Megavendors Will 'Handcuff' Your Enterprise Architecture

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1 Strategic Planning, J. Comport, B. Burton Research Note 28 April 2003 Megavendors Will 'Handcuff' Your Enterprise Architecture Increases in componentry and openness in packaged application architecture belies a megavendor agenda for greater architecture ownership and customer lock-in. Core Topic Architects and Planners: Building the Architecture Key Issue What are the most critical steps in building an enterprise architecture? Strategic Planning Assumptions By 2007, application platform suites from IBM, Microsoft, Oracle, Sun Microsystems and SAP will emerge as the technology foundations for more than 70 percent of ERP II products (0.7 probability). Through 2008, megapackage vendors will use varying combinations of infrastructure depth and business process breadth in an attempt to increase their customer wallet share (0.8 probability). applications have always come with "baggage." For years the adage has been, "buy an application, inherit an architecture." That adage remains true. Even with an increase in openness, service-oriented architectures, exposed integration layers and metadata, mega-application vendors use architecture for account control and increased "wallet share." Megavendors differ in the level of infrastructure associated with their applications and in their intentions for future infrastructure tie-in. Figure 1 shows vendor presence in the application and infrastructure stack with areas of origin and strength shaded and areas of less presence unshaded. Gartner Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 Figure 1 Trend: Renewed Battle for Infrastructure Control OS/File Infrastructure SAP's Depth Technology Stack ( Application platform suite) Source: Gartner Research (April 2003) OS /File Siebel s' Technology Stack File OS Oracle's Technology Stack OS/File Hardware IBM's Technology Stack OS/File Microsoft's Technology Stack Vendors have multiple reasons for increasing their presence in the overall stack: Engineering control to improve performance and functionality More-tangible things that are easier to sell to each customer, as opposed to vague things such as components and models Competitor displacement by insinuating full stack as a sunk cost Richer, protected maintenance stream Control of independent software vendors (ISVs) associated with their ecosystems More control over the pace of innovation in their ecosystems However, there are drawbacks: R&D complexity and expense is higher It requires skills outside of vendor core competency There is a longer sales cycle because of farther-reaching implications of buying decisions The Gartner New Enterprise Architecture emphasizes planning for a heterogeneous portfolio of applications and technologies 28 April

3 (see "Defining Architecture for IT: A Framework of Frameworks"). Even so, having a megavendor in your portfolio can disproportionately distort the balance toward the vendor's technology now and increasingly in the future. By 2007, application platform suites from IBM, Microsoft, Oracle, Sun Microsystems and SAP will emerge as the technology foundations for more than 70 percent of ERP II products (0.7 probability). Users evaluating applications should consider if and when that matches their enterprise objectives. As IT budgets get tighter, so does the battle for architectural domination and, thus, market share dominance increases. Many software vendors have tried one-stop-shop differentiation, while others offer a best-of-breed approach to differentiation all are attempts to lock in customers to their solution sets. The ongoing tussle for control of the application deployment infrastructure in the enterprise has resulted in an overlap in the roles of the different layers of the computing and technology stack. Because competing vendors have different strengths, it is reasonable for vendors to fashion strategies that play to their strengths and minimize those of their competitors. With functionality overlap crossing boundaries between layers, deployment options will lock enterprises into not only the products involved, but also the architectural direction of the vendor. Enterprises should direct the search for optimal deployment of functionality by the constraints of the application, and not vendor perceptions of where the functionality should be placed. SAP. The expansion of this megavendor's packaged suites has pushed it further and further into development and server technology. With business logic and transaction management centered in its application server, the vendor has little use for the features of high-end database managers, and has the potential to subsume the database into its stack, except for the highest-volume implementations. SAP's strength is breadth of application offerings; its challenge is demonstrating an ability to expand into the platform markets (see "SAP's Visionary NetWeaver May Prove a Risky Bet") it would be very late to market with any truly competitive technology that is, database management system () and file system offerings. Siebel s. This megavendor migrated from a path of enhancing its proprietary application server layer to a strategy of greater reliance on using commercial application server technology. It intends to leverage the infrastructure of IBM and Microsoft. Siebel's strength is its dominant position and its focus on customer relationship management (CRM); its challenge is its dependence on other infrastructure and platform providers, and its lack of experience and depth in offering a platform. 28 April

