Enterprise software field is shrinking

Oracle, SAP plan major acquisitions but promise customers continued support

'Five years ago, [customers] wanted...the hot start-up, more complexity. We made a mess we're now cleaning up.' ' Charles Phillips, Oracle president

Mark Lennihan/AP

Earlier this month, Oracle announced it was planning to acquire BEA Systems, offering $6.6 billion for the company. BEA has thus far turned down the offer, though talks are ongoing. A week earlier, fellow enterprise resource planning software provider SAP announced it was acquiring business intelligence software vendor Business Objects for $6.8 billion.

And, last week, perhaps in response to Oracle's BEA announcement, SAP announced that it is acquiring the privately held Yasu Technologies. Like BEA, Yasu offers Business Process Management software, or software that allows users to automate routine organizational processes.

At first glance, such multibillion purchases might appear to be similar ' two competitors locked in an arms race of software acquisition. Yet Oracle and SAP are actually operating with different agendas, according to Bart Narter, a senior analyst at Celent, a financial research and consulting firm.

While Oracle has been buying companies aggressively and purchasing large companies ' such as PeopleSoft, Siebel Systems and Hyperion ' SAP has been a lot more selective about purchasing companies, seeming to prefer developing technologies internally. Both, however, speak to changes in the enterprise software market.

Speaking a day before Oracle's announcement, Oracle President Charles Phillips said that acquisitions are important because it allows the company to fill out its product portfolio and offer a broad, integrated stack of applications for customers.

Oracle's customers 'want us to provide integration off the shelf now. This is maturation of the industry, one that would reduce complexity,' Phillips said. 'Five years ago, they were thinking they wanted more suppliers, [They wanted to purchase a product from] whatever the hot start-up, more complexity. We made a mess we're now cleaning up.'

Industry observers note that BEA, if purchased, would fill some valuable gaps in Oracle's portfolio. BEA offers WebLogic, one of the most widely used application servers on the market. Oracle's own offering, OC4J, hasn't attracted as many customers.

'Oracle OC4J doesn't have a very good technical reputation. WebLogic is a much better product,' e-mailed Marc Fleury, who co-created another application server, the JBoss open-source application server.

Fleury credits JBoss and other open-source application servers with squeezing BEA itself, and could perhaps play a role in the sale, if it goes through.

'The pressure of open-source software on proprietary vendor[s] of middleware has been increasing since 2001. BEA has been stagnant because of JBoss, and Oracle is very aware of the competitive dynamics,' Fleury wrote.

Narter noted that, at least in the financial community, WebLogic is widely used, though Oracle's application server or Fusion-branded middleware and enterprise software offerings are rarely deployed.

With its acquisition of Business Objects, SAP plans to add more advanced data analysis and reporting capabilities for customers of its Netweaver business process platform.

Both BEA and Business Objects have a considerable number of federal customers.
BEA's WebLogic Server 8.1 earned Evaluation Assurance Level 2 Common Criteria Certification from the National Information Assurance Partnership, making it suitable for use on secure Defense systems. Business Objects has provided data warehouse and business intelligence solutions to the Defense Department, performance management software to the Environmental Protection Agency and a data warehouse support system to Wisconsin's Department of Health Services.

Oracle's Phillips said, and analysts agreed, that customers should not worry about support for BEA products.

'It's not in Oracle's interest to get customers to defect,' said Laurent Lachal, a senior analyst at information technology research firm Ovum. Oracle 'can point to its record with PeopleSoft, where after a very contentious takeover that many customers opposed, Oracle has managed to hold onto and even in some cases enhance the user base for PeopleSoft products.'

Outside observers are not so sanguine, though. Narter said that BEA plays a crucial role of offering vendor-neutral middleware to large organizations. 'BEA doesn't have credibility issues,' he said. With Oracle in both markets, such neutrality is anything but assured.

GCN senior writer Rutrell Yasin contributed to this article.

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