Ask Larry Ellison, the chief executive and founder of Oracle, if he thinks that another big software company is somewhere out there in the making, and he is unequivocal in his answer: "The days of building a giant new ‘tech' company are over." The industry, he says, is mature, new entrants will not scale and will be consolidated. It is, he says, a "fantasy that the computer industry will always be young."
Now step out of Oracle's sprawling campus headquarters in Redwood Shores, California, and walk a few hundred yards up the road. There, nestled in alongside the database and applications giant, are the offices of Asera, the very heavily funded three-year-old software start-up.
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Vinod Khosla, Asera: “The goal is that we can, just like enterprise resource planning, become central to a corporation.” |
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This is a company with grand ambitions and even grander backers. "The goal is that we can, just like ERP, become central to a corporation," says Vinod Khosla, chairman of Asera and world-renowned venture capitalist with Asera's lead investor, Kleiner Perkins Caufield Byers.
No-one – not even other Asera investors such as Morgan Stanley Dean Witter, SAP, Cisco and Accenture – can say what the stock markets will do over the next three or five years. But they – along with the rest of the company's backers – know that the $175 million (€198m) invested in Asera demonstrates enormous ambition. To repay that kind of investment Asera, in the space of a few years, will need to thrust its way into the ranks of the world's top 20 software companies, generating revenues of hundreds of millions of dollars.
The company's investors clearly think it can be done. Asera's valuation is not a throwback from the absurdly optimistic dot-com era; some $115 million (€130m) was given to Asera in the autumn of 2001, during the nadir of the industry's recent troubles.
Fat in the middle
Khosla, asked to justify this investment, gives a venture capitalist's answer: "It is rare you see something so revolutionary, so completely different, something that takes a completely different tack to solve a fundamental problem for an enterprise."
Asera stands out, not just because of its resources, its management and its backers, but also because of the extent of its technical vision. But it is not the only company that is preaching a radical new vision for the development and integration of business software. Others include Excelon, Atlas Commerce, Bowstreet, and VC-backed Fuego and Intalia. If the wider definitions are used, then VCs in the US have ploughed more than $350 million (€396m) into the sector.
Defining this technology or its common goals is not easy. The companies above come from different backgrounds – such as web services, e-marketplaces and application development – have very different products, and most baulk at the idea of being listed alongside each other. And, so far, no analyst group has clearly categorised the players in the sector.
But all are preaching a radical and new type of business integration – process-level integration – that will enable organisations to build flexible, responsive systems at speed, usually exploiting an underlying and pre-existing software infrastructure.
So far, the suppliers have no common vocabulary, either marketing or technical. But if the goal is to create software that enables a large company to react immediately, across all its departments, just as if it were a corner shop, then Asera, for example, says process-level integration is the answer. Equally, if the idea is to bring companies together – perhaps through an exchange – so that they can work collaboratively, with their systems interworking as if they were all one part of a greater whole, then process-level integration is the answer here too.
These companies all see software applications as services, rather than big blocks of data and functions. That calls for a new way of managing services, new software programs for organising them, new tools for building service-based applications. It is a new ‘fat' middle layer in the IT architecture.
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Joe Bellini Excelon: “Service-based architectures are actually more important than web services right now.” |
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Web services – made popular by early products from Microsoft, Sun, Hewlett-Packard and others, are part of the story. But the heart of the issue for managers, and the heart of the revenue story for suppliers, lies in how web services and corporate components are managed and made useful. "Service based architectures are actually more important than web services right now," says Joe Bellini, CEO of software supplier Excelon, the software company formerly known as Object Design.
How does it all work? The starting point is that today's big software systems – most notably the enterprise resource planning (ERP) systems from companies such as SAP and Oracle – provide strong functions, but are not easy to change and do not work well with other applications.
In recent times, IT directors have been making concerted and very expensive efforts to integrate their various systems so that, for example, a customer query made through the customer relationship management (CRM) system is able to find out manufacturing details from the ERP system, credit details from the finance system, and delivery data from the supply chain management (SCM) system.