4 Oracle. This megavendor has one of the fullest application and infrastructure stacks that has been built from the outward. Most recently, Oracle has begun to promote the use of Linux as all that is needed to host the balance of the Oracle stack. Oracle's strength is that it provides customers with a comprehensive stack; its challenge is its reliance on Oracle's, which has experienced flat to declining revenue during the past two years. Although not coveting the OS layer, Oracle seeks to commoditize the OS as a way to displace any customer foothold for database competitors, IBM and Microsoft. IBM. This megavendor has built its substantial stack presence from hardware and OS upward. Historically, it has had more success in providing infrastructure and services around custom applications and other vendor applications than as a packaged application provider. IBM's strength is its enterprise installed base, and the service capabilities aimed at complex enterprise environments; its challenge is to consolidate its diverse and overlapping software portfolio, and maintain existing customers while expanding into new markets such as small and midsize businesses (SMBs). IBM will continue to shift the customer lock-in from hardware to software, and continue to consolidate and rationalize a complete IBM software stack (see IBM's Software Portfolio). Microsoft. This megavendor's significant presence in server OS, database and middleware and dominance in desktop applications has not yet translated into equivalent penetration for business applications, such as enterprise resource planning (ERP) II and CRM. Microsoft's acquisitions of Great Plains and Navision have resulted in business application offerings targeted at SMBs. Nevertheless, Microsoft's potential as an application competitor remains partially responsible for larger ISVs being hesitant to lock in to more than the OS and database layers of the Microsoft stack. Microsoft's strength is its ability to define a technology and development infrastructure for its products, partners and customers to rally around; its challenge is in completing execution and delivering on a highly integrated stack. Figure 2 compares the strategies of the megavendors to those of selected best-of-breed vendors. A vendor's strategic choices are characterized by the degree to which they tie into the vendor's infrastructure stack compared to the breadth of its business application offerings. A vendor's position on the chart is a representation of the character of the strategy, not a judgment of its correctness; many winning and losing strategies are possible. 28 April

5 Figure 2 Portfolio Share: Vendor Strategies Emerge Technology Fortress Business Utilities IBM Microsoft Oracle Infrastructure Depth BEA i2 SAP PeopleSoft Siebel Siebel s Application Symbionts Infrastructure Agnostics Application and Business Process Suite Breadth Source: Gartner Research (April 2003) Business Utility: The strategy of "business utility" is a mostchallenging strategy to sustain, but perhaps the most-richly rewarding for the vendor if executed. In this strategy, a complete infrastructure and a wide set of business application offerings come from a single vendor. Characterized by Oracle and SAP, these vendors tout integration and a community of applications, but market the efficiencies and benefits of one-stop shopping. Only vendors that can sustain high product R&D and demonstrate long-term viability can be successful in delivering product innovation over time and convincing would-be buyers to tie themselves to a single, preferred vendor. Users choosing vendors in this category are more likely to abdicate architectural control of enterprise architecture to the vendor's architectural strategy. Infrastructure Agnostics: Vendors with a wide range of business applications that seek to minimize the degree of infrastructure tie-in have been termed "infrastructure agnostics." Characterized by PeopleSoft and Siebel, these vendors seek to broaden target markets by remaining technology-neutral. The strategy only remains credible if the products for all supported environments come to market in the same time frame, with equal quality, performance and capability. Any unbalancing of technology support risks making orphans of customers based on the less-favored technology, with the accompanying loss of customer loyalty and reinvestment. This is the analog in infrastructure of a similar strategy that played out when vendors first considered supporting multiple relational database management systems. Enterprises aligning with vendors using this strategy must judge the sincerity of the vendor's stated strategy as well as the credibility of the execution plan. 28 April

