May 22, 2002 11:40 AM PDT

How close can Big Blue get to BEA?

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Application server software giants regroup

December 3, 2001
BEA Systems has maintained its lead in the lucrative market for a key piece of e-business software, but IBM is quickly closing the gap, new studies show.

BEA controls 34 percent of the application server software market, followed by IBM with 31 percent, according to the study released Wednesday by Gartner Dataquest. Application server software is used by companies to run e-commerce and other Web site transactions.

BEA increased its lead by one percentage point over the past year, while IBM came on strong, gaining 9 percent in 2001, according to the study. Another study released Wednesday from IDC also found BEA to be the leader with IBM a close second. Earlier this year, Giga Information Group released a study that showed IBM and BEA in a dead heat, each garnering 34 percent of the market.

"It's a battle between the two companies--and it's a big battle," said Gartner analyst Joanne Morin Correia. "BEA is a smart company. They're not an underdog in this situation, but this year is critical for them."

"Our gain in market share in the face of IBM's massive marketing blitz shows that BEA continues to have a compelling competitive advantage," said John Kiger, BEA's director of product marketing.

IBM has rapidly gained market share, in part, due to the company's large sales and marketing team, which sells IBM's WebSphere application server as part of larger software and hardware deals, Correia said. IBM has also improved its technology over the past year.

Overall, the market for stand-alone application servers grew about 20 percent in 2001, to reach $1.18 billion, the Gartner study said. That's a far cry from the 92 percent growth in revenue in 2000.

Gartner said Sun Microsystems ranked third with 9 percent, followed by Iona Technologies with 3 percent, and Sybase with 1 percent. The remaining application server makers captured 22 percent. Oracle, a major player in the market, is not part of Gartner's stand-alone application server category because its product has other technology, such as portal software, built into its application server.

In Gartner's category for bundled application servers, which reached $1.9 billion, Oracle placed third with 12 percent of the market, behind IBM with 33 percent and BEA with 24 percent. Sun was fourth in that category with 8 percent, followed by Fujitsu with 7 percent.

Microsoft, which sells its application server software as part of the Windows operating system, was not included in any of the application server market studies.

Oracle executives say the results show the company is coming on strong in the application server market.

"This is another validation on how well we've pretty much come from nowhere and are rapidly eating our way into this market," said Rene Bonvanie, vice president for Oracle's 9i marketing. "We are on track to execute on our strategy to be a solid No. 2 player in the next 12 to 18 months."

Gartner predicted that the stand-alone application server market would grow to $3.2 billion by 2006, while IDC predicted it would reach $4.4 billion by 2006.

Overall, demand for application server software--like many other technologies--has slowed from the rapid growth seen in prior years. Many software makers have begun integrating other technology into their application servers in an effort to differentiate their products in the market. Some makers, such as Sun and Hewlett-Packard, bundle application servers into other products, and then sell new add-on products which carry higher profit margins.

For instance, Sun on Wednesday said it will bundle its Sun One application server into its Solaris 9 operating system by year's end. Sun's move directly targets BEA, because the company sells most of its software on the Solaris operating system running on Sun hardware. By offering a free application server inside Solaris, Sun could lessen the need for customers to buy its application server software from others. It could also drive demand for its server hardware through sales of software and hardware bundles.

Oracle has turned to the application server market to augment slowing sales of its flagship database server software. In a separate study released on Wednesday, IDC found that Oracle maintained its lead in the database server software market by a slim margin over IBM and Microsoft. A study released earlier this month by Gartner Dataquest found that IBM had overtaken Oracle for the market share lead in the database software market, largely due to its acquisition of Informix Software.

 

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