Middleware Sales Are Slipping, But Could Rebound First

Published: May 11, 2009

by Dan Burger

Searching for some favorable IT spending-related news in a down economy? Here's something to get your attention. The application infrastructure and middleware market in 2008 grew 6.9 percent to reach a total of $15.1 billion in sales, according to Gartner statistics. Take into consideration that the increase in 2008 followed a very robust 2007 market that jumped 13.3 percent and totaled $14.1 billion. And the 2007 increase was piggybacked on two previous years of double-digit growth.

Although no longer riding such a prodigious winning streak, the staying power of this segment of the software space is indicative of the strength of this IT engine. Look for it to tail off, but expect the rebound to come before too long.

"Both the slowdown of the economy and the effects of the acquisition of BEA Systems, the second-largest middleware player, by Oracle played a major role in shaping the performance of the market," said Fabrizio Biscotti, research director at Gartner. "Because of budget cuts, there has been a gradual reduction of spending with consequent downsizing, delay or cancellation of projects that has undoubtedly hit vendors' revenues. On the other hand, an acquisition of such magnitude has led to the typical uncertainty that always follows major M&A activities. The combined net result of these two factors for the AIM market has been a single-digit growth rate after three consecutive years of double-digit growth."

Expectations for 2009 include some sputtering and eventually a stall. A market decline of 0.8 percent is how Biscotti sees it shaping up for all of 2009, in fact. What's good about this scenario? Biscotti said there are already signs of a pent-up demand, so IT spending in application infrastructure and middleware will likely be one of the early indicators that an economic turnaround is underway.

As we wait for the economy to regain its strength, we can be entertained by the pushing and shoving between IBM and Oracle, but some good advice for both those brutish players is to keep one eye on a few other important players that are pretty good in a fight themselves. Observing may not only be entertaining, it could actually induce a customer friendliness level none of these companies are particularly noted for demonstrating.

"Once the recent acquisitions have been digested from an operational and product portfolio perspective, we expect the competition at the top end of the market to become more fierce, to the benefit of customers," Biscotti said.

As you can see from the table above, IBM remains comfortably at the top of a five-vendor cluster with 30.8 percent of the total software revenue. Oracle jumped into the number two position because of its BEA acquisition, and was followed by Microsoft and Software AG. Both Microsoft and Software AG strengthened their positions against their immediate competitors. Tibco is the final vendor with enough market share to get its name mentioned. It's also the only named vendor to lose market share, unless you count Oracle and BEA together, in which case the Oracle-BEA combination lost two points of market share between 2007 and 2008. (Notice how Gartner didn't point that out?)

Although the top three companies account for nearly half the business in this market, Oracle has about half the market that IBM commands, and that happens to be about three times as much as the companies that rank below it. Based on its increasing market share, IBM must be pleased with its development and marketing of products and services pertaining to service oriented architecture, which is beginning to look like a road map for private cloud computing.

While the IT giants tussle for market dominance, there's still another 50 percent of the market that consists of numerous small vendors--notably Red Hat and its acquired JBoss middleware stack, which just doesn't rack up the dollars like WebSphere or Oracle Application Server or WebLogic, but which has a huge installed base. (Like its Linux brother.) To see a dark horse emerge from this pack, in terms of generating revenues, would be a huge surprise, but it seems likely that mergers and acquisitions will occur and those circumstances could have unexpected ramifications by creating a new challenger to the top companies or creating a tactical advantage for one of the top firms.

When you look at the fastest-growing segment of the AIM market, you find integration appliances at the top of chart--as they were in 2007--with a 44 percent increase in 2008. They are followed by service-oriented architecture (SOA) governance technologies, business process management suites, and enterprise service bus suites, which all grew at double-digit rates. Those indicators point to a continuing demand for service oriented architecture, but take note that a year ago ESB suites were number two on this list.

"Overall, the AIM market is in flux with vendors at the high end consolidating between major acquisitions, and solid organic growth of up-and-coming players," Biscotti said. "Nonetheless we are witnessing vibrant activity in emerging technology areas, such as extreme transaction processing platforms and complex event processing, which are stimulating the growth of highly specialized and innovative vendors that will surely gain visibility in the near future."

For Gartner's purposes, the AIM market includes general-purpose portal products, BPM-enabling technologies, application integration and platform middleware and B2B/multi-enterprise products, integration as a service, and integration appliances.

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