The most common way to do this is by using an EAI (enterprise application integration) system. Software from Tibco, Vitria, IBM, SeeBeyond and others can find the data, translate it into the right formats, and make sure it is delivered to the right place at the right time.
But this is not enough, say the new wave of suppliers. "They do transformation, transportation and synchronisation [of data]," says Mark Atherton, VP of marketing for Asera. "But they are not managing the process – the applications themselves."
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The 100-year flood and the billion-dollar savings
The irony is so obvious that even Asera executives joke about it. When Cisco, the networking giant, famously failed to forecast a collapse in orders back in early 2001, CEO John Chambers was forced to make a humbling apology – one which he has had to repeat like a mantra ever since: "I'm sorry. We didn't see it coming. I wish we had, but we didn't."
But Cisco, perhaps more than any other company, surely should have seen it coming. It has made it a top priority to get more real-time information about its business to its top people. It is part of the culture, and part of the sales story. As an article on its web site boldly says: "Have you checked your corporate vision lately? Do you have a clear view into the future? If not, its time to have another talk about the Internet."
That Cisco did not forecast its sales collapse was, it argues, no reflection on the weakness of its systems – although it has since revamped them – but was due to the suddenness and immensity of the slowdown. It was, as Pete Solvik, Cisco's chief information officer put it, "a 100 year flood".
That hiccup aside, Cisco is the embodiment of a company that has aimed to achieve the process-level integration that companies, most notably Asera, talk about. The Cisco strategy involves using IT, and specifically the Internet, to cut operational costs, to give better customer satisfaction, to increase visibility and control over its business.
"What they did at Cisco was put more computing in the middle tier," says Mark Atherton, VP of marketing for Asera. Cisco online, the support system that customers and partners can use over the Internet, involves 170 applications working together in ‘real time'.
Cisco's vision so impressed Vinod Khosla of Kleiner Perkins Caufield Byers that he persuaded Peter Solvik, Cisco's CIO, to oversee a plan to turn the work into a saleable service, and a series of products. In this way, aided by $175 million (€198m) from a list of top notch investors, Asera, the real-time operating system company, was born.
Although Cisco does not actually use Asera – its work predated the software – the results at Cisco make the strongest case for process-level integration. In Cisco's 2001 financial year, says the company, the positive impact of all its Internet initiatives amounted to $1.7 billion (€1.9bn). But more is to come: by integrating all its applications to create a ‘networked virtual organisation', it intends to achieve revenues of $1 million (€1.1m) per employee per year. If it succeeds it will surely become the most productive product supplier in history.
"If you look at a company like Cisco," says Khosla, "they save more money on their customer support efforts than their competitors spend on R&D. Hundreds of millions, if not billions of savings in SGA costs" Cisco, he adds, "has thousands fewer employees than they might otherwise have if they followed the same metrics as their competitors."
Another company that has built similar systems is Dell Computer. The PC and server maker, says Khosla, "is an example of a company that outdid its competitors in terms of customer service, customer customisation and customer responsiveness while reducing its costs at the same time."
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Moreover, such systems can be inflexible. Not only do the big applications require substantial programming, so do the pathways and interfaces between their respective databases. "It's like wet cement. After it's dried, it hardens," says Bellini.
Some suppliers argue that the application software suppliers – such as Oracle and SAP – will increasingly be forced to componentise their applications and offer them as services. But that is not a precondition of moving towards a process-based architecture. Suppliers such as Asera prefer to co-exist with today's incumbent leaders.
Asera's much-quoted tag line is that it can create the ‘real-time enterprise'. It talks of building a top layer application that has a real-time, automated ‘conversation' with the various systems in place. For example, today an operator in a call centre might ask an ERP system to check for inventory, a supply chain system to check for delivery dates, and a financial system for a credit check – all before taking taking action. Asera's software aims to capture all the business processes so that this can be done more or less simultaneously. It also creates an environment where these processes can be quickly changed.
