Enterprise Survey Results: June 2004

Copyright Peerstone Research Inc 2004 1

Enterprise Survey Results: June 2004

Executive Summary

This report presents a sub-set of first wave results from Peerstone’s 2004 Enterprise Apps survey. The May sample included 98 companies using enterprise apps, of which 67 are Big 3 ERP customers. Numbers presented in this report will fluctuate over the next few months as our sample size increases. But the broad outline of our findings are unlikely to change. Discussion of some key issues is reserved for subsequent reports.

Key early findings are as follows:

• ERP on Linux will surge, but from a small base. Customer interest is strong, but widespread adoption is still several years away. Ease of use and employee skills remain key issues.

• Customers are just as interested in open source app servers as in Linux. But open source app servers will have a hard time moving beyond the web tier to the crucial business logic tier until (and unless) vendors decide to port their apps.

• Users are more cautious about open source database. They are interested but recognize that the space is less mature. The ball is still in the MaxDB court (SAP and MySQL).

• App upgrades are hot, new apps are not. Big 3 customers will tweak existing portfolios before considering new purchases. But we see early signs of a second wave of spending devoted to new apps beginning in late 2004 or 2005.

• Data Warehouses, BI and EAI are also hot. Again, getting the most value out of existing apps is the trend driver here.

• Unix and RISC still dominate the app server and database tiers of the ERP installed base. We will present customer 3 year plans in a later issue.

• The ERP server hardware market is a 4 player game. IBM and HP own about two thirds of the market. Sun and Dell control the remaining third.

• Oracle continues to dominate Big 3 ERP database share by a wide margin.

We will present data from additional survey questions in subsequent issues. Note also that coverage will expand to other key app vendors (e.g. Siebel) as well as custom app development based on J2EE and MS .NET.

Peerstone Enterprise Software Survey June 7, 2004 Research Director: Jeff Gould [email protected] 415-350-1009 (San Francisco) Sales Director: David Tyler [email protected] 978-352-7326 (Boston) Contents copyright Peerstone Research Inc 2004. All rights reserved. Peerstone is the leading provider of exclusive primary research about enterprise software. Peerstone's 2004 "Apps & Stacks" research program probes in depth the factors driving the market for enterprise applications and their associated middleware and hardware "stacks". The results of this research are available to Peerstone subscribers. You must be a direct Peerstone subscriber or named entitled user on First Call to receive these reports. To subscribe, contact David Tyler. [email protected] Phone: 617-968-1523 By using this research you agree to the terms of the license agreement at the end of this report. Reproduction, redistribution and resale are strictly prohibited. For more information, visit: www.peerstone.com

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Enterprise Software Survey: June 2004


Table of Contents

Summary of Key Findings................................................................................. 3

ERP on Linux will surge, but from a small base ......................................... 3 Interest in open source app servers is equally strong ................................ 3 But users are more cautious about open source database ........................ 4 Upgrades are hot, new apps are not ......................................................... 5 Data Warehouses, BI and EAI are also hot ............................................... 6 Unix and RISC still dominant on all tiers.................................................... 6 The ERP server hardware market is a 4 player game................................ 7 Oracle dominates ERP database share by a wide margin ......................... 8

Chart 1: Survey Respondents........................................................................... 9 Chart 2: Linux as Server OS for Core Business Apps ..................................... 10 Chart 3: Open Source App Server Use for Core Business Apps...................... 11 Chart 4: Open Source Database Use for Core Business Apps ........................ 12 Chart 5: Open Source for Core Business Apps: OS vs. AS vs. DB.................. 13 Chart 6: 12 Month Buying Plans for New Apps ............................................... 14 Chart 7: 12 Month Buying Plans for App Upgrades ......................................... 15 Chart 8: 12 Month Buying Plans for App Integration........................................ 16 Chart 9: 12 Month Buying Plans for Data Warehouse & BI.............................. 17 Chart 10: 12 Month Buying Plans for J2EE or MS .NET Custom ..................... 18 Chart 11: 12 Month Buying Plans for Legacy App Modifications...................... 19 Chart 12: 12 Month Enterprise App Spending Plans by Category.................... 20 Chart 13: Server OS Share – Big 3 ERP App Server Tier ............................... 21 Chart 14: Server Hardware Share – Big 3 ERP App Server Tier ..................... 22 Chart 15: Processor Share – Big 3 App Server Tier ........................................ 23 Chart 16: Big 3 ERP Database Share............................................................. 24 Chart 17: Server OS Share – Big 3 ERP Database Tier.................................. 25 Chart 18: Server Hardware Share – Big 3 ERP Database Tier........................ 26 Chart 19: Processor Share – Big 3 ERP Database Tier................................... 27 Chart 20: Server OS Share – App Server Tier vs. Database Tier .................... 28 Chart 21: Server Hardware Share – App Server Tier vs. Database Tier .......... 29 Chart 22: Processor Share – App Server Tier vs. Database Tier..................... 30 About Peerstone Research............................................................................. 31 License Agreement & Disclosures .................................................................. 32



