Software AG’s SOA ambitions

To many people in the IT industry, the Germany company Software AG is best known for Adabas, its aged but resilient, high-performance mainframe database; to others, it is “The XML company”, a tag line that it used with little success for over five years; to yet others, Software AG is the quirky company whose eccentric founder, Peter Schnell, designed the corporate headquarters (inside and out) so that it was free of any right angles.

But to Karl-Heinz Streibich, CEO of Software AG since 2003, these are associations that need to be shaken off.  Under his guidance, Software AG recently announced an aggressive plan to double its revenues by 2011 to more than e1 billion. The strategy is simple: to become a global leader in supplying software to support the service-oriented architecture (SOA) – a market that analysts at IDC put at just over $500 million in 2004 but rising to $9 billion by 2009.

These are grand ambitions: Software AG’s share of this market in 2006 was around 3%, with competitors such as IBM, Tibco and BEA taking much larger shares. And sceptics might say that the former CEO Erwin Koenigs, who took the Software AG public in 1999, had similarly grand plans, but the company’s expansion beyond its German and mainframe roots stalled in 2003.

And while Software AG is just about big enough – with sales of e482 million ($658m) – to be a serious SOA player, 70% of those revenues still come from Adabas and its application development environment, Natural.

To be a serious competitor to companies such as BEA, IBM, and Tibco in SOA, UK country head Jim Close admitted in early April, the company must accelerate its growth rate from 10% to 12% an make acquisitions in the US. And it needs to build a bigger product set.

On cue, Software AG announced in mid-April a deal to buy WebMethods, the US application integration software company, for $546 million – about twice annual sales.  WebMethods is well known in the integration market, but has been losing ground in recent years. In its financial year to March 2007, it is expected to announce flat sales of around $200 million, and losses of over $25 million. By good fortune, the two companies’ US offices are just eight miles apart in Fairfax County, Virginia.

If the deal goes ahead, it will give Software AG a well-known brand, 1,400 customers and some proven SOA technology. The combined company would have had sales of approximately e630m ($863 million) in its last financial year.

Software AG now has three challenges: to prove it has competitive SOA technology; to integrate WebMethods products, which overlap in places; and to step up its profile in both the US and Europe.

Over the past two years, Software AG has pulled its application development, repository, enterprise service bus (ESB), orchestration and business process management (BPM) tools into one SOA suite, Crossvision. Although Crossvision accounts for only 30% of sales, licences grew 33% in the latest quarter.

WebMethod’s Fabric product is based around an integration hub, or ESB, with a strong business process management (BPM) component. Although no product plan has been announced, Software AG may replace its BPM product with the WebMethods software.

Jim Close, the head of Software AG UK, does not think its differentiation is only about products. Software AG has over 35 years’ experience in high-end, mission-critical mainframe environments. “Things are done differently in the mainframe world. Processes, lifecycle management, security and governance are important.” SOA customers now need that too, he says.

In recent months, Software AG’s share price has climbed steadily as Crossvision sales have risen. But even insiders know the company is not likely to displace the giants from big accounts. “We are an open alternative. We don’t expect you to go wall to wall with Software AG, but we’ve got software that works, that’s very reliable, that performs well, and good people”, says Close.

That is marketing, German style.

Pete Swabey

Pete Swabey

Pete was Editor of Information Age and head of technology research for Vitesse Media plc from 2005 to 2013, before moving on to be Senior Editor and then Editorial Director at The Economist Intelligence...

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