This is the new technical battleground. Capturing, modelling, storing and appropriately invoking these processes is the technical challenge that lies at the heart of these process management companies. The goal is to create a new layer of ‘composite applications', based on the systems in place.
In order to do this, the software needs to include a database of processes, templates and business objects that is separate from the applications; there must be a set of development tools; it must be resilient and scalable; it must be capable of supporting a distributed architecture; and it must incorporate sophisticated security, access and workflow procedures. "It's a very difficult thing to do and takes a very large effort," says Khosla. That, he says, is one reason why Asera needed so much money. He also says it is why there are so few start-ups.
Bellini of Excelon believes that his company has a real advantage. Underlying its products is a proven, resilient and scalable object database optimised for business processes expressed in XML (extensible mark-up language) – the emerging lingua franca for capturing the new application logic. "Everyone is keen to develop business process managers, but they are useless without a data store. The middle tier will start to get much fatter," he says.
Competitors
A fat middle tier could mean a lot of fat wallets. But for whom? There are at least three groups of suppliers chasing this market and the argument that a new generation company will take a large share is strong but not compelling.
One group consists of the application development application server suppliers. Companies such as IBM, Microsoft, Software AG, and Rational Software are showing increasing interest in this field.
Another group with a clear interest are the EAI vendors. While they have focused on data-level integration, in recent months all the big vendors – IBM (with WebSphere), Tibco, Vitria, for example – have been incorporating increasing workflow and business process modelling functions into their products. They have also been moving towards XML as a standard way of programming and linking systems together. From there, it is only a step further to the process-level integration that some have argued will be their downfall.
And the new process management companies? These companies – even Asera – have tiny revenues and a limited customer base, and winning customers among the sceptical enterprise user base will always be difficult.
Ellison's point is well made. It is harder than ever for smaller companies to make an impact. But a few miles down the road, John Chambers, CEO of Cisco and an investor in Asera, offers another perspective. "I've always believed our competition would come from below. That's what Cisco did."
Most of these new companies won't make much of an impact. But if this technology is genuinely valuable, then at least one will.
The process-level integration companies:
Asera
DWL
Excelon
Fuego
Intalio
Knownow.com
Savvion
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Asera
Top executive: David Murphy
Founded: 1998
HQ: Belmont, California
www.asera.com
Company: Asera uses powerful marketing terms such as the 'real-time enterprise' and the 'ebusiness operating system' to describe its process-level integration technology. Its ambitious technology stack includes application development tools, a deployment and integration framework, a suite of portal, personalisation, globalisation and content management software, a workflow engine and a library of XML objects.
Finance: Asera has received $175 million (€198m) from investors, including Accenture Technology Ventures, Kleiner Perkins Caufield & Byers, McKinsey & Co and Morgan Stanley.
Comment: Asera's market credibility has been helped by big name investors, heavyweight managers and the Cisco connection. However, it hasn't revealed revenues, and competitors suggest the company isn't growing as fast as expected. It needs to translate its high profile into more customer wins, and to demystify its complex message.
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DWL
Top exec: John Baumstark, President & CEO
Founded: 1996
HQ: Toronto, Canada
www.dwl.com
Company: DWL focuses on customer relationship management (CRM) connectivity to back-office applications. Through a Java-based software platform called Unifi, organisations can build composite CRM applications than can link to external products. For example, the system can let a permitted user visit their own bank's web site and check account details or balance through real-time access to information held in the ERP system. DWL operates in three vertical markets, Insurance, Financial Services and Consumer Products. Customers include MetLife, Royal & SunAlliance Financial and Body Shop.
Finance: The company has received a total of $55 million (€62m) in three rounds of funding including $31 million (€35m) in September 2001 from Insight Venture Partners and MMC Capital.
Comment: The prospect of tying CRM applications fully into back-office applications increases their scope and functionality. However, DWL needs to differentiate its technology more clearly from the integration tools offered by the major CRM vendors and their partners.
