Enterprise Software and the Database Proxy War

Two recent news items, however apparently disconnected, highlight an

interesting turnaround for the otherwise dowdy database market.

On the same day that Microsoft announced a newly enhanced SQL Server

database — with the clear intention of challenging Oracle and IBM in the

high-end of the market — Computer Associates announced it was spinning

off majority ownership of its Ingres open source database line to a

private-equity firm. And with those two announcement, the database market

became the official proxy for the next battle royale in the enterprise

software market.

Here is what’s happening with databases… Oracle is the market leader in

databases, and is angling to be the market leader in enterprise

applications, as well. Hence, the companies that sell databases — IBM

and Microsoft — want to outsell Oracle in the database market, while the

companies that sell enterprise software — such as SAP and Microsoft —

want to knock Oracle out of the applications market.

The problem is that Oracle is a little two well-ensconced in both markets

to be taken out by a frontal assault. That’s where the database-as-proxy

comes in.

The database proxy battle has two founding principles. The first is that

Oracle differs greatly from SAP and Microsoft’s high-end Axapta

enterprise software line — as well as most of the rest of the enterprise

software market — in its requirement that Oracle applications customers

use the Oracle database. The second is that a large number of SAP and

Microsoft applications customers — too many if you ask these vendors —

run on the Oracle database.

If Microsoft and SAP could get applications customers to eschew Oracle in

favor of SQL Server (the Microsoft alternative) or anything-but-Oracle

(the SAP alternative), the result would be pretty dramatic, as long as

the Oracle replacement database was less expensive and equally robust.

Such a shift would dramatically lower the total cost of ownership for

non-Oracle applications and isolate Oracle as the high-cost, low-choice

vendor. With Oracle’s applications locked into running on a significantly

more expensive database platform than the competition, SAP and others

could potentially blunt Oracle’s market dominance plans.

This makes the timing of Microsoft’s new SQL Server extremely propitious:

with Steve Ballmer claiming that SQL Server is ready for the high-end of

the market, database proxy number 1 is now in the field.

The Computer Associates announcement gives a hint of what proxy number 2

will look like: an open source database. While this doesn’t mean that

Ingres will be SAP’s Oracle killer, it sets the stage for what to watch

for, not only at SAP but at every other enterprise software vendor that

counts Oracle as a database of choice for its customers. The key fact is

that open source databases, combined with low-cost server hardware, can

give Oracle a run for its money in many, if not most, enterprise

applications implementations.

So where does all this leave IBM?

Sitting in the cat-bird’s seat, no matter how the battle turns out.

Remember, IBM Global Services makes more money in implementing and

servicing enterprise software than IBM Software makes in databases. So if

an open source or SQL Server database become the market leader in

enterprise software one day and blunts Oracle’s plans for dominance, IBM

will still be chortling all the way to the bank.

And if Oracle remains dominant, so what? Oracle is IBM Global Services’

largest ISV partner, and there still will be no particular threat to

IBM’s overall bottom line.

What’s important to bear in mind is that the cost and complexity of the

database side of enterprise applications is highly vulnerable to a

paradigm shift. It’s vulnerable because of the ”get-Oracle” mentality

in both the applications and database side of the market, and it’s

vulnerable because technological and market advances are commoditizing

much of Oracle’s traditional database advantage in favor of lower-cost

alternatives.

The database proxy war is only just heating up, and there certainly will

be more proxies to follow. Disconnecting applications customers from the

Oracle database is something a lot of vendors are very hot to see happen

in the next couple of years.

It will be interesting to see Oracle’s response. Applications may be

interesting to Oracle, but the database is literally its lifeblood. Don’t

expect Oracle to give up without waging a proxy war of its own.

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