Oracles Database Lead Slips

Smaller database deployments allow IBM and Microsoft to catch up some in the market for database sales, IDC says.

Even though IBMs and Microsoft Corp.s respective RDBMS software products are surging in popularity, Oracle Corp.s grip on the database market held strong in 2002, according to the most recent market numbers from International Data Corp.

IDC, of Framingham, Mass., on Monday announced that the gap between Oracle and IBM is narrowing and that Microsoft is showing the strongest growth in the $13 billion market for relational database management systems. It also said that all three developers are increasingly cornering the object-relational database management system market in comparison with other database vendors.

No. 1 Oracles market share slipped slightly last year, to 39.4 percent, or 5 percent less than its 2001 share. That slippage helped No. 2 vendor IBM, of Armonk, N.Y., to pull up a tick closer, with its share of 33.6, or 9 percent up from its 2001 market share number. Microsoft, with 11.1 percent of the market, saw its share jump 15 percent over 2001 numbers.

According to IDC, compared with 2001, the 2002 market for database software was nearly flat, having grown a mere .7 percent from its 2001 size of $12.9 billion. IDC attributed variations in vendors performance to differences in their business models and the segments of the market in which they are active. Those vendors who suffered were those who de-pend on large systems deployments, such as Oracle and Sybase Inc., whereas vendors that derived incremental revenue by selling lower-cost solutions to SME (small and medium-sized enterprises) companies fared better.

IDC viewed Oracles decline—its second in 2002—to a combination of factors, including the Redwood Shores, Calif., companys dependence on large customer installations expanding their database capacity year after year by either adding servers or increasing the capacity (in terms of either CPUs or named users) of existing servers. Such CPU increases rack up increases in licensing fees. Because of the shriveled economy, however, many enterprises are foregoing such upgrades.

Another problem plaguing Oracle is a backlog of licenses sold to larger clients nearly two years ago. Due to strangled budgets, those clients still havent burned through the licenses. Oracle has been selling middle-tier deployments, but those have often involved the Standard Edition of the RDBMS, which sells for a far smaller cost than the Enterprise Edition, which accounts for the bulk of Oracles RDBMS revenue.

According to IDC, IBM is enjoying a stable revenue base due to mainframe and AS/400 sales. Those systems use a licensing model that requires renewal for use and ensure a steady revenue stream that has declined only slightly in recent years. Meanwhile, sales of a newly introduced set of premium DB2 tools have boosted revenue on the mainframe. Also, IBM has had steady growth this year on Unix, Windows and Linux platforms, according to IDC. The report conjectured that this is in part due to customer relationship management and application integration projects executed at the department and line-of-business level using combinations of WebSphere and DB2 technology combined with professional service from IBM Global Services.

Microsofts robust growth is due in large part to the fact that it practically owns the SME space, according to IDC. Its low entry cost and ease of use make it especially appealing in these days of padlocked wallets. Also, the Redmond, Wash., companys well-developed indirect channels have helped it to realize volume sales in the sector.

Sybase, of Dublin, Calif., is stymied by the same problem of large enterprise dependence that has tripped up Oracle. Meanwhile, IDC noted that NCR Teradata had a good year in 2002 even though its shared-nothing clustered RDBMS is usually sold for large-scale data warehouse deployments, which for some reason didnt decline in 2002—perhaps due to strong CRM use.

IDC has a few, tentative forecasts: First, the analyst firm has been "getting a sense" that there will be some thawing of budgets for large enterprise databases in the first two months of 2003. Second, Oracle and IBM, which are intent on attacking the SME space, will increase their market share there, while Microsoft turns the tables and chases large enterprises with the impending release of the 64-bit version of SQL Server.

Regarding the future of the overall database market, IDC analyst Carl Olofson backed off from the reports tentative forecast for an up tick in the first two months of 2003. "Theres been anecdotal evidence that things may turn up in this quarter, but I think its premature to say that," said Olofson, in Framingham, Mass. "Ive since heard other things that go the other way."

Oracle officials downplayed IBMs strong showing, saying that whatever growth Big Blue experienced in the past year was due to old technology that would soon wither and die. IDCs Olofson disagreed, noting that IBMs market share growth is located in the distributed-platform space rather than the mainframe space. IBMs main challenge, he said, is to break out of the old IBM customer pattern of selling to high-volume, medium to large sales accounts and instead learn to do things the Microsoft way: i.e., work through channels and partners and use other means of lowering the total cost of sales into accounts.

"Microsoft has that dimension nailed," Olofson said. "They sell through VARs and OEMs and channel partners and dont have a direct sales force."

Conversely, the challenge for Microsoft is to crack the large-enterprise market, Olofson said. What it all adds up to is the three large database vendors raiding each others back yards. "Its going to be interesting in the next few years," he said. "Everybody is working everybody elses territory now, and its going to make it rough."

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