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Excelon
Top exec: Joe Bellini
Founded: 1998
HQ: Burlington, Massachusetts
www.exceloncorp.com
Company: Having started life as an object database firm – Object Design – Excelon repositioned itself as a provider of XML databases and integration tool sets in 1999. Excelon now develops a business process modelling and integration environment – Universal Platform. The product is underpinned by an XML database and industry-specific templates, courtesy of its acquisition of systems integration company, C-bridge Internet Solutions, in August 2001.
Finance: Twelve-month trailing revenues were $50.8 million (€57.5m), 27.7% down on the same period last year when sales were $70.3 million (€79.6m). The company made a $30 million (€34m) trailing loss compared to an $11 million (€12.5m) profit in 2000.
Comment: With its history, and its share price hovering around $1, Excelon does not fit the profile of a new wave powerhouse. But some analysts think the company has found the ideal application for its underlying database, and is set for a renaissance. Aside from primary competitors Software AG and Computer Associates, the company also rubs shoulders with Tibco and Vitria. The key to the ambitious re-positioning is winning new customers.
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Fuego
Top exec: Mark Theilken
Founded: 1983 as Intersoft
HQ: Addison, Texas
www.fuego.com
Company: Having been through several re-branding exercises and four name changes (InterSoft, eTopware, FuegoTech and now Fuego), the software veteran claims to offer a combination of EAI, business-to-business integration and business process management tools. Unlike some of its middleware rivals, Fuego doesn't sell pre-built adaptors. Instead it uses a dynamic adaptor generator to enable business applications to be changed on the fly.
Finance: The company completed its last round of funding in October 2001, raising $22.3 million (€25.2m). Trinity Ventures led the round. Fuego has raised $45 million (€51m) in total.
Comment: Fuego needs to continue to forge relationships with application companies and systems integrators to increase its market visibility and propel it beyond the precarious realm of an interesting start-up.
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Intalio
Top exec: Ismael Ghalimi
Founded: 1999
HQ: San Mateo, California
www.intalio.com
Company: Intalio's approach to process integration separates business and application logic, so that companies can map and store business process definitions independently. Intalio n3, its flagship product, is the business process management system that supports this.
Finance: The company completed a second round in November 2001, raising $9 million (€10m). In total, the company has raised in the region of €17.4 million.
Comment: Intalio's success in the market will depend on whether users are ready to manage their business processes separately from the logic of their applications. Investors are watching the customer uptake carefully – especially those considering more funding.
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Knownow.com
Top executive: Bill Barhydt, President and CEO
Founded: 2000
HQ: Mountain View, California
www.knownow.com
Company: Knownow develops XML-based software for real-time client/server communication over the Internet. The company's three products: KnowNow Event Router, Microservers and Javascript Microserver claim to achieve the illusive goal of real-time web applications by bridging the gap between desktop and web applications.
Finance: In October 2001 Knownow raised $15 million (€17m). Investors include TPG Venture, Morgan Stanley and Kleiner Perkins Caufield & Byers. The company's total funding to date is slightly over $23 million (€26m).
Comment: Knownow has a simple and compelling message: maximise return on investment on existing software investments by ensuring different processes work together. Its ability to link up applications such as Excel in real time over the web give it great appeal; it may also have put it onto Microsoft's path – for better or worse.
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Savvion
Top exec: Mohammad Ketabchi
Founded: 1994
HQ: Santa Clara, California
www.savvion.com
Company: Savvion started out as a services company, but in 1999 developed its main product, BusinessManager. This models processes across multiple organisations, inside and outside of the firewall. XML is used for process, events, and rules definition. Customers include Motorola, Siemens, Hitachi, Arthur Andersen, Ford and Caterpillar.
Finance: Savvion raised $25 million (€28m) in first round funding in 2000.
Comment: Savvion is a services company that is trying to re-position as a process integration tools company. It has the advantage of a revenue stream and good customers – but it has yet to make an impact as a product supplier.
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