Summary of Key Findings

ERP on Linux will surge, but from a small base

See charts 2, 5, 13, 17 and 20.

Depending on how the question is phrased, between 2% and 5% of our early respondents using Big 3 ERP apps say they are already running on Linux.

• The generic “are you using Linux for core business apps” question, which applies to any tier in an application including the web tier (HTML page server), nets 5% of Big 3 respondents who say “yes, we’re already doing it”.

• But when we drill down to the middle (app server) and back-end (database) tiers, the percentage who say they are already running Big 3 ERP on Linux drops to 2%.

• Note that, like all results in this report, these numbers are based on the first survey wave (May 2004) and may fluctuate in the coming months as the sample size increases. But the order of magnitude will not change.

Respondents to the generic question forecast a rapid rise in their Linux use: 29% expect to be running their Big 3 apps on some version of the open source OS within the next five years. Again, the numbers are lower for the middle and back-end drill-down versions of this question1. But the trend towards strong Linux growth in the ERP stack is the same.

Bottom line: although only a handful of Big 3 ERP customers actually run on Linux today, a substantial minority have embraced the idea that they will do so in the foreseeable future. Nevertheless, Linux server OS competitors can be confident of retaining dominant market share for at least the next five years, and they could retain it much longer if they innovate aggressively. As the technical performance gap between Linux and the alternatives narrows, the battle will shift to ease of use, maturity of tools, and availability/affordability of relevant skills in the market place.

Interest in open source app servers is equally strong

See charts 3 and 5.

Big 3 ERP users indicate about the same level interest in open source apps servers as a platform for their core business apps as they do in Linux.

• 28% expect to be running their core business apps on an open source J2EE app server such as JBoss or Tomcat within 5 years.

1 We will publish the drill-down series in a subsequent report.



However, there is an important ambiguity here between use of an open source app server on the web tier for serving HTML pages on the one hand and the middle tier app server used for running core business logic on the other.

• For packaged apps that use a web browser interface (e.g. the latest versions of SAP, PeopleSoft, Oracle and Siebel), it is technically straightforward to use a light-weight open source app server like the Java-based Apache Tomcat as the web server2.

• But it is far less trivial to run the core business logic of the application on a more robust J2EE compliant app server like the open source JBoss or commercial products such as IBM WebSphere or BEA WebLogic. In fact, this would require a decision by the application vendor to port the middle tier of their application to the chosen platform. While Siebel is well advanced in its WebSphere port and PeopleSoft may pursue the same path (at least for the JD Edwards part of its portfolio), as far as we know, none of the Big 4 app vendors have announced plans to run on JBoss or any other open source J2EE app server.

In other words, although many ERP customers are just as interested in running on open source app servers as on Linux, they won’t actually have much choice in the matter unless or until the major app vendors decide to port their apps. At present this looks pretty unlikely, at least for the critical middle tier. Oracle and SAP have their own J2EE app servers, while Siebel is already committed to IBM (and to a non-J2EE port to Microsoft’s .NET). PeopleSoft hasn’t publicly disclosed a future app server strategy, though it seems more likely to focus its efforts on WebSphere and WebLogic (already used in its stack as page servers) than on open source options like JBoss.

But users are more cautious about open source database

See charts 4 and 5.

A smaller but still significant percentage of Big 3 ERP customers say they are interested in migrating away from Oracle or SQL Server or DB2 to an open source database such as the MaxDB product (formerly known as SAP DB) now distributed by MySQL.

