Industry Awaits Sterling's Next Move

By the end of the week, Sterling Software's acquisition of Synon Corp. is expected to close. The deal will give Sterling, an application development and management vendor for MVS, Windows NT and Unix platforms, a foothold in the AS/400 application development market.

Sterling has publicly stated that it will continue to support and enhance Synon's 2E and Obsydian development tools. But how Synon applications will fit into the Sterling portfolio and what kind of synergies and integrations there will be remains to be seen. The two companies are currently conducting a joint business review to determine a blueprint for the future.

In fact, Keith Jaeger, Synon's VP of business development, could not be reached for comment for this article. His voice mail states that he's working with the Sterling people on the merger and that it will be "extremely difficult" to contact him for "quite some time."

Synon (Larkspur, Calif.) may not have been "on the block" to be sold, but Meta Group (Stamford, Conn.) senior research analyst Melinda Ballou says it was only a matter of time before Synon was bought out by a larger company.

"What Synon's customers get out of it is that they know what's going on, because Synon was going to be acquired by somebody sooner or later," Ballou says. "They're in a niche market that's not sustainable longer term. The other players in that (AS/400 application development) market are pretty marginal. Synon's the only one left of any significance.

"They were branching off into NT with Obsydian, but their core base was the AS/400. They made the most productive AS/400 development tools. Anybody doing serious AS/400 development was using Synon."

Ballou says she isn't sure what's going to happen to Synon's products under Sterling. However, she says Sterling's 1997 acquisition of Texas Instruments Software, which made 4GL mainframe application development software, should be somewhat encouraging to Synon customers.

"I had serious concerns when Sterling acquired TI, that they weren't going to put anything into the product and just milk it for maintenance. But they haven't done that, and that's in the high-end 4GL space where everyone's tanking," Ballou says.

She says the AS/400 market is different, so it's hard to know what Sterling's plans are for Synon's products. "My larger concerns are that Sterling isn't going to put the R&D in that's needed to push the Synon products forward. I would expect they would view this as a niche market that they're in a leadership position in and they won't necessarily have to put a lot of R&D in to be successful," Ballou notes. "I don't know what's going to happen. I hope they leverage it as a niche market and move the products forward, but I'm concerned they won't."

Anna Clapper, VP of marketing at Dallas-based Sterling, promises the company will "enhance and support Synon's products going forward." Clapper says Sterling has not decided how, if at all, it will integrate its existing technology with Synon's. That's part of the review process the company is now undergoing, she says.

Dave Kelly, VP of application strategies service at the Hurwitz Group (Framingham, Mass.), says Sterling will likely continue to maintain and enhance Synon's products, as the company says it will, but will still have some questions to answer.

"Any time you move into a new market space, you have to take a look at your product lines and their revenues and identify the products that you're not going to invest in in the future," he says.

"How does Obsydian fit in with Sterling's products, how does it fit in with the old TI products? Synon is involved with the San Francisco Project, which probably does not generate a lot of revenue for them, so they'll look at that relationship. I don't know if they'll look at that positively or negatively."

IBM, through a spokesman, declined to comment on how the acquisition might affect Synon's participation in the San Francisco Project or any other aspects of the deal.

Better Off in the Long Run

So why did Sterling bother to acquire Synon if the AS/400 application development market is a static, low-growth market that wasn't going to be sustainable for Synon long-term?

While conceding that Synon's Obsydian product has some NT application development technologies that Sterling was interested in, Clapper says a chance to play in the AS/400 market was the main attraction of the deal for Sterling.

"You have to look at the needs of IS organizations when you develop technology solutions in today's market. They need the flexibility to put solutions in a wide variety of platforms and the AS/400 is one of the major ones out there," she says. "This is another piece of the puzzle. You cannot overlook having a full spectrum of support for all major platforms."

Ballou says she does think Sterling is sincere about being a player in the AS/400 market.

"The AS/400 still has quite a lot of life left in it and Sterling's aware of that. There's enough to be made in that space if they're willing to do some nurturing in the market. But I'm cautious about what they're going to do."

Client/Server Technology Inc.'s Jacada is integrated with Synon 2E to allow 2E customers to develop AS/400 applications with graphical, Java-based interfaces.

David Holmes, VP of marketing at Atlanta-based CST, declined comment on what the future of Jacada with 2E would be under Sterling. But he says that model is familiar to Sterling and says that the company is very committed to the AS/400.

"I think it's interesting that they're showing an interest in the AS/400. That's probably a strong indication of the longevity of the AS/400 market as well as its stability and growth opportunities," Holmes points out. "Sterling doesn't have a rape and pillage mentality. I expect them to continue to support Synon's products and do the things they have to do to make them run well."

Everyone seems to agree that at least for the time being, Synon customers will be in good hands with Sterling. Officially, Synon itself says its customers will benefit from the increased resources and support that the much larger Sterling can offer.

"Sterling is a very strong software company with a proven track record of bringing technology to market," says Holmes. "They have good support and strong alliances. If a company were to buy Synon, they're a good suitor. If Synon has to be purchased, that isn't a bad way for them to go."

Hurwitz Group's Kelly agrees. "Sterling is a large company with good resources and a good services business. They should be able to help Synon's customers move forward with technology, whether it's Synon's products or Sterling's products," he says.

Kelly says Sterling will leverage Synon's customer base to its advantage. That doesn't mean moving Synon customers off the AS/400, but selling it's non-AS/400 development tools into the many AS/400 shops that have mixed environments or plan to integrate other platforms.

"I don't know if they'll pull a lot of people off the AS/400 platform directly. AS/400 people tend to be happy with their platform. But Sterling will now have broad penetration into that market and will try to leverage the installed base to sell them Sterling products. And there'll possibly be some cross-fertilization using Synon technology in other areas," Kelly says.