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Leaders emerge in application server market

Oracle, Sun, Apple Computer and Allaire captured the most revenue in the application server market last year, according to a new study.

The more than 50 software makers that crowded into the red-hot application server market a year ago have consolidated and clear leaders are beginning to emerge.

Oracle, Sun, Apple Computer, and Allaire captured the most revenue in the application server market last year, according to a new study by International Data Corp.

As the market consolidates, the remaining players--still numbering in the dozens--have all touted their products' speed and reliability in handling Web transactions. Now they're adding new e-commerce-related features, such as tools for Web publishing and building Web storefronts, to attract customers in a market that is expected to grow from $453.8 million in 1998 to $2.4 billion in 2003, the IDC study said.

An application server is software that acts like a traffic cop between Web browsers and back-end computing systems, such as databases. It runs business software and handles transactions, such as a Web surfers' request to buy goods online.

"There is a movement toward making the application server the core of virtually every major trend of any industry, whether it's portals, corporate intranets or e-commerce sites, on the Web," said IDC analyst Steve Garone. "So it behooves application server vendors to branch out to more total solutions."

Right now, Oracle leads the pack, according to the IDC study. The database giant raked in $70 million in application server revenue in 1998, according to IDC. Forte Software, recently acquired by Sun, placed second with $44 million in revenue, followed by Apple Computer, Allaire and Information Builders, who all hovered in the low $20 million range, the study found.

With Sun's acquisition of Forte, the Sun-Netscape Alliance now has three of the top 10 application servers in its arsenal. The company plans to merge the servers into one unified product. Sun's NetDynamics application server earned $18 million, while Netscape's product netted $17 million, the study found.

About half a dozen software firms made between $10 million and $12 million in 1998. They include BEA Systems, Bluestone, GemStone Systems, Silverstream and Persistence Software.

For the most part, software makers have settled on two competing programming models for application servers. Sun Microsystems and its squad of Java programming language supporters, such as Oracle, IBM, GemStone and Persistence, support the Enterprise JavaBeans programming model, while Microsoft supports its own programming model aimed at the Windows operating system. But some companies such as Apple support neither and have their own programming model.

IBM, considered a leader in the application server market, barely registered in the IDC study as the company was still building its application server in 1998. Another big player, Microsoft, was not listed in the study, because its application server was built into its Windows operating system, making revenue figures hard to track.

To compete in the crowded market, many software makers are specializing by tacking on new software for e-commerce, Web publishing and application integration.

"It's much easier to sell complete solutions than to sell just an application server," said analyst Anne Thomas Manes, of the Patricia Seybold Group.

While Sun-Netscape Alliance was one of the first to sell a family of e-commerce-related software, most application server makers have had to recently build the the new technology themselves, partner or acquire companies.

Several software firms are offering customers pre-written software code to help programmers quickly build e-commerce applications. BEA Systems, for example, recently purchased a start-up called Theory Center, which makes pre-built Java software code, called components.

Similarly, Oracle offers pre-built software code, called components, that handle connections to databases, while IBM is adding support for EJBs in its components for building financial and human resources applications.

Application server makers are also diving into Web publishing software--which lets businesses manage Web content--and personalization software, which profiles Web surfers and targets information based on their interests.

While many are partnering with content management software makers, such as Vignette and Interwoven, others like Allaire have built the technology themselves. Vignette, however, plans to take advantage of the growing application server market by reworking its software as components that support both Microsoft's and the Enterprise JavaBeans programming model.

"We're in a fabulous situation," said Bill Daniel, Vignette's vice president of products. "There are no big independent application server vendors anymore. Bluestone and GemStone--those guys are small. And you've got these little guys moving up to applications and trying to differentiate themselves."

Application servers are also adding software for business integration software. To connect employees, customers and partners together on the Web, businesses need to integrate business software that was never meant to communicate and interoperate, such as mainframe software and human resources and financial applications.

The Sun-Netscape Alliance, for example, will have an adapter that connects its forthcoming iPlanet Application Server 6.0 with its Forte Fusion integration software. Oracle recently announced the Oracle Integration Server, which includes business messaging software based on the Java programming language and Extensible Markup Language (XML), a popular Web standard that helps businesses exchange data.

Some analysts even believe application server makers and firms who build e-commerce, content management and business application integration software could all potentially consolidate in the future. Integration software maker TSI recently purchased application server maker Novera, for example.

Doculabs analyst Jeetu Patel said all the different software companies who make application servers, application integration software and Web publishing and e-commerce tools, all need each other.

"Application server vendors will start doing a lot of work with application integration vendors and e-commerce vendors," Patel said. "It's a logical evolution."