The majority of service-oriented architecture (SOA) projects have yet to deliver a return on investment. That was the finding of a report published in September by industry analysts at Nucleus Research. Of the 106 organisations they surveyed, only 36% reported any financial payback so far from SOA.

While ROI may be proving elusive for SOA implementors, the technology vendors who offer the tools that underpin SOA projects are finding the adoption thoroughly rewarding.

Take database, applications and middleware giant Oracle, which reported a glittering set of financial results for its first quarter ending 31 August.The company banked $4.5 billion in revenues during the quarter, up 26% from $3.6 billion in the same quarter of last year.

Impressively, the growth of the company’s software sales was even steeper. “We reported new licence revenues up 35%, the strongest growth of any quarter in ten years,” said Safra Catz, Oracle’s president and CFO, announcing the company’s numbers in late September. Reflecting that, the company’s net profits grew by a hefty 25%, rising to $840 million from $670 million in last year’s first quarter.

Total application revenues – including support and maintenance – grew by 35% from $931 million to $1.2 billion. Two major acquisitions in the past year, those of business intelligence vendor Hyperion Solutions and product lifecycle management toolmaker Agile Software, contributed $87 million towards this growth.

Meanwhile, the company’s database and middleware divisions, which Oracle conflates in its reports, grew by 22% to $2.2 billion. New licence revenues for the unit rose 23% to $711 million.

These numbers are testament to the success of Oracle’s two-pronged strategy of acquiring application vendors while building a middleware business around its Fusion SOA suite.

Critics once warned that the company’s aggressive consolidation strategy would drive many acquired customers back into the arms of independent suppliers. But instead, the proposal of an application provider combined with an integration, business intelligence and data management specialist seems – from the evidence of Oracle’s financial performance – to be more attractive than the sum of its parts.

Another company for which SOA is certainly paying off is German veteran Software AG.

With its roots in mainframe and database management, the company saw in SOA an opportunity to bring its 35-odd years of experience in helping customers manage large systems to a new audience. This opportunity led Software AG to acquire US-based integration specialist WebMethods earlier in 2007 for $546 million.

Software AG’s SOA and related business process management division, which now carries the WebMethods brand, brought in revenues of $61.6 million in the company’s second quarter, up 99% on the comparable period in 2006. Much of this revenue growth, of course, derives from the simple addition of the acquired company – two thirds, by its own calculation. But licence revenue growth of 129% in the division suggests the combined organisation is attracting new customers.

Meanwhile, the company’s Enterprise Transaction Systems division, which sells its mainframe database product Adabas and traditional development tools, earned the greater part of its revenues – $117 million – but grew by a modest 1% over the year.

The WebMethods acquisition is also helping to revive Software AG’s once-formidable footprint in the US – a situation that cheers CEO Karl-Heinz Streibich. “The US is a huge benefit,” he said with the publication of the results. “We expect that 36% to 40% of our revenues will come from the US next year, mainly driven by the WebMethods part, doubling revenue in the US.”

Consulting contraction                      

Meanwhile, the recent financial performances at some of Europe’s largest IT services companies provided a picture of contrasting fortunes.

Paris-headquartered Capgemini reported revenues during its first half of 2007 of $5.7 billion, up 16% from last year. This was driven primarily by its Technology Services division, which builds and integrates major software projects for customers, where revenues grew 15.4% to reach $2.2 billion. That enabled Technology Services to pull ahead of the Capgemini Outsourcing Services group as the company’s principal bread-winner. The company says this switch was due to an uptick in technology spending, which leads to more internal investment than outsourcing. 

In contrast, the company’s Consulting Services division showed falling revenues. A drop of 15% from $598 million to $505 million was attributed to a reshuffle of responsibilities from Consulting to Technology Services.

The downward trend in consulting revenues was also evident in the first half results of Capgemini’s French compatriot and rival Atos Origin.

A fall of 6.5% in consulting fees to $246 million kept overall growth in check, with total revenues rising 7.2% to $3.7 billion. Net income for the six months rose from $13 million to $74 million, but operating margins fell 12%.

One of the explicit aims of the company’s transformation strategy, dubbed the ‘303 Plan’, is to improve operational efficiency. This margin dip would suggest that the plan, launched in February 2007, has not got off to a flying start. CEO Bernard Bourigeaud assured investors,  however, that once underway the plan will lead to a doubling of its operating margin by 2009.

Further reading

Oracle looks towards SAP eclipse

Software AG's SOA ambitions

How Capgemini embraced India

Atos Origin mulls sale

Financial report September 2007 - Dell shows the first signs of a recovery, but HP's glittering results reveal just how far it still has to go.

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