6 Technology Fortress: Vendors with more of a focus on loyalty to their technology than business applications have a "technical fortress" strategy. Characterized by IBM and Microsoft, they cultivate exclusive loyalty to their platforms. They court commitment from enterprise developers and ISVs. Success is measured by the ability to build an ecosystem. Cross-software platform interoperability, which is at the heart of an infrastructureagnostic vendor's strategy, is counter to the "technology fortress" strategy objective. It is only provided to the degree that is demanded by platform constituents. Microsoft's fortress includes the operating system and the application platform stack (and perhaps even the database). IBM is more neutral regarding the operating system and has built its technology fortress around the application platform stack. Through 2007, neither IBM nor Microsoft will dominate the other in terms of market share of total infrastructure stack (0.8 probability). The cost of interoperability and platform neutrality will continue to shift away from technology fortress vendors and toward the infrastructure agnostics, making their strategies increasingly expensive to maintain. Despite references to standards, through the power of their brands, megavendors will continue to create barriers to entry and reduce the appeal to ISVs of alternative technology fortress platforms, such as BEA s. Technology fortress vendors face their greatest market threat from the ability of "business utility" vendors to drain away loyalists to their technology fortress ecosystems. Application Symbionts: Application symbionts have a narrow, best-of-breed offering and little technology infrastructure of their own. Characterized by i2 Technologies, vendors with this strategy typically do not have the interest or resources to assert their own infrastructure stacks. Additionally, resource constraints inhibit their ability to neutrally operate across multiple infrastructure stacks. This forces them to choose; and any choice is market-narrowing. Choosing symbiosis with a technology fortress megavendor protects them from business application megavendors, but limits their presence in those substantial business application ecosystems. Partnering with megavendors exposes them to functional harvesting and direct competition megavendors that have more substantial channels. Ironically, at a time when component technologies and loose coupling offer higher access to discrete functionality expressed as services, best-of-breed vendors remain cut off from larger markets by the technical and functional "turf grabs" of larger vendors. As before, enterprises evaluating best-of-breed vendors must examine the stability of their technologies and market strategies along with their functionality and viability. As the booming market of the late 1990s moderated to much lower growth rates, vendors have needed to adjust. The 28 April

7 adjustment has been sobering to the megavendors and punishing to smaller, specialized vendors with fewer resources. Diminishing license growth exposes the cost mistakes of the past and is forcing a new focus on margins. With this comes a rediscovery of the annuity nature of software applications. Even with the rise of integration, Web services, portals and componentry, vendors can rely on the sunk infrastructure cost of customers, the high cost of switching and the desire for an application portfolio with fewer vendors as forces to keep revenue flowing from the installed base. To do that, vendors have focused on a time-honored formula: keep new functions coming, create a "Trojan horse" technical dependency and siphon a share of professional services. Other variations, such as midmarket strategies, global differentiation and alternate delivery channels, have become secondary. Through 2008, "megapackage" vendors will use varying combinations of infrastructure depth and business process breadth in an attempt to increase their customer wallet share (0.8 probability). Acronym Key CRM ERP ISV OS SMB Customer relationship management Database management system Enterprise resource planning Independent software vendor Operating system Small and midsize business Bottom Line: Because vendors will likely succeed in making them customers for life, enterprises should carefully evaluate compatibility with a vendor's industry, technical strategies and service strategies initially and over time. The basis for that review is consideration of the application and its related technology in the context of an enterprise's architecture. Most enterprises will find that they end up supporting multiple vendor stacks based on application requirements, development needs and negotiation flexibility. They should plan on incurring the additional costs of staffing and management requirements, based on the expectation that these resources will be required to maximize their enterprise architecture flexibility and agility. 28 April