Extended dimension

10 February 2006

One of the biggest - and most mature - markets in the software world seems to be catching fire again. After suffering shrinking revenues throughout 2002 and well into 2003, the database software market, which generates $14 billion in sales annually, is showing a healthy revival.

One of the biggest - and most mature - markets in the software world seems to be catching fire again.

After suffering shrinking revenues throughout 2002 and well into 2003, the database software market, which generates $14 billion in sales annually, is showing a healthy revival.

The open source threat

Although database sector market leaders IBM and Oracle are both highly enthusiastic about offering their products on the Linux open source operating system, the emergence of open source database management systems such as MySQL, PostgreSQL and Ingres pose a significant threat to not only them, but to Microsoft as well.

Analysts at the Meta Group say the adoption of open source databases is already much in evidence among independent software vendors who build applications for small businesses where costs and margins need to be low.

So far the threat has manifested itself most clearly in the shape of MySQL, and while the database is not as rich in functionality as other proprietary relational database platforms, it offers enough of what most major small and medium enterprises (SMEs) are looking for: low cost and reliability. According to the Meta Group, MySQL's 'enhancement model', which allows users to add functionality when needed, is also aptly geared toward meeting the requirements of the SME market.

"IT organisations still view Microsoft as the dominant player within the SME market, but penetration by MySQL and Linux will be substantial," says Mark Shainman, analyst at Meta. "As the SME market heats up, IT departments will have to weigh up the value of a cheap, 'good enough' open source option versus the proprietary vendor offerings, that sell the benefit of the complete stack [from the development environment to OS]."

While all the major database vendors are counting on the SME market as a growth engine, they should not fear that open source databases will encroach on the high-end. Gartner's Colleen Graham believes that open source will not threaten the position of any of the big players. "Enterprises want mission-critical applications to be run with an extremely reliable database with very reliable support," she says. "Open source database players do not provide that."

Another set of advisors, AMR Research, has a more bullish view of the prospects of open source databases gaining ground in the high-end enterprise market. It argues that within the next two years, open source databases will reach technical parity with their traditional counterparts in key areas. "Adoption and use will significantly accelerate during this timeframe, putting sales and margin pressure on traditional vendors," asserts Paul Kirby, an analyst at AMR Research.

He says that although somewhat limited in scalability and only beginning to implement functionality (such as stored procedures and views) as robustly as traditional databases, open source databases are ready to be introduced to corporates now.

Most intriguingly of all, in a recent survey of 140 IT professionals, AMR Research found that nearly all of those using open source databases have a profound confidence that an open source database will soon be ready for mission-critical systems, believing that the products will be just as good as traditional databases in the not-to-distant future.

The bottom line for traditional database vendors, says AMR Research, is that they have failed to lower prices materially. "As other open source initiatives have shown, it is easier for communities to improve open source code than it is for traditional vendors to lower their prices - databases will be no different," says Kirby.

"Within the next two years," he adds, "open source databases will become more than good enough for many applications. At that point, buyers will begin to plot the coexistence strategies that will determine where they will use them as opposed to relying on traditional databases."

During their past four quarters, the three companies that dominate the market - Oracle, IBM and Microsoft - have all reported strong growth of their core database lines. New database licence sales at Oracle have averaged 14% in its year to date; at IBM, revenues from the company's flagship DB2 relational database system have averaged 9%; while Microsoft SQL Server revenues grew by 11% during 2003, according to analysts at Gartner - and are believed to have gained further pace since.

"Our database sales are trending up," says Oracle CEO Larry Ellison.

There is no single reason behind the upturn. Rather, it is being driven by a mix of new and changing requirements among customers, alluring product innovation and an increased take-up of database technology among small and mid-sized companies.

For years the main market driver for database software was its pivotal role as the underlying store for processing operational data. In recent quarters, the emphasis has shifted to the analysis of data and its delivery to decision-makers. Gartner analyst Colleen Graham says that much of the market growth has come from the increasing strategic importance of data warehouse and strategic business intelligence initiatives. "Many companies are currently examining different ways in which to augment and improve upon their reporting and data management capabilities," she says. In some cases, that stems from a tactical need to manage the business more closely through the gathering and dissemination of information. In others, it flows from the equally important requirement to meet increasing regulatory requirements.

Differentiation drive

Against that backdrop, the major competitors have been seeking fresh product differentiation to stave off any suggestion that the market is commoditising.

Oracle has pinned its hopes on the 'grid' implementation of its database technology. Since its introduction in February 2004, Oracle 10g has offered organisations the ability to spread their database workload over clusters of servers. The primary advantages are clear: cost and reliability. Instead of residing on one large server system (traditionally a Unix-based system) the database can be run across a grid of low-cost Intel or AMD-based Linux servers. Although the Oracle software is no cheaper, the overall cost of ownership is substantially reduced. Moreover, 10g's management software enhances business continuity and scalability: in the case of the failure of one node in the grid or the need to increase its speed, the software automatically provisions the database across the changed number of servers.

IBM has had a similar capability in its DB2 platform since the 1990s - but only in the mainframe version of the product. The version of the product that competes with Oracle and Microsoft, the DB2 Universal Database, is fighting on different fronts.

