InformationWeek: The Business Value of Technology

nterprise application integration vendors for years have promised companies efficiencies by saving them the work of hand-coding point-to-point connections among programs. But now, as more businesses are faced with integrating complex front-end apps--such as customer-relationship management software and corporate portals--with back-end systems, the value of the software is becoming more apparent.

Still, some IT executives are wary. EAI projects cost an average of $500,000, including licenses and deployment--not small change when IT budgets are tight. Companies hope that by investing in this technology, they'll be able to improve customer relations, sales, or employee productivity, but companies haven't had enough experience with EAI to feel confident about results. "It's a nascent market, and people don't really understand integration middleware yet," says Dale Skeen, chief technology officer and co-founder of EAI vendor Vitria Technology Inc.

In their most recent fiscal years, the five EAI market leaders identified by Forrester Research sold a total of just $366.1 million in software licenses. (In comparison, Ariba Inc. and Commerce One Inc. sold $422.1 million in software licenses during their last fiscal year, when the E-procurement market that they lead was booming.) Vitria and Tibco Software Inc. accounted for 72% of the top five EAI vendors' business. But neither CrossWorlds Software, SeeBeyond Technology, Tibco, Vitria, nor webMethods made a profit last year. Indeed, in the last four fiscal years (with the exception of SeeBeyond, which made a slight profit in 1997), all of them lost money.

EAI products provide a common application programming interface for integrating different apps. They also include data translation and transformation, rules-and content-based routing, and connectors (often called adapters) to packaged applications from vendors such as Oracle, PeopleSoft, and SAP. But in interviews this year with 48 directors and managers of enterprise systems, Forrester found that more than half weren't using an integration server to tie applications together.

The problem with enterprise application integration middleware is that it adds another layer of complexity and is "another component that can break," says Lacik, Aviall's VP of information services.

Joe Lacik understands why. The VP of information services at Aviall Inc., a Dallas aviation parts distributor deploying EAI technology from New Era of Networks Inc., says the middleware's downside is that it adds another layer of complexity. "It's another component that can break," he says. "You have to find somebody [to maintain it]--just like you do with EDI--who's meticulous, well organized, and who's going to make sure these transactions are moving properly."

Aviall, which has 43 offices worldwide, started deploying Neon last fall to connect BroadVision Inc.'s Web-based order-entry applications to a Lawson Software ERP system, and also to connect the Lawson system to Siebel Systems Inc.'s CRM package. By July, Aviall plans to move customer-service representatives handling order entry over the phone to Siebel's software, which can organize data so that a customers' histories will follow them when they talk with one of the company's 150 service representatives or 300 salespeople. Previously, customer reps input data directly into the Lawson software, which doesn't include such capabilities.

Lacik says his decision to connect BroadVision and Siebel to Neon met with resistance from the first two vendors. "Both had a pretty big fit because they had their own integration software and their own tried-and-true methods to integrate with," he says. "They felt that going through Neon [to Lawson] would be another barrier and slow the development process by making them do things they'd never done before."

But by themselves, neither BroadVision nor Siebel could address Lacik's longer-term needs. In the future, Aviall also wants to be able to plug its inventory-control and warehouse-management system and its supply-chain management system into Neon to share data with other apps on the network. Aviall spent about $500,000 for Neon's software, including deployment, but found the cost justified by the size of the project. "When we looked at the money it would take and the time it would take to do traditional point-to-point integration plus maintain all that separately, the cost would've been higher and the time to market would've been longer," Lacik says.

Large integration projects can show a good return on investment over time. EAI gives a company a permanent middle layer for managing the flow of data among ERP, legacy, and front-office applications, and reduces future costs of upgrading software. It does this by letting companies focus the work on the upgrade without worrying about integrating with other applications. The developer only has to change the new application's connector to the EAI software, which manages all the interactions with other apps on the network.

Barbara Miller, director of knowledge integration at Dynegy Inc. in Houston, says Dynegy's IT department had difficulty calculating the ROI of a deployment of Tibco software because the cost of point-to-point integration done before wasn't treated separately within the overall deployment of an application.

To sell the project, IT executives depended on research from industry analyst groups and on rough estimates of past costs for modifying or building application interfaces compared with projected costs using the Tibco platform. Dynegy expects reductions in the ongoing support costs of applications and "a very high level of reusability in what we're building," Miller says.

Dynegy, which sells electricity and natural gas, as well as energy market data, has been using Tibco for the last 18 months as part of a plan to overhaul its ERP and business-intelligence applications. The IT department, which expects to complete the project in November, has built 200 application interfaces to Tibco in deploying new software for gas and electricity trading, risk management, scheduling, accounting, and more.

An example of a gain from tying the systems together is that once a natural-gas trade is completed, most of the process of scheduling delivery, billing, and accounting can be automated, reducing the time to complete the transaction and the number of workers involved, Miller says.

Like Dynegy, many companies embarking on major EAI projects are more likely to focus on making internal operations more efficient, taking a "let's-spend-money-to-save-money" approach, says Ted Schadler, an industry analyst for Forrester Research. In interviewing 50 IT executives at 2,500 of the world's largest companies, Forrester found that 62% had bought application-integration tools, but only 24% were using the software for business-to-business integration projects.

Despite the current vendor focus on the B-to-B market, Schadler says, many of those kinds of projects are taking a back seat to internal application integration. "It's pretty clear right now that business relationships are actually working pretty well," he says. "We use the phones. We use faxes. We use face-to-face meetings."

DMC Stratex Networks Inc. in San Jose, Calif., which manufactures and sells receivers for wireless networks, chose EAI software to improve internal operations. DMC expects to recoup the half-million dollars spent on Vitria within two years by reducing the time needed to process customer orders from two weeks to two days, and by better tracking engineering changes to heighten product quality, says Lee Jones, CIO at DMC. In addition, the company expects better customer service overall by being able to track order status and fill orders more quickly.

DMC has spent the last 18 months deploying Vitria software with Oracle order-management, financial, and manufacturing applications; Siebel sales-force automation applications; and Clarify CRM software from Nortel Networks Corp.

"Vitria is a long-term investment in terms of the [easier] upgradability of all the systems," Jones says. It also prepares the company for other situations, such as a merger or acquisition. In such cases, he says, having Vitria software installed will make it easier "to plug in a new company to the model."

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