• 18% expect to run ERP on an open source DB within 5 years, up from only 2% who say they are doing this today (i.e. the handful of SAP customers who are using MaxDB).

• But 39% say they will “probably never” move to an open source DB (vs. 33% for Linux).

2 Since this report is intended to report on survey results only, technically inclined readers will forgive us for sidestepping here the numerous subtle differences between the various open source web and application servers such as Apache (HTML), Tomcat and Jetty (JSP & servlets), JBoss (EJB), etc. as well as the question of their possible future roles in architectures of the Big 3 vendors’ product lines.



Again, customers won’t have much choice unless app vendors choose to port to open source DBs. But while Oracle is unlikely to do this, SAP already has. Whether or not PeopleSoft and Siebel do so will no doubt depend on customer demand and the success of MaxDB in the SAP customer base. So the market is essentially waiting for the results of an SAP conducted experiment.

SAP’s financial and strategic motivations for promoting open source DB are self-evident: reduce total cost of ownership for its customers, while striking at rival application vendor Oracle. But on the other hand, the fact that the vast majority of high-end SAP customers still run on Oracle makes that vendor an indispensable partner for SAP. Microsoft and IBM are also key partners who have no interest in seeing MaxDB spread its wings.

Last year’s decision to hand off the MaxDB product to MySQL lets SAP put some distance between itself and this possibly contentious issue, but at the same time puts the product into the hands of a focused start-up that has an extremely successful track record promoting open source databases (and that raised $20 million in new venture capital for this purpose last summer).

Bottom line: ERP customers are intrigued by the idea of one day being able to run on an open source database, but few of them see this as a serious near-term possibility. The advantage is still strongly on the side of the established commercial database vendors. But just as for Linux, we believe the deciding factors will ultimately be ease of use, tools, and availability of skills rather than technology alone. A Microsoft-like “flood the zone” approach to education and tools by Oracle could push the open source DB threat in the core packaged enterprise apps space back by several years3.

Upgrades are hot, new apps are not

See charts 6, 7 and 12.

The 98 enterprise app users we surveyed in May (including Big 3 and non-Big 3 customers) are much more interested in adding new users or modules to existing packages than in buying new apps or new suites:

• 38% rank upgrades to existing apps as a “hot” priority vs. only 14% for new app purchases.

• 55% rank new app buying as “cold” or “cool” vs. only 19% for upgrades or extensions.

• Caution: there are major differences among the customers of the different Big 3 vendors on this score. Stay tuned for an update based on a larger sample in our July report.

Neglecting differences between vendors, the strong focus of enterprise app customer organizations on existing rather than new projects is a clear reflection of the intermediate stage of the economic recovery we are now in. After three quarters of strong top and bottom line growth, management teams

3 This could be an indirect benefit of the May agreement between Oracle and Microsoft to promote the use of Microsoft’s Visual Studio development suite among Oracle customers.



have regained enough confidence to invest in new seats, add-on modules and version migrations for their backbone enterprise apps.

But they are less ready to invest in new apps. It is not that they are gun-shy about new apps, but rather that these projects inevitably take a certain amount of time to gather steam. We believe that a second wave of investment in new apps is now building in the pipeline and should emerge in due course next year or possibly as early as Q4 2004 (assuming a reasonably stable domestic and world political environment).

Data Warehouses, BI and EAI are also hot

See charts 8-12.

Data warehousing and business intelligence projects are also high on the current list of app user priorities.

• 60% rate data warehouse and BI projects in the next 12 months as “hot” or “warm”.

• 60% give a similar priority rating to application integration projects.

• But only 34% rate new custom app development (with J2EE or .NET) as “hot” or “warm”.

• Only 24% are enthusiastic about major legacy app revamping.

These levels for custom app building and legacy revamping shouldn’t necessarily be seen as low. Since this is our first wave of respondents on this questionnaire we don’t have a baseline for these questions yet. It might turn out that these are quite good numbers.

But by any standard, BI and EAI are hot. It is crystal clear that large and mid-size enterprise app customers are focused on extracting the most business value from their current app portfolios.

Unix and RISC still dominant on all tiers

See charts 13, 15, 17, 19, 20 and 22.

Our survey gathers detailed data on several key components of the enterprise app stack:

• Server OS and server hardware brand on both the middle (app server) and back-end (DB) tiers.

