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Web services shakeout looming

As Web services takes hold in big businesses, a crowded field of software management companies vie for position and profits.

Two years ago, Ed Horst, an executive at Web services start-up AmberPoint, walked into his CEO's office with a report from influential research firm Gartner Group and a prediction.

At the time, the market for Web services technology, which links software programs, was largely undeveloped. Gartner forecasted that industry giants such as IBM, Microsoft and Oracle, while strong in tools and servers, would be weak in one area: Web services management.


What's new:
A glut of Web services management companies, most started within the past two years, are competing for attention from corporate customers.

Bottom line:
Analysts expect that a shakeout of smaller companies--already under way--will reshape the market as industry giants IBM, Microsoft and Hewlett-Packard formulate their own strategies.

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"This report will launch a thousand business plans," Horst remembers saying. Within weeks, Horst's prediction came true. A crop of start-ups rapidly launched with software for managing networks built around Web services standards.

Now, a glut of Web services management companies are competing to be part of Web services applications that are becoming increasingly popular within big companies. Many smaller, specialized management tool players, like Infravio and AmberPoint, could be on a collision course with industry heavyweights that are now intent on being full-service providers.

Other established companies in the field include Confluent Software, Digital Evolution, Flamenco Networks, Actional and Blue Titan Software, each of which focuses on specific areas of Web services, such as delivering messages or monitoring Extensible Markup Language documents.

Analysts say the market is in such a state of flux, it's unclear which of those companies have the best long-term prospects, given all the variables, including management, funding and customers. Managers of those start-ups expect that two or three will survive an anticipated shakeout. Analysts say those companies that do survive will need to stay several steps ahead of established companies, as they muscle into Web services management.

"We definitely see (that) 2004 will be make-or-break for all new entrants," said Jason Bloomberg, an analyst at Web services research company ZapThink. "A couple of those (management) companies might survive, but five years down the road, they will be different companies."

The industry heavyweights are staking out their claims. Computer Associates International, which has a large presence in the more general systems management software market, is moving aggressively into Web services, as is Hewlett-Packard, which has made Web services part of its Adaptive Enterprise push.

Looming in the background are industry giants IBM and Microsoft, which have yet to outline specific plans for Web services management

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products. IBM, which considers Web services part of an overall system management plan, doesn't expect to sell a Web services-specific management product, at least for now, according to an IBM representative. Microsoft, meanwhile, has partnered with smaller specialized companies such as AmberPoint and Actional instead of building specific tools.

However, either company could easily add Web services management capabilities to existing tools, instantly changing the market dynamics and forcing start-ups to revamp their business plans or seek a partner.

Web services is following the well-worn path of other technology breakthroughs. Smaller companies embrace an emerging technology, be it relational databases or the Web, and garner funding in hopes of becoming the next Oracle or Yahoo. Along the way, many smaller companies get snapped up by established players eager to jump-start their investments in new technologies.

For Web services start-ups, "what's critically important is not the technology as much as the customer acquisition," said Martin Wolf, president of investment firm Martin Wolf Securities, who expects the field to thin out substantially during 2004.

The advent of Web services four years ago was heralded as a boon to both information technology companies and customers. Web services provide a way for businesses to communicate using XML documents and standard protocols, replacing more complex, proprietary methods. Although many futuristic visions of seamless e-commerce for consumers haven't yet panned out, Web services and XML are becoming the de facto standard interfaces for linking disparate corporate systems.

Now that many companies have developed or purchased applications that incorporate Web services standards, there's a growing interest in software to manage the applications, once they're deployed.

Web services management companies seek to fit the bill. They supply tools designed to make sure that applications are secure, don't crash and perform as intended. Unlike traditional systems-monitoring software, which checks whether servers or network devices are still working, Web services management software is tailored specifically for Web services protocols and modern, modular system designs.

Travel industry giant Sabre Holdings, for example, is using software from start-up Infravio to deploy services and make modified versions of its travel data, in Web services format, available to its agent customers. The tools enable Sabre to control aspects such as security, XML document routing, and application performance guidelines or service-level agreement compliance.

"We have different service-level agreements for different customers, and we're anticipating a lot more flexibility in the way we manage services," said Kim Farrow, director of Sabre Labs. "It's getting more complex."