For example, in response to customer requirements for more integrated data management, the company has rolled content, document and records modules into the DB2 line up. (Not to be outdone, Oracle is planning its entry into the enterprise content management market, with the announcement of a package currently codenamed 'Tsunami' by the end of 2004.)IBM's latest upgrade to DB2, Version 8.2, centres on automating some of the tasks handled by database administrators, such as database design and tuning.

Up and down

Like Oracle with its Standard Edition product, IBM has been repackaging DB2 in order to make it more appealing to small and mid-sized enterprises (SMEs), plus third-party software developers. Unlike the DB2 Enterprise Server Edition - which is geared towards the high end of the market - IBM offers DB2 Express, DB2 Workgroup Server Edition and DB2 Workgroup Server Unlimited Edition to the SME market.

RDBMS revenues (2001 - 2003)

Source: Gartner

Those options are a response to two situations: the need to push outside of the increasingly saturated high-end of the market; and, the on-going threat by Microsoft as it pushes up from the lower tiers. According to Gartner, IBM and Oracle are neck and neck in the $7.1 billion relational database market. IBM has a 36% share while Oracle holds 33%. Though its relational database revenues are just over half those of IBM and Oracle, Microsoft - with 19% of the pie in 2003 - is progressively eating into the shares of both companies.

Analysts at Meta Group point out that Microsoft's database has traditionally found its way into mid-sized and large companies through its use in departmental applications. But the product can quickly become de facto as it spreads to other departments, says Jeffrey Mann at Meta. "There are now quite a few corporates, although nowhere near the majority, that choose Microsoft," he says.

The key differentiator here is not technology, but the lower costs and ease-of-use that comes from the bundling of Microsoft SQL Server with the Windows operating system. Microsoft's latest Windows Small Business Server 2003 Premium Edition, targeted at customers in its core SME market space, includes Windows Server, SQL Server and Exchange Server. According to Gartner, this approach has led to Microsoft attaining a 47% (and growing) share of the Windows relational database market.

As Microsoft pushes up and Oracle and IBM push downwards, analysts predict that the SME sector will be a key battleground in the database software market, and a major source of new revenue.

DMBS software market share (2003)

Source: Gartner

Meta Group estimates that mid-sized companies will spend $19 billion on software in 2004. Although research shows that the highest priorities in this market are antivirus and network security software, more than half of the organisations in the middle market list database software as their third most important priority. "We estimate the US mid-sized database software market to be potentially worth $2 billion by the end of 2004," says Mann. That is a sizeable market, he stresses, when one considers Oracle's annual database sales - $2.9 billion to the end of May 2004.

Broadly speaking, the chief requirements of the SME market tend to be low cost, ease-of-use, reliability over performance and high functionality. That is why Microsoft has traditionally done so well in this sector. There are, of course, a number of other reasons. Windows is hugely prevalent among SMEs, and

The niche players

Second tier relational databases The Informix database from IBM and Sybase's Adaptive Server and Progress' database both manage to challenge Oracle and IBM on price but not on breadth of enterprise features orfunctionality. For that reason, they have high appeal among independent software vendors.

Object databases Object databases from companies such as ObjectStore, Objectivity, Poet and Versant are suitable for managing complex and unstructured data and for real-time event processing.

Object/relational databases In its Cache product, InterSystems, the primary vendor of object-relational databases, combines a robust product, SQL, and multidimensional access that enables the handling of complex data, rapid application development and high performance by avoiding the overhead of relational 'joins'.

XML databases XML databases, such as Tamino from Software AG, are specifically designed to deal with the management of XML documents. The relational database vendors have limited the appeal of such specialist products, by implementing an XML data type support into their products.

Small footprint databases The market for small, embedded databases is growing fast, due to the increased uptake of devices such as remote RFID data collectors and PDAs. Providers include Oracle, whose 10g Lite is suitable for offline PDA workers, and Sybase with its Adaptive Server Anywhere product.

by dint of its close affinity, so is SQL Server. There is also an extensive network of independent software vendors (ISV) who build applications on top of Windows. And lastly, there is a vast distribution channel servicing small and mid-sized businesses.

Linux's role

Though IBM and Oracle currently sell their databases on Windows, their future success in the SME area will undoubtedly be tied to the acceptance of the open source operating system Linux, among the third-party channels to the customer.

ISVs are increasingly choosing to decrease their dependence on Windows or Unix by leveraging Linux as an alternative - or even primary - platform for their applications.

This is just as well, says Colleen Graham, as Oracle and IBM have not had much joy targeting value-added resellers (VARs). Their databases require too high a level of management, she says.

The Meta Group says that Oracle's decision to bundle its grid-enabling Real Application Clusters (RAC) technology with its Standard Edition One (SE1) offering is another big step towards defining competitive advantage in the SME market. With RAC bundled, users can opt for the cheaper SE1, and achieve high availability and scalability of up to four processors.

IBM, meanwhile, is reportedly doing well among ISVs. Gartner says that by shipping DB2 on its own Intel platforms it has achieved "strong growth [with a] focus on penetrating the small and mid-sized business market".

The database wars - a central theme of the 1990s - seem far from over.

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