Progress Adds Host Integration to Its SOA Arsenal
Type: Competitive Intelligence Report
Analyst: S. Willett
Report Date: December 22, 2005
Module: Application Infrastructure
ID: CIR21231 |
Current Perspective: Positive/Neutral
Vendor Importance: Moderate
Market Impact: Low |
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Summary
Event Summary
December 20, 2005 -- Progress Software Corporation, a supplier of application infrastructure software used to develop, deploy, integrate, and manage business applications, and NEON Systems, Inc., a provider of mainframe integration, jointly announced a definitive agreement, under which a wholly owned subsidiary of Progress will make a $6.20 per share cash tender offer for all outstanding shares of NEON common stock. The transaction is valued at approximately $68 million in the aggregate.
Analytical Summary
• Current Perspective: Slightly positive on Progress’s purchase of NEON Systems, because the firm gains technology that could enhance several of its lines, although the mainframe integration market has not been a high growth one.
• Vendor Importance: Moderate to Progress, since it needed to match competitors with mainframe integration options in order to compete in the SOA integration market and related spaces.
• Market Impact: Low on the integration market, since most competitors in this market and related areas have some sort of mainframe integration capability, although users and vendors should monitor the use of this for event processing applications.
Target Markets
End Users, Global 2000, Global Carriers, Large Enterprises, Resellers/Channels, Small to Medium Enterprises, Systems Integrators, Third Party Implementers, Web Portals
Perspective
Current Perspective: Positive/Neutral
We are taking a slightly positive stance on Progress’s purchase of NEON Systems for $68 million, since the firm gains a complementary mainframe integration technology that can enhance its SOA/ESB suite. The firm could also increase sales of the Neon products through its DataDirect. Host integration, however, is a mature market, and the firm’s plans at this point, which do not include exclusive use of the technology, will not give it big differentiators over competitors.
Mainframe integration is one of the most enduring software categories in the industry. It has progressed through the decades from terminal emulation and screen scraping to database and transaction integration. Now, NEON and other vendors have embraced Web services as another means of integrating mainframe data and transactions into client/server, Web-based, or now, SOA-based applications. Still, as the technologies have become better understood, and as industry consolidation (and the accompanying user trend toward vendor consolidation) continues apace, it is becoming harder and harder to sustain a standalone mainframe integration business. EAI vendors have long since included host integration in their suites, and even application server vendors are beginning to include this through partnerships. In this environment, NEON Systems, which has had slow growth over the past few years, probably felt the urge to merge with a larger vendor.
What Progress gets is a comprehensive suite of mainframe integration technologies, including screen, transactional event, database access, and Web services access. This will complement DataDirect’s ODBC/JDBC connectors, and both can be through DataDirect’s traditional ISV/OEM channel, as well as directly to end users. This could increase sales and ease concerns about buying from a smaller vendor. There is little integration to be done, since NEON’s Shadow RTE pretty much runs on its own and can interoperate with other products through Web services. NEON also has an Eclipse interface, which will integrate nicely with Progress and Sonic as these divisions move to eventually support Eclipse fully. Sonic’s ESB and SOA suites can also be enhanced with the inclusion of part or all of the NEON Shadow RTE product. This helps puts Sonic on par with EAI competitors such as TIBCO, Sun, and IBM. There are also some synergies with the ESP (event stream processing) product, which comes out of Progress’s Real Time division, since mainframe events from Shadow RTE can be tagged and fed into the ESP product.
On the negative side, as mentioned, mainframe integration is a mature market, although the last quarter saw a respectable rise in sales (to $5.9 million) for NEON and a small profit. In addition, Shadow RTE is a bit more complex than ODBC database drivers are, and DataDirect should allow more basic components to be OEMed to ISVs. In addition, a unified development interface will have to wait until Progress and its divisions (including Sonic) fully move to Eclipse. In terms of Sonic’s products, since DataDirect will continue to OEM and partner with competitors of Sonic, including webMethods, which is OEMing the Neon suite (see “webMethods and NEON Ink a Reseller Agreement,” August 9, 2005), its competitive advantages will be neutralized. In one sense, webMethods will actually be better integrated, since its development tools are Eclipse-based. Progress’s plans for an event-based infrastructure that includes Shadow RTE and ESP are interesting, but this is an emerging market and it needs to flesh out more use cases with strong ROI.
Since DataDirect will continue to OEM this technology to ISVs, the acquisition will not have a huge effect on the balance of power in the integration space. It will have an effect on users. They will be less likely to buy standalone mainframe integration technology.
