Ten Reasons Why the Internet Application Server Market is the Best

Some may disagree with me. Certainly, Web services has gotten more buzz lately. And in a year from now, when there are actual Web services products being deployed, it may be a contender. Come back in 2003. Wireless is great--in theory. But until I can get a clear signal indoors and take my cell phone to Europe and actually have it work, there are just too many roadblocks up to give wireless the vote. CRM? Let's see--the customer satisfaction levels are down (how ironic) and the ISVs are getting their tails kicked by a bunch of start-ups offering online CRM services. CRM just isn't cutting it, frankly. The PC market is struggling and--even worse--completely bland and uniform outside of Apple. I'm still lost on the whole PDA thing. Intel alone isn't enough to make the chip market top dog. Operating systems... Well, you get the idea.

There were some runner-ups. Security software gets a nod. Storage software and hardware get some credit. But we're talking about the best on several levels--business applicability, customer satisfaction, innovation, market strength, competitive landscape and vendors. The Internet application server market is where it's at. Here's why:

The Technology

It all starts here. The Internet application server has become the hub for software activity, and many people have compared it to a sort of high-end nervous system. What began as sort of an e-business platform has evolved into a powerful middleware device that delivers applications. Depending on the product, the application server controls and manages essentially all software within the enterprise--the deployment, development and integration. The products themselves have become increasingly complex this year with the advent of Web services and the need for integration tools within the app server. While products like BEA WebLogic and IBM WebSphere have emerged as multiproduct platforms that incorporate everything from portal software to Web site design tools (WebSphere, for example, has more than 50 products besides the application server). The complexity, however, only proves that the application server is the true center of enterprise software.

The Vendors

Lions! Tigers! Bears! How many other markets have such fierce giants clamoring for domination right now? We're talking biggest of the big. You've got an elite quartet of software makers in BEA Systems, IBM, Oracle and Microsoft, smaller but still sizable vendors such as Macromedia and Sybase, and leading computer makers Sun Microsystems and Hewlett-Packard also fighting for a piece of the pie. Think about that for a second. Just look at the top quartet of software vendors. You've got three of the biggest software franchises on the planet, plus BEA, no slouch since it's pulling in about $1 billion a year in revenue and credited with putting the application server on the map. That's a lot of technology, money and brilliant minds charging this market.

The Race

If only every market had a tug of war this entertaining. BEA and IBM have been fighting ferociously for dominance over the past two years. Market share studies seem to fluctuate more than Enron's financials. BEA had the lead last year with WebLogic but most studies had IBM's WebSphere gaining on WebLogic and, in one instance, catching BEA (see The Analysts). That's how tight this race is. Together, the two companies control approximately 70 percent of the Internet application server market. The battle has sparked both vendors to build better software, adding new features and capabilities to the application server (if only every market was so lucky).

It's entertaining, too. BEA and IBM are like the Celtics and Lakers rivalry in the 1980s, although I'm not sure which company is L.A.'s "Showtime" dynasty or the Blue-Collar Classics of Boston. Seems like every month there's a volley of press releases that go something like, 'Colorado Selects BEA over IBM,' or 'European Firm Drops BEA in Favor of WebSphere.' Okay, maybe it's a bit childish, but it gives you a good idea of how these two software leaders are fighting for literally every customer. What a battle. Even the NHL playoffs can't touch this.

The Competition

If you drop down from the deadlocked slugfest between BEA and IBM, the competitive landscape is still brutal. Because the market is so competitive and the technology changing so rapidly, it's tough to get a read on who's leading and who's playing catch-up. Some studies don't consider Microsoft an application server player, for instance. Most market share research have Oracle, Sun and Microsoft each with single-digit market share competing for the third, fourth and fifth spots, and Macromedia, Sybase and HP just below that.

Wherever the players stand, all seem to have serious aspirations for their application server business. Oracle has upped its channel efforts for its Oracle 9iAS and plans to leverage its extensive database business to boost its application server presence. Microsoft is also ambitious with its Windows Server/.Net combination package and isn't going anywhere anytime soon. Macromedia's Coldfusion, while somewhat of a niche player, is nevertheless a popular product, as evidenced by its VARBusiness Annual Report Card wins. Sybase, for a dark horse contender, has a solid middleware business with its EAServer and database product line and generated nearly $1 billion in revenue in 2001. Sun has put a new emphasis on its software business and thrown more resources into building its iPlanet application server product line. HP remains a question, with most of the recent Compaq merger activity surrounding hardware, but the HP AS may have a host of new potential clients now that Compaq has been added.

It's a battlefield for sure, and only the strongest products will survive. Like the intense BEA-IBM rivalry, the overall contest in the application server market has led to remarkable innovation. The competition is so strong, in fact, that AMR Research predicts that soon only BEA, IBM, Microsoft and Oracle will be the only "significant players" in the application server market.

