In-Depth
The Enterprise Year in Review
From acquisitions to outsourcing, it was a very busy year
For enterprise computing watchers, 2005 was an interesting year.
There were blockbuster acquisitions aplenty, for one thing: Oracle Corp. completed its long-prolonged acquisition of PeopleSoft and announced another high-profile purchase, the former Siebel Systems Inc., while IBM Corp. ponied up $1.1 billion for the former Ascential Software Corp and Sun Microsystems Inc. nabbed storage stalwart Storage Technology for $4.5 billion.
There were quite a few blockbuster product releases, too, including IBM’s largest ever mainframe systems, Microsoft Corp.’s long-missing-in-action SQL Server 2005 database, and Sun’s comeback bid, the revolutionary UltraSPARC T1 and new T-Series servers.
There were plenty of setbacks, too. Mainframe sales took a turn for the worse, offshore outsourcing picked up steam, and several companies said goodbye to underperforming corporate chiefs.
All in all, it made for a very interesting year.
Bigger, Badder Big Iron
The z9 mainframe systems IBM introduced in August offer significant performance and scalability improvements over their predecessors, the seminal z990 (“T-Rex”) and z900 mainframes. With its next-generation zSeries systems, IBM also tried out a new set of talking points, touting best-in-class security, virtualization, and availability improvements that—in combination with credible performance and scalability enhancements—were designed to help the mainframe maintain its avant-garde position in the mission-critical enterprise (http://esj.com/Enterprise/article.aspx?EditorialsID=1463).
Big Blue is gambling that the z9 will help reverse a downturn in its heretofore stellar mainframe market fortunes. The jury’s still out on whether the best and brightest hopes of IBM officials will, in fact, pan out, but early returns are at least promising. IBM has thus far touted a few key wins for the z9 (including food and drug retailer Hannaford Brothers Co.), and Wall Street watchers also give Big Blue’s mainframe business high marks. Earlier this month, for example, Credit Suisse First Boston’s Andy McCollough rated IBM at “outperform,” citing the strength of Big Blue’s mainframe business, which he expects to boost the company’s profits for the fourth quarter of this year.
It was a banner year for Big Blue in other respects. Long a peripheral or enabling player in the data integration space, IBM became—with the acquisition of extraction, transformation, and loading (ETL) giant Ascential—an overnight data integration sensation (http://esj.com/Enterprise/article.aspx?EditorialsID=1319). Look for Big Blue to introduce the first branded products (WebSphere DataStage and WebSphere Metadata Manager) based on the former Ascential technologies in the new year.
Oracle’s Acquisition Binge, Part Two
Oracle’s PeopleSoft acquisition was really just a holdover (i.e., not-quite-finished-business) from 2004, but the company’s Project Fusion middleware initiative was one of the most significant new developments of 2005 (http://esj.com/Enterprise/article.aspx?EditorialsID=1251).
Fusion describes an SOA-based middleware architecture that, when fully realized, promises to bring order and respectability to Oracle’s anarchic mix of homegrown, PeopleSoft, and J.D. Edwards products and technologies. Look for the first Fusion-oriented deliverables to start appearing early in the new year. PeopleSoft and J.D. Edwards users—who thus far have been surprisingly conciliatory toward Oracle—may be a lot less obliging if Ellison & Co. don’t stick to the letter of their Project Fusion pledges. “Oracle does not exactly have a stellar reputation when it comes to ERP systems … and we're all aware of that,” noted Larry Jones, a J.D. Edwards Enterprise One administrator with a manufacturer of aluminum casting technologies, earlier this year(http://esj.com/Enterprise/article.aspx?EditorialsID=1367).
Last year, Oracle ponied up an obscene amount of cash for PeopleSoft, but that was just a prelude to the database giant’s acquisition activities in 2005.
Earlier this year, the company engaged in a bidding war with German ERP giant SAP AG over a Minneapolis, Minn.-based retail vendor named Retek. Competition between SAP and Oracle eventually increased Retek’s price tag to more than half a billion dollars. The database giant also acquired another retail software specialist, ProfitLogic, this year, along with an in-memory database powerhouse (TimesTen).
Oracle’s $5.85 billion bid for Siebel could hardly have been called a surprise. After all, it had been eying its CRM adversary for about as long as its CEO has been fascinated by yachting craft. Even so, the addition of Siebel’s technology assets means Oracle will have even less room for error as it struggles to successfully assimilate the fruits of its acquisition binging.
As a result, many competitors (most notably, SAP) will be poised to capitalize if Ellison and his team should stumble. “For many users, by the time [Project Fusion is] available, they will also have a credible option in migrating to SAP. So that’s definitely something Oracle has to be concerned about,” said Robert Kugel, an analyst with consultancy The Ventana Group.
The Sun Micro Also Rises
A decade from now, 2005 may be remembered as Sun’s comeback year. In the space of about two months, the Unix giant paid about $25 million for thin-client computing specialist Tarantella Inc. and—in nothing short of a coup—notched a $4.1 billion deal for storage giant StorageTek. Sun’s buying binge burned through more than half of its available cash on hand ($7.4 billion) and wasn’t entirely without risk. At the same time, it reenergized the Sun faithful.