Positives and Concerns
Competitive Positives
• Progress purchased NEON Systems for $68 million in stock and it plans to put the mainframe integration technology into its DataDirect division, which sells database access connectors. The addition of a comprehensive suite of mainframe integration technologies, including screen, transactional event, database access, and Web services access, is complementary to DataDirect’s ODBC/JDBC connectors. Both can be sold through DataDirect’s traditional ISV/OEM channel, as well as directly to end users. The business, although not fast growing, seems to have stabilized, and in the latest quarter (ending in September 2005), NEON showed a small profit on increasing revenues of $5.9 million.
• There is little integration to be done, since NEON’s Shadow RTE pretty much runs on its own and can interoperate with other products through Web services. NEON also has an Eclipse interface, which will integrate nicely with Progress and Sonic as these divisions move to eventually support Eclipse fully.
• Progress can increase NEON’s channels. The company has the opportunity to sell into its numerous DataDirect ISVs, as well as through other Progress database channels or Sonic channels. NEON’s small size and the hesitancy to go with a smaller vendor for mainframe integration may have been holding back NEON’s growth potential.
• Progress plans to exploit this technology in order to enhance the ESB product line from its Sonic subsidiary. Although its exact plans are not clear, there will either be some embedded NEON technology or an option to include this in the Sonic ESB and SOA product suites. This helps puts Sonic on par with EAI competitors such as TIBCO, IBM, and others that have long had mainframe integration options. Furthermore, the NEON Shadow RTE suite is probably one of the most comprehensive on the market and it was recently upgraded with better Web services interface tools and an Eclipse interface.
• There are also some synergies with the ESP (event stream processing) product, which comes out of Progress’s Real Time division. Events from a mainframe can be tagged and fed into the ESP product, so any new real-time-based applications can include mainframe events.
Competitive Concerns
• NEON and the entire mainframe integration market have been sluggish at best in terms of growth, although NEON’s latest quarter did demonstrate some growth potential. Profitability has been spotty (although there was a profit in the last quarter). In general, mainframe integration is a mature market.
• Shadow RTE is a bit more complex than ODBC database drivers are, and OEMing will pose more challenges. For example, how will the development and other administrative interfaces be integrated into the ISV suites?
• In terms of a unified development interface, this will be difficult until Progress, Sonic, and DataDirect move fully to Eclipse. Progress joined Eclipse this past summer and it is currently working on moving its interfaces to Eclipse in all its divisions.
• Since DataDirect will continue to OEM and partner with competitors of Sonic, including webMethods, which is OEMing the NEON suite (see “webMethods and NEON Ink a Reseller Agreement,” August 9, 2005), its competitive advantages will be neutralized. In one sense, webMethods will actually be better integrated, since its development tools are Eclipse-based. Exact plans for how the technology will be “embedded” or bundled have not yet been decided.
• Progress’s plans for an event-based infrastructure that includes Shadow RTE and ESP are interesting, but the company has not fully fleshed out the exact applications and use cases. In general, this market is in an emerging phase, and vendors are struggling to come up with use cases that make sense in terms of ROI.
Recommended Actions
Recommended Vendor Actions
• Progress/DataDirect should continue to OEM Shadow RTE and its various components aggressively. Since this product is a bit more sophisticated than an ODBC driver, it should consider OEMing basic technology and up-selling the entire suite. Integration with ISV OEMs can be achieved through Eclipse, and DataDirect should consider modifying Shadow RTE so ISVs can more easily surface their own branded tools.
• At the same time, DataDirect should continue to sell Shadow RTE directly to users and channel partners.
• In terms of the Sonic ESB/Sonic SOA suite, the company should include mainframe integration as an option and work to provide the same development and administrative interfaces over time.
• In terms of the Progress Real Time division and the ESP product, the company should provide seamless integration between the two products, including ESP “agents” running against Shadow RTE events. It should continue to work on providing complex event processing use cases and applications outside the current niches in the financial space.
Recommended Competitor Actions
• Competitors in the integration space with mainframe integration tools (i.e., TIBCO, Iona, Sun, etc.) should continue to improve options for creating Web services out of mainframe applications and data. In addition, they should ensure that development, monitoring, and administrative interfaces are the same.
• Competitors in the integration/ESB space that do not have their own mainframe integration tools should partner and attempt tighter integration. Partnering with Progress’s DataDirect is an option.
• Competitors should keep an eye on the complex event processing space and develop a strategy to partner for CEP technology or develop it internally in the long-term. Those that have CEP technology need to find better applications and use cases with strong ROI.
Recommended End User / Customer Actions
• End users of NEON/Shadow TRE should find reassurance that a larger vendor, with more resources, will be supporting the technology. They should get guarantees that current selling channels and support will remain the same.
• Sonic users should ask about plans to embed or include mainframe integration as an option. They should ask about a unified Eclipse development interface.
• New users should not hesitate to purchase mainframe integration as a separate product, but they should be aware that there are efficiencies to be had in a single product for integration/mainframe integration.
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