The Channel

Because the application server itself touches so many aspects of the enterprise, it's easy to see why the technology has established such a strong channel. So many types of partners can take advantage of the application server--system integrators, e-business consultants, software developers, ISVs. The vast number of partners has strongly benefited the development of the technology, too. With strong channels, there are thousands of developers and software experts contributing new solutions that help to mature the application server and expand it to new middleware frontiers. And, perhaps more than any other market, the channel has proved its might for application server vendors. It's not a coincidence that the top two players, BEA and IBM, clearly have the most aggressive and far-reaching channel programs.

The Analysts

It's a quick note, but one that must be made. Frankly, some of the best and brightest IT analysts in the business are covering the Internet application server market. Analysts like Giga Information Group's Mike Gilpin, IDC's Michele Rosen and Gartner's Yefim Natis supply insightful research and keen analysis on the market and help define the quickly changing technology. Plus, with numerous opinions and intensive market share studies, the analyst community offers some great fuel for this ultra-competitive market. Which brings me to my next point.

The Drama

Every good market must have some excitement, and I'm not just talking about civil lawsuits and accounting turmoil. I'm talking about good old-fashioned competitive controversy. I'm talking about drama.

Two months ago, I read a bold Hurwitz Group report entitled "Application Server Market Share--A Different Angle" that measured the market by "organizational penetration" and declared Oracle number one in that respect. Obviously, this shook a few trees, since Giga at last check had Oracle with a miniscule 6 percent. The report, by Hurwitz analyst Evan Quinn, had some interesting observations such as criticizing the lack of detailed information in vendors' financial reports, which usually play a big factor in determining market share, and the confusion around separating pure software license revenue from additional services and maintenance fees. Hurwitz surveyed 150 companies in North America late last summer and determined that Oracle lead the way with 40 percent of application servers deployed. The controversial report also stated that Oracle had penetrated more enterprises in North America than any other vendor.

I quoted some of Quinn's findings in a story on Oracle's renewed concentration on 9iAS ("Oracle Renews Focus on Application Server"). Shortly after it was published, I got some eye-opening responses. One particular e-mail that came from a BEA representative politely pointed out a few things, including that Quinn now works at Oracle in the analyst relations department. Now the trees were really shaking.

It's not just controversial analyst reports. There are other delights, too. A melee over Java and .Net that makes feudal Japan look like a sandbox scuffle. Terrible tales of channel conflict. Executive defections, departures and backstabbing. Juicy rumors of big time acquisitions, mergers and layoffs (not really much different than the rest of the IT industry, but still...). It's like daytime television, except with a purpose. Sometimes I feel guilty following this market so closely. It's just too much fun.

The Customers

All of this junk about the vendors, technology and partners wouldn't matter one bit if there weren't customers out there to invest in the application server. For that, a special nod goes to all the enterprises out there that have realized the importance of this technology and adopted it presently. You'd be hard-pressed to find a Fortune 500 company without an application server. The market may have slowed in the last year and certain vendors are obviously ailing, but the fact remains that customers are still buying the application server because it's a commodity. The demands of the enterprise for integrated, developable and deployable technology infrastructure has helped push the application server to new heights. And it's not just vertical enterprises. The application server is moving downstream to mid-market companies and to the federal and state governments.

The Personalities

This part should be included with The Vendors, but I think it deserves its own section because the application server market has some of the most interesting and successful executive personalities in the industry. Going down the list, it's like a who's who in technology--Bill Gates and Steve Ballmer, Lou Gerstner and now Sam Palmisano, Larry Ellison, Scott McNealy, and so on. There are more than just the big names. Two lesser-known executives, in fact, have taken leadership in the market. BEA's Alfred Chuang has proved a worthy predecessor to fellow founder Bill Coleman. Chuang, formerly the CTO, always had the technology know-how, but recently he has proven himself to be a shrewd businessman as well. As group executive of IBM Software Group, Steve Mills has put Big Blue's software business back on the map. Mills gets credit for executing an extremely ambitious and expensive plan to move IBM software up the charts with savvy marketing, strong channel initiatives and exciting technology strategies. It's leaders like these that have fulfilled the promise of technology.

The Possibilities

Web services? Wireless? Java or .Net? The future is just full of possibilities for the application server. The technology could become the all-powerful delivery device for software as a service. The application server may too become a crucial component in the mobile market as more and more wireless applications are developed. As advanced computing becomes more commonplace and accessible, more people will be using application servers. Gartner, for one, predicts that by 2004, most OS will have a bundled application server. Could the technology evolve where it becomes a force on the desktop? Will PC users have application servers instead of traditional operating systems? There are so many places for this dominant technology to go, it's hard to know what's coming next--but it's going to be interesting to find out. And that's why the application server market is the best in the business