Market Overview and Share

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1 Markets, C. Graham, T. Friedman, B. Gassman Research Note 7 November 2003 Slow Growth Ahead for ETL Tools Market Extraction, transformation and loading software showed less than 1 percent growth in new license revenue in This is expected to continue through 2007, as vendors from related markets compete with pure-play ETL vendors. Core Topic Business Intelligence and Data Warehousing: Business Intelligence and Data Warehousing Markets and Technologies Key Issue How will business intelligence and data warehousing vendors react to market challenges, and which will lead the markets? Market Overview and Share Although the extraction, transformation and loading (ETL) software market did not experience the double-digit declines that other software markets did, it did not fare particularly well. Seeing growth of only 0.2 percent in 2002, down from growth of 1.3 percent in 2001, ETL vendors continued to struggle in this highly fragmented market under the dragging effects of an economic downturn. Despite rather low growth for the market overall, a surprising number of vendors saw double-digit increases in license revenue. The majority of growth in the ETL software market has been a result of enterprises realizing the value of existing data, and their efforts to capture this value through data warehouses. While enterprises are struggling with the difficult task of transforming operational data into a format suitable for business intelligence (BI) activities, there is still no direct correlation between ETL license revenue and the increasing number of BI and data-warehousing initiatives. The main reason for this is that ETL tools are not yet commonplace in large enterprises. The majority of data-warehousing implementations still rely on custom coding to deliver their ETL processes. These activities are areas of potential growth that, as yet, remain untapped. In terms of market share in 2002, Informatica remained the clear leader in the ETL market, despite an overall decline of nearly 18 percent in new license software revenue. Ascential held the No. 2 position and saw growth of more than 23 percent, which led to a market share increase (see Table 1). Together, the top-three vendors in the ETL tools market commanded more than 50 percent of total license revenue in 2002, with the remainder of the market fragmented across a 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 large number of small vendors (see "ETL Magic Quadrant Update, 2H03: The Market Broadens"). Table 1 Top-Five ETL Software Vendors by New License Sales (Percent) Vendor Market Share in 2002 (%) 2002 Growth (%) Informatica Ascential SAS Institute Others Source: Gartner Dataquest (October 2003) Although the large database management system (DBMS) vendors (Oracle, IBM and Microsoft) participate in the ETL market, their impact on the ETL market size and share is negligible, because they are typically not selling ETL tools as stand-alone products with direct license revenue. Oracle's Warehouse Builder ETL tool is bundled in the Oracle Developer Suite of products, Microsoft includes its ETL functionality as a component of the SQL Server DBMS, and IBM takes a hybrid approach with some ETL functionality delivered with the DB2 DBMS and enhanced functionality available for added cost. The DBMS vendors should have a significant impact on the market, achieving larger installed bases than the independent ETL vendors and causing prices to erode. As with the DBMS vendors, BI vendors are trying to expand further into the ETL market, as shown by Business Objects' acquisition of Acta in 2002 and SAS Institute's improvements to its ETL Studio product. However, success in the ETL market has been somewhat mixed among the BI vendors. Most growth for BI vendors in the ETL space comes from their established customer base. The challenge will be for BI vendors to break out of this box and achieve success in competitive situations outside their installed bases. Forecast Overview A trend driving growth in the ETL market is large enterprises' need for efficiency and lower total cost of ownership (TCO) in data integration efforts. Many enterprises are looking to simplify integration processes and reduce the time to delivery and cost of support. Other trends include the convergence of ETL with other software segments, as vendors add more application integrationtype functionality to their products. In addition, many ETL vendors are forming relationships with application integration vendors to support new customer initiatives, such as business activity monitoring (BAM). Further disruption in the ETL market will be caused by vendors from other software markets, such as 7 November

