Faced with declining sales and the reduction of their core technology to a commodity business, database software vendors are eyeing a la carte pricing and new technology areas in an effort to propup revenues.
Driven in part by Microsoft's (MSFT) successful attack on the low end of the database market, which introduced shrink-wrapped software pricing to what has been a premium-priced market, Oracle (ORCL), Sybase (SYBS), and Informix Software (IFMXE) are moving toward a lineup of core database products and extra-cost add-ons, said analysts familiar with the companies' plans.
Ted Shadler, an analyst with Forrester Research, said all of the companies are under increasing price pressure from Microsoft. "The driving factor here is the commoditization of database technology, driven by Microsoft. That's taking the value proposition of Unix and putting it under attack."
Oracle, Sybase, and Informix have enjoyed fat profit margins and brisk sales of their core database server software packages on Unix in the past, but the tide is turning.
In recent quarters, all major database players have seen a slump in year-over-year database sales. Oracle last month reported server sales growth of only 6 percent. Wall Street has hoped for growth in the range of 30-plus percent. Sybase, attempting to stage a comeback from a string of losing quarters, saw its database sales grow only 1 percent over the past 12 months.
Melissa Eisenstat, an analyst with Oppenheimer & Company, said, "We're concerned that the market is not growing as fast as it was. There is uncertainty about database growth."
Analysts said that uncertainty is leading database software companies to revamp their product packaging and pricing and to seek out new revenue growth areas.
By the end of this quarter, Informix, struggling to come back from disastrous financial disclosures and management turnovers, will announce a repackaging and repricing of its Universal Server database, analysts said. While Informix wouldn't comment on specific plans, the company confirmed that a simpler version of its product line is under way.
Merv Adrian, an analyst with Giga Information Group, said simplification will include splitting Universal Server into a core database and a set of extra-cost, add-on features, such as replication, clustering support, and other advanced technologies.
Adrian said the move by Informix is just the beginning of what could be a serious shakeup in the database software business. "We'll see more packaging options which will allow people to acquire technology in bite-sized chunks and let them buy only what they need," he said. "Sybase is already doing this, and Oracle is headed down that road."
Adrian said there will most likely be "a lower initial price" for database buyers in the coming year as vendors repackage. And that could also lead to some bargains for information systems buyers. "This could mean [database makers] will put more functionality in the kernel," Schadler said.
It could also mean that buyers will pay more for advanced technology like replication, component transaction technology, and object support.
Oracle already sells much of its advanced replication, data warehousing, and object support as extra-cost "options." Adrian and other market watchers expect Oracle to continue the trend. The company has already split Internet-specific technologies, such as electronic commerce servers and application server middleware, into separate add-ons built atop the core Oracle database.
Oracle is also enjoying brisk sales of its business application software, which grew by 96 percent last quarter compared to one year ago. And the company is increasingly focused on its Network Computing Architecture and NC-related technologies.
Sybase, recognizing that its most valuable products going forward will be middleware and tools, has put more emphasis on its Jaguar CTS transaction server and attendant tools in recent months.
The shakeup could lead to a very different database software landscape in the future.
According to Forrester, the only players left standing by 2001 will be Oracle, IBM (which has recently seen a resurgence in its database business), and Microsoft.
Sybase will most likely continue to be a strong development tool and middleware provider.
As for Informix? Schadler said, "We're just hearing the same old business model, rearticulated. They bet the bank on Universal Server. Now they have to fix the technology, along with the operations."
However, for Sybase and Informix the refocusing may not come soon enough. Boston Equity Research Group, a service that tracks technology demand, has downgraded Sybase to sell. In a report last week the service concluded that both Sybase and Informix continue to lose mindshare among corporate technology buyers.
Of Sybase users surveyed by the firm, 40 percent plan at least a partial transition away from Sybase software to database software from either Oracle, IBM, or Microsoft.
David Thor, a research analyst at Boston Equity, said, "Sybase will not play in a multiple database environment in the future."
"The Informix mess, to some extent, has taken some of the wind out of Sybase. The Informix mess has pointed out to some extent that Sybase is a small company in comparison to the others, and potentially less stable than Oracle and others. IS companies are trying to consolidate their IS investments. Sybase is not a safe bet at this point," said Thor.