• Processor type on both tiers.

• Database brand.



• All questions in the series cover the current installation and the customer’s plans for 3 years out.

We reserve detailed commentary on the respective shares of the key players in these stack layers for subsequent reports based on larger sample sizes.

Nevertheless, the broad outlines of our findings are already clear:

• Vendor Unix (AIX, HP-UX, Solaris) still owns the lion’s share of the middle and back-end tiers – 55% in both cases.

• Windows – including NT, Windows Server 2000 and Windows Server 2003 – is stronger on the app server tier (36%) than on the DB tier (28%), mostly due to the continuing strength of OS/400 on the latter (e.g. in the PeopleSoft JD Edwards installed base).

• RISC chips still dominate the app server and DB tiers, with 60% and 63% respectively. Intel-AMD architectures account for 40% of the app server tier, but only 33% of the DB tier.

Of course, all of these numbers look rather different when we ask our respondents to forecast their expected enterprise app stacks 3 years out. We will report these data in our next issue.

The ERP server hardware market is a 4 player game

See charts 14, 18 and 21.

Based on our first wave of surveys, we can say that IBM and HP together own about two thirds of the Big 3 ERP server hardware market:

• They control 63% of server hardware installed in the middle tier.

• Their combined share rises to 68% for the database tier.

• IBM is the leader on the DB tier with 35%, but HP is the leader on the app server tier, also with 35%.

• Sun and Dell split almost all of what’s left, with an advantage to Sun which is more pronounced on the database tier.

Note that IBM’s share includes its Intel-based, RISC-based and mainframe product lines, while HP’s share includes Intel and RISC machines from both HP and Compaq.

Although share differences between vendors will become more precise as our sample size increases, it is already evident that the server hardware market for these applications is extremely concentrated:

• IBM, HP, Sun and Dell own more than 95% of the Big 3 server hardware installed base for both middle and back-end tiers.



Oracle dominates ERP database share by a wide margin

See chart 16.

The initial finding of our first survey wave is not surprising, given Oracle’s long-established strength in this market segment:

• Oracle dominates the Big 3 ERP installed base, with 59%.

• IBM and Microsoft have equivalent shares, with roughly 20% each.

• Again, these numbers are likely to fluctuate as sample size increases. Note also that a very small percentage of SAP respondents report using the open source database MaxDB (see chart 44).

We will reserve commentary on database trends for a subsequent report.

4 Minor discrepancies between charts 4 and 16 are due to sample differences between questions and will disappear as sample size increases.



Chart 1: Survey Respondents

Enterprise Apps 2004 Survey Respondents(April 23 - May 20)

SAP26%

PSFT32%

ORCL10%

All Other32%

Q: Who is your primary Enterprise Applications vendor? (Base: 98)

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Chart 2: Linux as Server OS for Core Business Apps

Linux becomes primary server OS for our corebusiness apps such as ERP

Already True5%

Maybe One Day38%

Within 2 Years10%

Within 5 Years14%

Probably Never33%

Base: 67 Big 3 ERP users (results for April 23 - May 20)Cop

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Chart 3: Open Source App Server Use for Core Business Apps

Open source J2EE App Server (JBoss, Tomcat, etc) becomes primary platform for our core business apps such as ERP

Already True6%

Within 2 Years11%

Within 5 Years11%

Maybe One Day38%

Probably Never34%


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Chart 4: Open Source Database Use for Core Business Apps

Open source database (MySQL MaxDB or similar) becomes primary DB for our core business apps such as ERP

Already True2%

Maybe One Day43%

Probably Never39%

Within 2 Years5%

Within 5 Years11%


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Chart 5: Open Source for Core Business Apps: OS vs. AS vs. DB

29%

38%

33%

29%

37%

34%

18%

44%

39%

0%

25%

50%

75%

100%

Server OS App Server Database

Open source middleware becomes primary platform for our core business apps such as ERP

Probably NeverMaybe One Day

Within 5 Years


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Chart 6: 12 Month Buying Plans for New Apps

Buy a major new app or suite (ERP, CRM, SCM, etc.)in next 12 months

Hot14%

Warm21%

Lukewarm10%

Cool20%

Cold35%

Base: 98 Enterprise App users (results for April 23 - May 20)Cop

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Chart 7: 12 Month Buying Plans for App Upgrades

