USM Background Information 1 2 Research Methods 3 Demand for Software in Ukraine Presentation Outline Choosing between licensed and pirated software 4 5 Choosing between open-source and commercial software

3. 1 GfK-USM Background Information

4. GfK Global Network: one company,one philosophy Company Ranks 5th globally Ranks 4th in Europe Ranks 1st in Central and Eastern Europe GfK Group brings together over 120 companies in 51 European countries, the US, Canada, Japan, China, Australia and other countries

5. GfK-USM History • GfK-USM – leader in market/consumer research in Ukraine: • 80 full-time employees • 500 interviewers across Ukraine • 25 regional representatives 2003 The companyUSMjoinsGfK Group, new name — GfK-USM 1998 The company USM founded as an independent research and surveying company 1995

6. 2 Research Methods

7. The research is based on the analysis and processing of information received from multiple sources • Methods of Information collection: • Data supplied by the State Statistics Committee of Ukraine • Interviews with experts representing (1) companies providing IT-services or distributing IT-products, (2) large corporate software users, (3) state authorities • Expert discussion (round-table) held on 26 February 2004 • Telephone survey covering 514 randomly selected companies, organizations and institutions of Ukraine conducted on 4 – 20 February 2004 • The survey aimed at collecting the following data: • Software utilization; • Significance of different software features for users; • Software-related costs; • Companies’ IT policy. • The responses have been reconsidered in line with computers distribution structure as per the types of polled companies, organizations and institutions

8. 3 Demand for software

9. The conditions for software market formation and development have matured in Ukraine • Economic growth: • Companies have accumulated investment funds due to revenues rise and banks interest rates decrease • Competition stimulates increase in productivity, particularly due to automation processes • State policy aimed at software legalization: • Law of Ukraine of 11 July 2001 establishing rights of software and database authors; • Decree of the President of Ukraine of 30 January 2002 establishing the institution of IPR inspectors; • Resolution of the Cabinet of Ministers of Ukraine of 10 September 2003 determining the requirements to licensed software use by executive power authorities

10. The impact of economic growth is stronger than the effects of the state policy towards legalization • Expedient legalization is hindered by: • Limited funding — companies go for gradual legalization • Inability to implement a comprehensive state control of software use — the state pursues the “targeted enforcement” strategy • Legalization at the enterprise requires significant efforts of managerial and IT personnel • Insignificant quantities of Ukrainian replicated software products and inadequate representation of global software producers in Ukraine

11. The level of computerization remains low,... • The survey findings indicate that 55.2% of Ukrainian companies, organizations and institutions have no computers • These predominantly account for trading companies employing under 10 workers • Financial sector companies are most heavily computerized – as little as 3.8% financial sector companies have no computers • According to the data of State Statistics Committee, 13.8 workers average per 1 computer

12. Computerization level, number of employees per 1 computer

13. Companies breakdown by the number of computers, % of the total

14. ...however, the demand for software is vibrantly increasing • Demand leaders: • Banks and insurance companies • Industrial enterprises • Sales leaders: • Operational systems • Office applications • Compression utilities • Antivirus packages • Accounting software • 24.8% of computerized enterprises ordered automation solutions from outsourced companies • 38.2% of enterprises used technical support services (majority of such enterprises account for industry)

15. Software products use, % of respondents indicating utilization of this type of software products

16. Utilization of software products

17. 4 Choosing between licensed and pirated software

18. Relative significance of factors affecting choice between licensed and pirated software

19. Significance of state control components

20. Access to technical support – advantage of using licensed software • Access to technical support services provided by outsourced organizations reduces costs of compensation to companies’ in-house IT specialists • Consider a company possessing 30 – 50 computers and using client and server software • If this company uses outsourced technical support services its costs of compensation to IT-specialists are about 2.5 times lower than those of a similar company not using technical support services (300 UAH versus 750 UAH per month)

21. 5 Choosing between open-source and commercial software

22. Pros and cons of open-source software • Pros: • Relatively low initial costs associated with open-source software acquisition (free of charge or at low cost) • Broader capacity for configuration to meet individual needs of a customer; • Better virus protection • Higher level of information protection (as the source code is open, a user may verify the absence of information copying programs)

23. Pros and cons of open-source software (continued) • Cons: • No software owner may be addressed in case of operational failures: open source software users operate it at their discretion; • Lack of technical support and documentation; • Lack of applications based on an open-source software product (e.g. no accounting and tax reporting software, construction software) • open-source software platforms-based products are fragmented, develop and upgrade slowly • Mid-term costs associated with an open-source software may appear higher due to: 1) time and efforts input for an open-source software installation and technical support; 2) users retraining; 3) software products incompatibility • In case of an open-source software use, a user-company becomes dependent on an IT specialist that installed the software • Lack of Ukrainianized software products based on an open-source software platform

24. Pros and cons of commercial software • Pros: • A product owner is available to guarantee the product quality and who may be addressed in case of operational failures; access to technical support; the product is continuously developing and upgrading • A commercial software is common and standard which reduces users’ dependence on specialists who install the software

25. Pros and cons of commercial software (continued) • Cons: • High cost of license

26. Opinions of Users • 65.5% of respondents indicated they could not completely shift to working with open-source software due to specifics of their organizations’ operation • 57.4% of respondents believe that the introduction of open-source software requires higher costs associated with its installation and personnel training, in comparison with commercial software • In the opinion of 46% of the respondents, the high cost of license for commercial software is justified in terms of the user-friendliness of this kind of software

27. Relative significance of factors affecting the choice between open-source and commercial software

28. Motivated choice of the most economical software requires an analysis of the package of costs associated with the software acquisition and support • Software cost is broken down into the following components: • Cost of license purchase; • Costs of a client station setup and the client training in case of transfer to open-source software; • Costs of compensation to IT specialists during five years • The survey data suggests that the cost of legalization through open-source and commercial software has been calculated for future five years • Calculation has been performed for selected groups of companies

29. Groups of corporate users

30. Groups of corporate users

31. Groups of corporate users (continued)

32. Estimations for legalization cost calculation, UAH

33. Means of calculating costs of compensation to IT specialists • Regression equation drawn up based on polling data • Dependent variable – cost of monthly compensations to IT specialists • Independent variables — main ones: • Use of software types (customer, server, Web-servers, databases; commercial, open code, mixed) • Use of technical support services from outsourced organizations • Independent variables — benchmark: • Affiliation with industry or financial sector • Ordering comprehensive automation solutions

34. Calculation outcomes — commercial software proponents 240.0 thous. UAH 90.0 thous. UAH

35. Calculation outcomes — undemanding 92.3 thous. UAH 63.4 thous. UAH

36. Calculation outcomes – open-source proponents 95.5 thous. UAH 76.3 thous. UAH

37. Calculation outcomes – pragmatics 92.9 thous. UAH 63.4 thous. UAH

38. Conclusions • For commercial software proponents – saving due to use of commercial software comprises 63% in comparison with open-source software (155 thousand UAH) for a 5-year term • For the undemanding and pragmatics-oriented, the saving is 32% • For the open-source proponents, the saving due to use of commercial software is 20 % in comparison with open-source customer software