Year in review: In the software trenches

Businesses have taken an extended breather on IT spending, making it a tough year on companies that specialize in corporate software, such as SAP, Siebel Systems, PeopleSoft and Oracle.

Once booming software niches, including customer relationship management (CRM) and supply chain management, have fizzled, taking the sizzle out of the stock prices of former Wall Street darlings Siebel and i2 Technologies among others.

The scarcity of business has led already highly competitive software makers to turn to negative campaigning in the battle for sales. Siebel, leader of the CRM market, has been a particularly popular target. Rivals SAP and PeopleSoft say they're eating into Siebel's market share and converting its customers to their camps.

Siebel's prospects even came into question at one point, and rumors began to fly about a possible takeover by Microsoft. While that deal never materialized, it likely rattled the nerves of software companies already on edge about Microsoft's new interest in business applications.

Microsoft, which entered the market in 2001 with the acquisition of Great Plains, upped the ante this year with the acquisition of European software maker Navision and the announcement of the software giant's entree into the CRM market. Potential rivals downplayed Microsoft as a competitive threat.

Oracle, ordinarily an avid Microsoft basher, was too busy with other problems to say much about Microsoft encroaching on the business applications market. In the spring, the company found itself at the center of a political imbroglio over a $95 million contract with the state of California. The fiasco, involving accusations of improper campaign contributions, dissolution of the state's IT department, and the resignation of several agency heads, ended in a cancellation of the deal.

The company found itself in a harsh spotlight once again in August when high-tech manufacturer Agilent Technologies blamed a shortfall in third-quarter sales on problems it encountered installing its new set of Oracle applications. Later in the year, a number of Oracle customers banded together against an Oracle mandate to upgrade to the latest release of its applications by next June or lose the company's support for the older version.

But as unpleasant as the downturn in IT spending has been for software makers, big, established companies like Oracle and SAP are sure to be relishing the fall of once mighty up-and-comers like Ariba and i2 and the swing back to big, established companies as the safe choice for IT departments. They are also salivating over the U.S. government's Office of Homeland Security, aligning their wares and sales efforts in anticipation of an IT spending bonanza by the new federal agency.

The questions that remain on everyone's mind, however, are whether the corporate software market has hit bottom and when chief information officers will begin to loosen their purse strings again. On those issues, the jury is still out.

--Alorie Gilbert

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