Add new users or modules to existing packagesin next 12 months

Hot38%

Warm30%

Lukewarm13%

Cool12%

Cold7%


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Chart 8: 12 Month Buying Plans for App Integration

Integrate packages with each other or legacyin next 12 months

Hot37%

Warm24%

Lukewarm12%

Cool14%

Cold13%


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Chart 9: 12 Month Buying Plans for Data Warehouse & BI

Data Warehouse or BI projectsin next 12 months

Hot31%

Warm29%

Lukewarm22%

Cool12%

Cold6%


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Chart 10: 12 Month Buying Plans for J2EE or MS .NET Custom

Build major new apps with J2EE or MS .NETin next 12 months

Hot19%

Warm15%

Lukewarm13%

Cool16%

Cold37%

Base: 98 Enterprise App users (results for April 23 - May 20)

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Chart 11: 12 Month Buying Plans for Legacy App Modifications

Make major modifications to legacy appsin next 12 months

Hot13%

Warm11%

Lukewarm21%

Cool22%

Cold33%


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Chart 12: 12 Month Enterprise App Spending Plans by Category

24%

34%

36%

60%

60%

68%

0% 25% 50% 75% 100%

Major modifications to legacyapps

Build major new apps w.J2EE/.NET

Buy new package or suite

Integrate packages & legacy

Data Warehouse or BI

Add users or modules tocurrent packages

New Enterprise App Spending in Next 12 Months(ranked by category)

Hot or WarmLukewarmCool or Cold


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Chart 13: Server OS Share – Big 3 ERP App Server Tier

Server OS - Big 3 ERP App Server Tier

Windows35%

OS/4009%

Linux2%

Unix54%


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Chart 14: Server Hardware Share – Big 3 ERP App Server Tier

Server Hardware - Big 3 ERP App Server Tier

IBM28%

Sun19%

Dell16%

Other2%

HP35%


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Chart 15: Processor Share – Big 3 App Server Tier

Processor Type - Big 3 ERP App Server Tier

Intel & AMD40%

RISC60%


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Chart 16: Big 3 ERP Database Share

Big 3 ERP Database Vendor

Microsoft20%

IBM21%

Oracle59%


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Chart 17: Server OS Share – Big 3 ERP Database Tier

Server OS - Big 3 ERP Database Tier

Mainframe4%

OS/40011%

Linux2%

Windows28%

Unix55%


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Chart 18: Server Hardware Share – Big 3 ERP Database Tier

Server Hardware - Big 3 ERP Database Tier

IBM34%

HP33%

Sun19%

Dell12%

Other2%


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Chart 19: Processor Share – Big 3 ERP Database Tier

Processor Type - Big 3 ERP Database Tier

Mainframe4%

Intel & AMD33%

RISC63%


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Chart 20: Server OS Share – App Server Tier vs. Database Tier

55%

36%

9%

55%

28%

11%4%

0%

25%

50%

75%

100%

App Server Tier Database Tier

Big 3 ERP Server OSApp Server vs. DB Tier

LinuxMainframeOS/400WindowsUnix


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Chart 21: Server Hardware Share – App Server Tier vs. Database Tier

28%

35%

19%

16%

35%

33%

19%

12%

0%

25%

50%

75%

100%

App Server Tier Database Tier

Big 3 ERP Server HardwareApp Server vs. DB Tier

OtherDellSunHPIBM


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Chart 22: Processor Share – App Server Tier vs. Database Tier

60%

40%

63%

33%

4%

0%

25%

50%

75%

100%

App Server Tier Database Server

Big 3 ERP Processor TypeApp Server vs. DB Tier

Mainframe

Intel & AMD

RISC


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About Peerstone Research Peerstone is an independent research firm that specializes in examining large numbers of Fortune 1000, Mid-market and Government organizations specific to their enterprise applications projects, trends, growth plans and vendor satisfaction levels.

Peerstone does not provide investment banking, brokerage or consulting services. Our coverage universe typically includes ACN, BEAS, CA, DELL, EDS, EMC, HPQ, IBM, ITWO, JDEC, LWSN, MANU, MSFT, NOVL, ORCL, PSFT, RHAT, SAP, SEBL, SUNW, SY and VRTS.



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Enterprise Survey Results: June 2004