Quocirca's Straight Talking: The politics of enterprise applications

The ongoing battle for the ownership of PeopleSoft, coupled with a deal recently between that vendor and IBM, highlights one of tech's fiercest areas. Quocirca analyst Bob Tarzey pinpoints the significance of the current jostling.

It is easy to dismiss the announcement last week that PeopleSoft will standardise its enterprise applications software on IBM's WebSphere platform as just another attempt by PeopleSoft to ward off the takeover threat from Oracle. Indeed, it is another irritant for Oracle, added to the others - poison pills, money back offers and so on - in its attempt to gain control of the world's number two vendor of enterprise applications and take that position itself from its current standing as a distant third.

The timing of the announcement is opportune, given that the US District Court has ruled this month that Oracle's proposed acquisition of PeopleSoft does not violate US antitrust laws and that the European Commission has stated its intention to announce its ruling soon. But there is more to the news than this when viewed from IBM's side - the announcement has increased the stakes in the battle for domination of the application server market.

Most enterprise applications no longer run directly on an operating system, be it Windows, Linux or Unix. Most are now written to run on an application server which allows different applications to share resources and interact with each other more easily. IBM's WebSphere is the leading Java-based application server written to support a standard called J2EE. The main alternative to J2EE for application developers is Microsoft's .NET.

The PeopleSoft deal strengthens IBM's market-leading position in the J2EE application server market as new licences of PeopleSoft's enterprise applications will be shipped with WebSphere embedded. This is a poke in the eye for BEA Systems, whose WebLogic is the number two J2EE application server and also currently supported by PeopleSoft. And it is yet another source of irritation for Oracle, which is also a distant third in the J2EE application server market.

Both PeopleSoft and IBM have touted the announcement as "the most significant enterprise applications alliance in the history of the two companies". And, with a tie-up between the number one J2EE application server vendor and the number two enterprise application vendor, what could be bigger?

Well, it could have been the world's number one vendor of enterprise applications, SAP, committing to that other widely used application server, Microsoft's .NET. But, despite the fact that these two software giants admitted to merger talks earlier in 2004, such an announcement would be unlikely for two reasons: SAP has its own in-house application server platform, NetWeaver, and Microsoft's .NET is most popular with small and medium-sized businesses rather than large enterprises.

For end users, application servers provide a common platform for running various applications. Independent software vendors (ISVs) are attracted to write their programs to run on them because it gives them access to the markets created by the pulling power of the enterprise software application vendors. SAP can afford its haughty position because it has a pulling power all of it own: smaller ISVs will write their applications for NetWeaver to gain access to the SAP market, and anyway, NetWeaver provides links to applications running on J2EE or .NET. This does mean that IT departments have to run multiple application servers - but this is something many seem prepared to do in order to have an SAP-based strategy.

But SAP is not the only enterprise application vendor to stick to its own application server. Back to Oracle. The world's number three supplier of enterprise applications only supplies its products running on the world's number three J2EE application server - its own. Oracle might be the king in the world of databases, a position it established over a decade ago, but for enterprise applications and application servers it is still a relative Cinderella. A position it would dearly like to change.

Which takes us full circle. Not only would Oracle's acquisition of PeopleSoft propel it to number two in the enterprise application market, it would strengthen its hand in the application server market as it transitioned the PeopleSoft customer base to run on its own application server. Which for obvious reasons, IBM wants to prevent.

IBM has not always led the J2EE application server market. In the early days of the application server war, BEA was the leader. But its lead has been eroded by the muscle of Microsoft and IBM and in the last six months BEA's share price has collapsed and its management has fallen into disarray. If the agreement between IBM and PeopleSoft has legs, IBM's position will be further consolidated.

If, on the other hand, Oracle prevails and acquires PeopleSoft, IBM will be left without either of the two biggest suppliers of enterprise applications running on its platform. IBM cannot wade in and make a bid for PeopleSoft itself without abandoning its long-term commitment to ISVs not to compete with them. Oracle will have propelled itself to number two in the enterprise application market and given its own application server a healthy boost. And, if the BEA share price drops much further, Oracle could snap them up too, given permission from the antitrust authorities on both sides of the Atlantic. Oracle would then be hot on IBM's heels in the application server market.

The main winner with all this fighting is SAP. It alone has seen a significant increase in its share price in the last 12 months. All the other vendors mentioned in this article have seen a drop, with the exception of PeopleSoft whose shares have seen a recent surge, buoyed by the news that Oracle's takeover bid has managed to evade antitrust legislation, at least in the US.

End users are seeing SAP as the safe supplier of enterprise applications as the rest of the market has descended into turmoil. Its discussions with Microsoft earlier in the year were kept very quiet and only emerged because of the PeopleSoft/Oracle antitrust hearings. End users will only have a safe second choice again when the future of PeopleSoft is secured and the best option there is for Oracle's acquisition to get the go-ahead, at least to ensure ongoing effective competition for SAP.

This would not mean all is lost for IBM. Unless BEA pulls its socks up, IBM would be the only independent application server platform other than open-source alternatives from JBoss and Red Hat. WebSphere would remain attractive to the huge number of ISVs who might be worried about SAP and Oracle extending the scope of their own applications.

And, if WebSphere's popularity continues to grow, Oracle might be forced to continue supporting those newly acquired customers whose wish is to continue using the platform.