It was enough to give many Solaris enthusiasts what jazz sax man Hank Mobley might have called that old feeling again: almost as if the cagey, competitive, and iconoclastic Sun of old had emerged from its self-imposed exile(http://esj.com/Enterprise/article.aspx?EditorialsID=1406).
That old feeling grew stronger last month, when Sun announced its new UltraSPARC T1-powered servers. UltraSPARC T1 is the fruit of Sun’s risky (some even called it reckless) Niagara project. Each UltraSPARC T1 chip is populated with eight discrete processor cores running at 1.2 GHz each. A single processor can handle as many as 32 threads simultaneously. UltraSPARC T1 also consumes significantly less power than its competitors, and some analysts speculated that it might redefine the rules of the game. “Sun's systems beat competitive offerings by factors of four or five [in terms of performance per watt], a truly stunning improvement over the prior state of the art. If these new systems cannot reignite growth of Sun's SPARC-based systems business, it's hard for Insight 64 to imagine what could,” said veteran industry watcher Nathan Brookwood, a principal with microprocessor consultancy Insight64.
There Was Trouble, Too
The year that was had its share of troubling developments, too. Consider IBM’s mainframe market fortunes, which—in the first two quarters of 2005, anyway—fell off sharply, ultimately triggering a large-scale reshuffling of Big Blue’s European operations.
On the whole, 2005 was something of a mixed bag for mainframe enthusiasts. Yes, Big Blue delivered its much-anticipated z9 systems (the most powerful mainframes ever developed); yes, IBM delivered an update for its z/OS operating environment; and, yes, Big Blue’s earnings—and mainframe market revenues—recovered from their Q1 downturn.
But IBM, Computer Associates International Inc. (CA), and BMC Software Corp. all announced mainframe-related job cuts, and Big Blue’s EU reshuffling was hardly trivial in its own right: All told, as many as 13,000 IBMers were expected to lose their jobs (http://esj.com/Enterprise/article.aspx?EditorialsID=1431).
There were other concerns, too. Big Blue has done a lot to position the mainframe as an affordable alternative to open systems in the high-end, but some Big Iron veterans say it hasn’t done enough—more to the point, that it’s unwilling to undertake the truly unpleasant stuff (http://esj.com/Enterprise/article.aspx?EditorialsID=1533).
“The entry-level cost risk is beyond imagination. IBM has no entry-level mainframe offering save for one emulator implementation offered by one company on a limited number of approved configurations,” said Ben Teifeld, a principal with consultancy and integrator Teifeld & Associates, earlier this year. “The entry-level cost of this combination, without operating system or development software, is at least $20,000.” As far as Teifeld is concerned, no sane CIO is going to consider such an outlay a reasonable risk—and that’s even before he or she gets a taste of the sky-high pricing of most mainframe software.
Outsourcing Gains Ground
Outsourcing, too, seemed to pick up steam in spite of mounting evidence that it isn’t quite the slam dunk most executives desperately want it to be. Consider IBM’s own outsourcing track record: Shortly after it announced plans to cut as many as 13,000 jobs in the EU, Big Blue announced plans to send as many as 14,000 jobs offshore—to India.
The growing controversy over outsourcing highlighted an apparent disconnect between IT pros and their executive masters. According to market researcher Gartner Inc., the global market for outsourced services should total about $134 billion this year. That’s an increase of almost 10 percent from 2004’s tally. By 2008, Gartner says, spending on outsourcing in its various forms will comprise one-third of all IT capital expenditures (http://esj.com/Enterprise/article.aspx?EditorialsID=1343).
Clearly, executive decision-makers are comfortable with the outsourcing model. With few exceptions, the opposite is the case on the IT side of the divide. In fact, many IT pros allege that executives have accepted the value of outsourcing on faith alone in the absence of demonstrable cost savings, improved efficiencies, or other quantifiable metrics. In reality, they say, outsourcing projects are poorly planned, difficult to manage, and deceptively expensive. On top of this, some argue, outsourcers typically produce shoddy code or deliver unreliable services.
HP Charts a New Direction
Finally, 2005 will be remembered by many as the year in which polarizing CEO Carly Fiorina finally relinquished the helm at Hewlett-Packard Co. (http://www.esj.com/news/article.aspx?EditorialsID=1279). While Fiorina’s legacy will be debated by HP boosters for some time to come, users of HP’s step-companies—the former Tandem Corp. and Digital Equipment Corp.—will remember Fiorina for very different reasons.
Interviewed immediately after Fiorina’s departure, many Tandem and Digital users described HP’s (and Fiorina’s) stewardship as an improvement over that of the former Compaq Computer Corp., which acquired the two companies in 1997 and 1998, respectively. Compaq was a PC upstart with little enterprise computing experience, these users said, while HP was an enterprise veteran. At the same time, however, one user offered a potentially apt epitaph for the Fiorina years. “At the end of Carly's reign, most of my long-time Tandem friends are unemployed, underemployed, or running a small non-technical business,” said Mike Smith, a senior systems analyst with a southern California financial institution.