Sensing that it is missing out on a potential bonanza, Oracle is planning to throw its substantial weight into a small but rapidly growing market for software that integrates business systems for e-commerce and other applications.
Oracle is wading in an area that is poised to explode, analysts said, driven by the influence of the Internet on corporate applications. The question is how it will compete with IBM and other companies that have a head-start in the market.
So-called enterprise application integration (EAI) software is used to link legacy systems, client/server, and Web-based applications, as well as popular enterprise resource planning (ERP) and database applications from Oracle and other software manufacturers.
Companies are pouring millions of dollars into trying to integrate software that was never meant to communicate with other systems. In turn, the integration software market is mushrooming, mostly to keep up with demand for tools that simplify the process of linking backend systems to new e-commerce applications.
"This area will be a magnet for competition going forward," said David Breiner, an analyst with Volpe Brown Whelan.
Oracle intends to make EAI software part of the "stack" of technology, including database software, development tools, and business applications, that it sells to large corporations, said a source familiar with the company's plans.
Oracle will by summer ship a handful of new EAI tools that work with existing message queuing and connectivity software. The company will rely heavily on its application server technology and recently announced XML support to provide links between software applications, said sources. Also playing a starring role in the strategy will be a new XML-based messaging broker that supports Java Messaging Services and can run on top of Oracle's 8i database, and messaging software from Tibco and IBM.
Other companies, including BEA and CrossWorlds, offer some, but not all the pieces of a true EAI package, said Anne Thomas, an analyst with the Patricia Seybold Group. While IBM offers many EAI pieces, the company has concentrated more on the infrastructure end of the market, Thomas said.
That leaves the market wide open for Oracle, analysts say. "Oracle is a market-driven company, and they see an emerging space with lots of potential revenue," said Merv Adrian, an analyst with Giga Information Group. "Right now, a lot of that money is being left on the table [by Oracle]."
One large Oracle customer said the company's plan makes sense. "We'll be very interested in what Oracle brings to market," said Cloene Goldsborough-Davis, vice president of information technology at Sprint PCS in Kansas City, Missouri. "They are trying to take a lot of the pain out of integration."
Goldsborough-Davis said that Sprint, faced with a major data integration dilemma when it designed its e-commerce site, built its own data integration layer from scratch. "We built a system internally because we couldn't find anything on the market that really fit what we needed," she said.
Looking forward to future projects, Goldsborough-Davis said Sprint PCS will most likely evaluate Oracle's EAI product. "We have some needs along those lines, but [Oracle] needs to tell us when it will really be here," she said.
An Oracle representative confirmed that the company plans an announcement in the next one to two months, and said that Oracle is in discussions with a number of potential partners in the EAI area. The representative declined to comment on specifics of the announcement.
Sources said Oracle will most likely partner with other software companies, such as TSI to provide specialized data transformation technology.
The move is being driven by Oracle management's perception that the company is missing out on lucrative integration business being scooped up by IBM and other players. "This type of a product will get them invited to the party they are not invited to now," Adrian said.
While Oracle will almost surely sell its EAI products alongside database and application software, analysts said that approach could be problematic for the software giant.
"It will be interesting to see if they set the EAI business off from the database business, so as not to limit their potential market," Breiner said. He explained that potential customers may already have another maker's database in place, and may not buy into the Oracle "stack" approach. In those cases, the company might be more successful selling EAI tools as separate from other Oracle products.
Hugo Toledo, a consultant with SSC, a Chicago-based systems management consulting firm, said Oracle will have an eager customer-base in existing Oracle database users. But it's debatable whether non-Oracle users will flock to the company's EAI technology.
"The very familiarity that makes them a name in the database world can cause those in a Microsoft or IBM shop to have a knee-jerk reaction and choose to go elsewhere," he said. "Your savvy organizations who realize they need to integrate all components effectively will give vendors a fair shake. But when you talk to IS managers, there are those prejudices out there."
A market with potential
The EAI market is just beginning to heat up. Goldman, Sachs estimates the size of the EAI market at about $300 million. But the market is expected to grow at a more than 110 percent compounded annual rate, to reach a whopping $5 billion by 2002, according to the firm. Other estimates from the Yankee Group peg the market at just more than $800 million, growing to more than $1 billion by 2001.
EAI builds on what is commonly called middleware, including message queuing software and message-oriented middleware. But the software goes beyond low-level middleware, Breiner said.
EAI is to middleware what spreadsheets are to operating systems. EAI is an application that makes use of underlying connectivity middleware and lets companies link dissimilar systems with a minimum of new coding.
Low-level middleware performs on the data level, making sure that a single transfer of data on pricing, product status, and account balances gets from point A to point B. In contrast, EAI tools can span multiple departments, and even multiple companies, and work with a series of complicated business rules to make sure dissimilar systems are updated.
For instance, an EAI system could be programmed to check inventory before plans are sent to manufacturing, and to update financial ledgers only when all of the steps in the process have been completed.
EAI systems are comprised of multiple parts: messaging middleware; a rules engine that routs information to interested parties; connectors to popular packaged applications and to homegrown and legacy systems that require little new programming; workflow capabilities; and an easy to use graphical interface for configuring systems.
Analysts said EAI tools, application servers, message queuing software, object request brokers, and other tools are slowly merging into one category of business integration tools. Goldman, Sachs predicts that the application server and EAI markets will converge, possibly in the next 12 to 24 months.
"The spoils will go to the early players in this area who have established market share," Breiner said.