InformationWeek.com

Welcome Guest. | Log In| Register | Membership Benefits

February 14, 2000

EAI Offers Alternatives To Building Integrated Apps
Vendors provide more affordable and lower-risk enterprise application integration

By Dawn Gareiss

Related links:

Big Strides For EAI

E-Business Links To Back-Office Systems

Send Us Your Feedback

ith its core technologies enabling the E-commerce boom, enterprise application integration is poised to remain a solid growth industry for years to come. Analysts' estimates vary, but worldwide revenue for EAI vendors is projected to exceed $500 million for 1999 and approach $900 million in 2000, according to Susan Eustis, an analyst at Wintergreen Research. By 2005, she predicts, revenue will top $7.3 billion.

Companies worldwide spent $420 billion in 1999--nearly half the worldwide IT labor budget--to develop custom EAI codes internally, Eustis says. That's enormous potential business for EAI vendors that can successfully market and deliver affordable, more-efficient alternatives. "EAI vendors offer a cheaper alternative than trying to redevelop everything, and a lower-risk alternative than trying to build a newly integrated enterprise-level application," says Tom Dwyer, an analyst with Aberdeen Research.

IBM
IBM's MQSeries is made up of three core components--MQSeries Messaging, MQSeries Integrator (developed and marketed in cooperation with New Era Of Networks Inc.), and MQSeries Workflow--which offer varying levels of integration sophistication.

IBM's advantage: MQSeries provides "mission-critical functionality," Eustis says. "It's the foundation for EAI. If you don't have this, you don't have EAI." That's because dozens of software products from other vendors have been built around MQSeries. "They need MQSeries before anything else will work," Eustis says.

What's more, unlike many of its competitors, IBM already has a strong support network and distribution channels in place to meet the growing demand for business integration, says Kimberly Knickle, an analyst at AMR Research.

IBM doesn't report financial results specifically for its EAI product line. But according to industry analysts, IBM enjoys a commanding lead in the market, both in revenue and market share. Knickle estimates that the EAI market was worth $600 million in 1999 and that IBM captured 20% of the EAI services and software market--more than any of its competitors. Dwyer estimates 1999 market revenue was much higher--$1.45 billion--and that IBM earned approximately $192 million in 1999 from sales of the MQSeries Integrator product alone.

IBM is betting on an expanding role for its EAI technology. "The whole concept of integration is expanding out to the supply chain, so businesses can integrate with partners," says Rob Lamb, IBM's MQSeries business unit executive. To that end, Lamb says, IBM will unveil business-to-business-integration products based on the MQSeries technology within the next few months.

New Era Of Networks (Neon)
The product line of New Era Of Networks includes five core E-business and EAI solutions, including the popular MQSeries Integrator, which it jointly markets with IBM. Neon also has EAI offerings that are tailored to specific industries, including financial services, health care, and manufacturing.

Neon has a "partner-centered" business model, in which other software vendors sell its technology. Because of that, it's difficult to get a true picture of Neon's total market share. Nonetheless, AMR Research's Knickle estimates that Neon has about 14% of the EAI services and software market, second to IBM.

For the fourth quarter ended Dec. 31, Neon reported revenue of $38.6 million, compared with $32 million in the third quarter and $27.3 million for the fourth quarter of 1998. Total revenue for 1999 was $126 million, a 92% increase over 1998's total of $66 million. Based on operating income, which excludes certain charges, Neon reported a loss of 25 cents per share in 1999; it had earnings of 24 cents per share in 1998.

Analysts expect Neon to increase its earnings at an average annual rate of 45% during the next five years. They also predict earnings to turn positive in 2000, ending the fiscal year at approximately 21 cents per share and rising to $1 per share at the end of 2001.

continued...page 2