Software industry's squeeze play

Listen to some industry pundits and the enterprise software industry is going the way of the auto industry. There will be a handful of global powerhouses; everyone else is a supplier, distributor, or niche provider within the industry "ecosystem."

A recent Gartner market share study for middleware—the back-end infrastructure software to run business applications--indicates that the big are indeed getting bigger.

"IBM continues to gain, Microsoft becomes a contender and Oracle continues to grow," is how Gartner analyst Joanne Correia summarized last year.

The strategy for these large vendors is to bundle several well integrated products. "Do you want a good and cheap app server with that database?" an Oracle salesperson might say. Meanwhile, open-source products, notably application servers, are making it tougher to charge top dollar, particularly for low-end products.

It would seem that companies in between the full-service providers of IBM, Microsoft and Oracle and the low-end open-source alternatives will be the ones getting squeezed.

BEA Systems had a rough year with its license revenue slipping. In the integration market, WebMethods saw its market share decline, according to Gartner.

But what is cause? Are the poor showings by BEA and WebMethods last year the result of inevitable industry consolidation, or their own missteps?

What is clear is that, despite any consolidation among smaller companies, competition in the business software market is only getting tougher.