Sabre did an exhaustive survey of companies in the Web services management field and chose to go with a start-up, because products from its existing management providers are not ready or as polished.

But Sabre is an early adopter of leading-edge technology; the company deployed about 20 Web services in July of last year and plans to roll out about as many this quarter, followed by regular roll-outs over the course of the year. Many companies, which are not as far along in Web services deployments, could decide to simply wait until their existing management software suppliers introduce Web services capabilities.

That's not an attractive scenario for the dozen or so companies in the Web services management field. With limited venture funding and looming competition from larger players, Web services start-ups have a tricky path to navigate.

Rough road ahead
Consolidation, in fact, has already begun. In September of last year, HP purchased start-up Talking Blocks to accelerate its own work and tie HP's OpenView product with other management software. Similarly, Computer Associates in July purchased Adjoin and in December released a Web services product closely tied to the company's well established Unicenter management tool suite.

Established players are betting that corporate customers, many of which have reduced the number of technology suppliers over the past two years, will be content waiting for their existing providers to introduce their Web services capability, rather than taking a risk with a smaller firm that has a limited track record. In theory, the advantage of relying on current providers is that Web services products will be well integrated with existing systems monitoring tools.

The market "where we see someone doing stand-alone Web services management," won't last long, said Al Smith, chief technology officer of HP's Web services management products.

Market researchers see today's Web services market as transitory. The larger management market will adopt many of the same technologies, such as a services-oriented architecture, which is a more flexible and cost-effective system design. ZapThink estimates that 70 percent of the broader systems management market will be services-oriented by 2007, representing about $19 billion in revenue.

For their part, executives at smaller outfits argue that Web services management gives them enough room to stay ahead of established companies in terms of features. And in a reflection of relatively tight venture capitalist spending, companies need to be well managed and frugal, they say.

"There is room for one or two companies to become big, but not in Web services management, in the narrow definition," said Alain Couder, chief executive of Confluent, which makes a Web services management tool bundle. Couder said the company, which recently secured another round of financing, plans to be profitable in 2005.

AmberPoint's Horst says his company is focused on tasks the larger software makers are not even considering. For example, AmberPoint software can look into the contents of XML messages and make decisions, such as giving a company's best Web customers the fastest services.

Horst sees a similarity between Web services management today and the relational database industry in the 1980s. Upstarts such as Oracle and Sybase came out of nowhere to displace larger, now extinct companies, such as Cullinet, built around older database technologies.

"The (thinking) back then (was) that if relational databases were important technology, then the incumbents will just adopt it, and if not, they'll buy the little guys," Horst said. Still, he believes that the issue of his company's long-term viability is "a topic we face in every one of our sales cycles."

Some Web services start-ups could also be on a collision course with application "platform" companies such as industry giants Microsoft, Oracle and IBM, which supply the server software, or middleware, to run Web applications.

For instance, Blue Titan, often categorized as a Web services management firm, sells what it calls a software "fabric" for building a services-oriented architecture. The company's software, built atop BEA Systems' WebLogic application server software, is designed for routing XML documents in large-scale Web services applications and enforcing policies for security and load balancing, said Sam Boonin, vice president of marketing at Blue Titan.

While Blue Titan's products don't exactly overlap with the products the big players sell, the subtlety of the differences could get lost in marketing noise. "The problem is (that) everyone says they do everything. For the customer, it's highly confusing," Boonin said.

Tom Rhinelander, an analyst at New Rowley Group, expects that the market for smaller Web services management companies will begin to split, as definitions and customer requirements become more clear.

Customers that want to migrate their current systems to a services-oriented architecture will go with specialized middleware and choose separate products for viewing the status of the networks, he predicts. "In the next year or two, we'll start to see more companies on the middleware side and more on the management side. The companies in between are going to have to make a decision," Rhinelander said.

For customers such as Sabre, choosing new Web services management technology from start-up companies poses some risks. But investing in "bleeding edge" technology is a risk that the company's willing to make in order to maintain its competitive edge, Farrow said.

"To move quickly, sometimes you have to take some risks with smaller companies," she said. "But they work hard for you and work with you, and sometimes the benefits are worth the risks."