The App-Dev Revolution

While development work is coming back slowly along with the rest of the IT economy, it's not in its pre-bubble-burst form—that now-unrealistic state when integrators regularly wracked up a year's worth of billable hours customizing an SAP system or constructing a monolithic CRM solution from scratch.

By necessity, today's solution providers are becoming nimbler in the software work they do, designing and developing targeted projects like those that solve regulatory compliance demands, such as HIPAA, or crafting wireless applications that let doctors and nurses stay connected while they roam hospital halls. Nine in 10 of survey respondents said their average app-dev projects are completed in less than a year now, with the smallest companies (those with less than $1 million in revenue) finishing up in the quickest time, three months, on average.

The need to get the job done faster for quick ROI might explain the growing popularity of Microsoft's .Net framework and tools. In our survey, 53 percent of VARs said they had developed a .Net application in the past 12 months, and 66 percent of them expect to do so in the coming 12 months.

While we are unlikely to ever again see the heady days of mid-'90s bounty, VARs are beginning to report an uptick in business. Indeed, half of those responding to our survey said their average app-dev project increased in size during the past 12 months, while only 6 percent said project size decreased.

Some of the hottest project areas they report this year include application integration, which 69 percent of VARs with between $10 million or more in revenue pinned as their busiest area. Other top development projects center around

e-commerce applications, CRM, business-intelligence solutions, enterprisewide portals and ERP, which appears to be making a comeback, thanks to the corporate scramble to shore up accounting procedures and systems in time to meet the Sarbanes-Oxley regulatory mandate.

At the same time, VARs in significant numbers are tapping open-source tools and exploiting Web services and XML to help cut down on expensive software-integration work; in effect, acknowledging that application development needs to be more cost-conscious and, thus, take advantage of open standards and reusable components. Our survey found that 32 percent of VARs had developed applications on Linux in the past six months, while 46 percent of them said they plan to do so in the next six months. The other open-source technologies they are using today run the gamut from databases and development tools to application servers.

Viewed from a macro perspective, our survey highlights the fact that application development is far from a one-size-fits-all market. As a business, it has many points of entry and areas of specialization. Our survey participants first arrived in the world of app dev in a variety of ways, from bidding on app-dev projects (45 percent) to partnering with more experienced developers and VARs (28 percent) to hiring more development personnel (31 percent).

Different Strokes

And just think about how varied these practitioners are: First off, you have traditional ISVs who build line-of-business software programs delivered to customers on shrink-wrapped CDs. According to our survey, ISVs account for 52 percent of application-development businesses. A far bigger crowd, at 72 percent, are VARs and integrators doing custom development, writing one-off applications for clients or crafting tested solutions that they can reuse over and over again. Add to the mix the hosted and managed application-service providers alongside VARs who tailor the big-name packages from Microsoft or Oracle to fit an individual customer's needs.

Solution providers who are successful are identifying the model that best works for them. In some cases, that has meant changing their business models altogether. Take Steve Deller, president and CEO at Virid in Reston, Va., and one of the participants in our State of Application Development survey. Deller switched gears to survive the dot-com implosion. In 1999, Virid looked to ride the wave of Internet consulting firms, designing and building Web sites and Web apps. It worked, for a time, but alas, the consulting gigs began to evaporate, leaving Deller at a crossroads. His decision? To build his own software. Armed with Microsoft's .Net framework and tools, Virid developed its first home-grown application, an e-commerce platform suite called Covella. Rather than sell it on CD to customers, Deller provides it only as a managed service. Today, 70 percent of Virid's business comes from managing and integrating its Covella app suite, while the original consulting work accounts for just 30 percent.

In making the change, Deller says his staff's technology skillset needed no upgrading; however, Virid's sales team did have to adopt new sales expertise because the consulting model is such a different animal to peddle. Business is picking up, he says, including recent deals with large customers, such as Barneys New York.

"Consulting is a cloud, where you do whatever [you] want," he says. "Now for us, it's more about pricing tiers. We still build integration points and the glue that ties our platform to underlying components. But now we have more recurring revenue, and not the peaks and valleys of consulting."

The managed-services and ASP models reflect a trend gaining renewed credibility among some ISVs who are searching for new ways to deliver and charge for their software. While outsourcing isn't gangbusters yet, 34 percent of solution providers in our State of Application Development survey say their applications are hosted by themselves or by a third party.

When it comes to business models, there are also legions of vertical specialists who exploit domain expertise in industries like telecom, finance and health care to craft niche software so crucial to today's companies in the midmarket.

Indianapolis-based Objtrx is a good example of a small development firm looking to make inroads with industry-specific applications. In business for two years now, president Jerry Willhite says his company is finishing up with the development of and about to roll into production its first two applications: one that manages logistics in the trucking industry, the other a supply-chain solution for resellers of kitchen appliances. As a regional solution provider, Willhite says he and his partner opted to target the SMB space with their applications, instead of larger accounts, and plan to eventually host and manage their solutions for those clients.

"We chose smaller customers because that's where we think we can be most effective," Willhite says.

According to our State of Application Development survey, health care (36 percent), retail (31 percent) and manufacturing (30 percent) ranked as the most popular vertical industries for which respondents are building custom applications. Broken down further, among VARs with less than $1 million in total sales, retail scored highest, while health care topped the list of midrange to large solution providers.

Vendor Support

When it comes to partnering with the major platform vendors, Microsoft comes out the hands-on winner among ISVs and other development shops. A whopping 76 percent of developers in our survey favored the Microsoft camp. Their level of devotion was evenly divided among small, midsize and large VARs who partner with Microsoft to develop and deliver their application solutions.

By contrast, the next closest vendor is IBM, with whom one in four VARs said they partner. Perhaps unsurprisingly, the IBM percentages were higher among the large VAR category (those with sales of $10 million or more), with 42 percent of their partners coming from that corporate demographic. Only 16 percent of smaller VARs partner with IBM, according to the survey. The same goes for Oracle: One-quarter of survey respondents reported partnering with the Redwood Shores, Calif.-based company, with 47 percent of them falling in the large VAR category.

On the deployment side, half of the developers surveyed picked Windows Server 2003/.Net as the primary platform to deliver their applications, while IBM's WebSphere application server was the choice for 7 percent of respondents. BEA's WebLogic grabbed 4 percent, and Oracle's 9i application server 3 percent of those VARs who said they use these app servers as their primary deployment vehicle.

One crucial caveat to note on deployment platforms: Developers who write their applications for Windows can only deploy on Windows, a rigidity that contributes, in part, to the large percentages racked up by Windows Server 2003 in our survey.

In the J2EE development world, where IBM, BEA, Oracle, Sun and others play, solution providers can deploy their applications on their choice of J2EE app servers, or none at all. The latter option, eschewing an app server altogether, garnered 19 percent of our survey respondents, the second-highest category after Windows Server 2003.

As you read through this issue of VARBusiness, our writers will break down in greater detail some of the more interesting findings from our app-dev survey. You'll get a glimpse into the commercial world of open source, where renegade executives incluing JBoss' Mark Fleury are making a business out of the "free" software movement, which, today, means much more than the Linux operating system. Other stories will tell you what the hottest project areas and technology trends are in development today, from services oriented architectures to application integration. We also evaluate vendor ISV partner programs from Microsoft to IBM, picking apart their varied approaches. And if you are considering a new delivery model for your packaged application, don't miss our article on software as a service. Finally, what would an issue be without some controversy? Read our interview with Darl McBride, president and CEO of SCO, a company that is (nearly) single-handedly shaking up the emerging Linux market with its intellectual property claims to Unix source code.