3 DBMS, including and improving ETL functionality bundled into their core products at no additional cost to the customer. The ETL software market will grow from $368 million to approximately $390 million in new license revenue in 2007, with a five-year compound annual growth rate (CAGR) of 1.1 percent (see Figure 1). This is even more conservative than last year's forecast five-year CAGR of 3.3 percent. Gartner is projecting year-over-year growth of almost 4 percent for 2003 and This near-term uptick is a result of increased demand for BI and data warehousing, as well as the fact that enterprises are looking for ways to improve ETL processes. Thus, they are looking to purchase ETL tools, rather than rely on custom coding. However, the DBMS vendors that are bundling ETL with the database are steadily improving their ETL capabilities. Therefore, we are projecting a slow and declining growth pattern for 2005 through 2007, as some enterprises looking for a basic ETL tool will find the inexpensive or free ETL offering bundled with their database to be an adequate solution, rather than purchasing a stand-alone product from an ETL vendor. We expect the smaller ETL vendors to be more affected by the DBMS vendors' incursion than the market leaders, because enterprises with advanced BI initiatives and other complex data integration challenges will often require a best-of-breed solution. Figure 1 ETL Software New License Sales Forecast, ($ in millions) Source: Gartner Dataquest (October 2003) New License Revenue 7 November

4 ETL Tools: Forecast Drivers and Inhibitors Forecast Drivers: The following are drivers of the ETL tools market: The need to reduce TCO will drive the purchase of tools that increase operational efficiency and enable better use of data management resources. Despite economic difficulties, enterprises want to leverage established infrastructure and transform operational data into a format suitable for BI activities. Most CIOs are expecting to be able to spend all of their 2003 IT budgets (as opposed to returning a portion as was called for in 2002). This will result in a small seasonal pop in spending. Using off-the-shelf ETL tools can be a cost-saving technique to replace more-customized ETL tools, which can be more complex and expensive in terms of the support and maintenance staff. Increased funding of BI projects will drive growth in supporting technologies, such as ETL and integration software. Increased regulations, such as Sarbanes-Oxley and the Health Insurance Portability and Accountability Act (HIPAA), dealing with data capture, access, analysis and storage will drive additional IT spending in these areas. Forecast Inhibitors: The following are inhibitors to the ETL tools market: A lack of funding for new technologies because of the economic issues of the past two years will delay time to market for many new companies, slowing the rate of implementation of new product ideas. Companies will have difficulty changing from custom code to an ETL tool with small budgets and a time-constrained staff. A wide range of disparate products targeting different pieces of the data integration problem confuses customers and delays the decision process. The increased use of application integration middleware (AIM) and Extensible Markup Language (XML) encoding of schemas reduces the requirement for complex ETL solutions. Major DBMS and enterprise resource planning (ERP) vendors continue to push into the market with competing offerings that erode ETL sales. In the case of the major 7 November

5 DBMS vendors, such as Oracle and Microsoft, their ETL offerings are free or nearly free. This is expected to result in a significant uptake of their offerings and little growth in terms of revenue for the ETL market as a whole, and will stunt the growth of today's niche ETL vendors. Acronym Key AIM BAM BI CAGR DBMS ERP ETL HIPAA TCO XML application integration middleware business activity monitoring business intelligence compound annual growth rate database management system enterprise resource planning extraction, transformation and loading Health Insurance Portability and Accountability Act total cost of ownership Extensible Markup Language Bottom Line: The extraction, transformation and loading market is expected to see an uptick in growth during the next two to three years, followed by an equally significant decline. This creates unique challenges for ETL vendors. With business intelligence and database management system vendors looking to expand their share of the BI environment, traditional pure-play ETL vendors must focus on delivering value and customer satisfaction more than ever. To combat DBMS vendors that are providing basic, but inexpensive ETL functionality tightly integrated with their DBMS products, pure-play ETL vendors must take on the uphill battle of educating and persuading bargain-hunting enterprises of the necessity of full and innovative ETL products. In addition, pure-play ETL vendors should differentiate themselves by pushing ETL outside the boundaries of BI and data warehousing into such areas as system conversions/consolidation, data synchronization between operational systems and business-to business data exchange. 7 November