Market Definition: Integration technologies comprise the technologies that enable disparate software systems to exchange information. This includes technologies for connection, guaranteed message delivery, message queuing, message\/document transformation, application-specific adapters, rules-based workflow for messages, and general business process management related to integration. Also, tools to create Web services are covered, especially when used in the context of machine-to-machine integration without human interaction. Both internal and B2B technologies are considered in this market segment. In addition, management consoles, monitoring applications, development environments, and end user interfaces to these integration processes are covered. Currently, enterprise application integration (EAI) vendors as well as application server vendors with integration components make up the bulk of the revenue and market share of this segment. However, queuing systems from EAI vendors as well as systems vendors such as IBM and Oracle also make up a portion of this market, as do back-end adapters, which are available from a variety of third-party vendors. Integration modules that are part of application server environments will continue to grow as a portion of this market this year. B2B integration, which once made up a separate segment, is now intricately tied to the general integration market. Web services is a method of integration that permeates most aspects of this market segment. A new class of products that manage Web services, and provide some infrastructure will take up a small but growing portion of this market. Dubbed SOA management, this market segment is dominated by smaller start-ups. Tools to create integration-oriented Web services will be covered; however, general application development toolsets (such as Visual Studio or Visual Age), are not part of this segment. Market Review:Suite-based Integration Challenges Pure Plays: Continuing a trend that began in 2003, integration functionality will increasingly be part of larger middleware suites, most of which will include an application server. Application server players such as BEA, Oracle, and Microsoft have been well in front in this trend. IBM, Sun, Novell, and others will strengthen links between their integration functionality and other elements of their middleware suites. More firms will formalize these suites by offering a single product SKU at a reduced price. These "suite" players will play up advantages of price and integration with development tools. Pure Plays Create Their Own Suites: Pure plays will of course not stand still, but will attempt to neutralize this trend with their own suites. Already SeeBeyond and webMethods have assembled elements of a suite. It is likely other EAI vendors will follow. If vendors don't have their own elements (e.g., their own application server or development tool) they may closely align with an independent application server and tools vendors. Look for tools vendors such as Borland and Macromedia to join in on this trend. B2B Restarts: After a disastrous flirtation with B2B "marketplaces" in 2001-2002, and a generally slow start to non-EDI point-to-point B2B, 2004 will likely see a resurgence of the B2B market. Sales will be driven by mandates and standards in numerous verticals. As the manufacturing sector rebounds, and as the manufacturing process continues to get "contracted out" around the world, B2B technology will become increasingly important. In fact the globalization of workforces in general will create the need for B2B integration technologies. Services Oriented Architecture (SOA): Users have bought into the idea of service oriented architectures in a remarkably short period time. Many firms are attempting to fit their integration products into a broader set of infrastructure "services," that can be exposed and accessed by other services or consumers. This strategic long-term drive for SOAs will influence vendors, who will make Web services easier to build and manage. SOAs and Web Services Create Some Changes, but Nothing Radical: As Web services and SOAs profilerate, this will create a demand for SOA management tools. Some ERP\/application vendors will also start publishing their own Web services, (instead of just publishing APIs or XML schemas). Also new Web services standards such as WS- Reliable messaging will take over functionality from traditional messaging systems. However this will not be the year that users abandon traditional integration technologies for pure Web services and SOA management environments. There will simply be too many applications that need adapters (including mainframe), and too many operations that need enterprise class messaging and transformation, not to mention B2B. BPM Permeates Integration: Business process management (BPM) will become a necessary part of virtually all integration technologies. Not only will it ease development and monitoring\/management, it will create new users for integration related technologies. Namely, users will use BPM, fronted by user interfaces, as a substitute for new applications (or for extending old applications). However, this won't necessarily be a boon for BPM pure plays. BPM is becoming a standard part of application server and integration suites, and therefore the need for pure play BPM will lessen. Near-Term Market Drivers:\t Consolidation to Occur: Consolidation will continue to occur in 2004, likely at a quicker pace. This is because generally better economic conditions will give buyers more confidence. There will in general be more clarity as to what new technologies will succeed and what technologies are needed in "suites." Expect acquisitions in the EAI, BAM, SOA management, and development tool spaces. Narrowing Vendor Lists: Users will continue the trend of narrowing their lists of software vendors in order to cut cost and complexity from their IT environments. This will drive the need for more "suite" products where one vendor provides multiple middleware, including integration and application functionality, in one package. Many users will negotiate to get a better deal for their remaining vendors. Still a Place for Pure Plays: Despite the narrowing of vendor lists and the move toward suites, users will still invest in technology from pure plays if it gives them a strategic advantage. As growth continues in 2004, the trend toward suites may exhaust itself, and users will once again look for strategic new applications that can give them a leg up on their competitors. Don't expect a total return to the good old days: this time users will want assurances that new applications work well with existing environments and conform to standards. Mandates Drive B2B: Mandates driven by retailers and others, particularly for AS2, UCCNet, and HIPAA will continue to drive the B2B market. Additionally, ongoing straight through processing (STP) efforts and standards such as SWIFT, FIX, and ACORD will drive the financial market and to a lesser extent the National Energy Standards Board (NAESB) will drive projects in the energy sector. This will help to give new life to B2B technologies and will often drive integration deals. Integration Much More Than Plumbing: Primarily through the use of BPM, and associated interface building tools, integration platforms will be used for more than simply "plumbing." Instead, new applications will take the form of business processes that extend or replace functionality previously found in application packages. Commoditization Not Universal: While lower level services will become increasingly commoditized thanks to Microsoft and newer Java-based EAI entrants, not all users will look at the bottom line issue of software license cost. Users will likely determine that higher-end, mission critical applications are much too important to leave to less expensive, unproven technology. Also, specialized functionality that will give customers a competitive edge will be worth the money. Long-Term Market Drivers:\t Linking Legacy Systems to Current Applications: Each successive wave of technology over the past ten years has brought new applications. Mainframes, client\/server databases, ERP, Web applications, Java applications, and soon Web services form a mosaic of applications that will likely be present in most enterprises for the foreseeable future. Each new application requires integration with one or more existing "legacy" application, creating an unending need for EAI software. New ERP and Other Applications Drive the Need for New Integration Projects: Whether caused by acquisitions or internal upgrades, new applications cause new business processes and new integration technology to be put in place. Improving Internal Business Processes: The move to analyze and automate and create new business processes will continue to be a long-term driver. Improving processes is a basic cost-cutting measure as well as a means to increase client satisfaction and gain a competitive advantage. Improving Shared Business Processes: The need to automate common B2B processes is a basic cost-cutting measure that also serves to make supply chains more efficient. This need will continue to drive the industry in the long term. In particular, standards that enable or mandate these shared business processes will provide a focal point to B2B projects. Positioning: Offensive vs. Defensive ResponsesSuite-based Integration Will Harm Pure PlaysOffensive: As users try to cut costs and narrow vendor lists, they will naturally gravitate toward application server players and those offering suites. The cost of software licenses, reduced administration and training costs, and ease of use will make these suites irresistible to many users. Defensive: While some users will prefer suite-based integration, for many, the need for a best-of-breed solution will outweigh any benefits of a suite. Pure plays will increasingly be in a position to offer the benefits of a suite and a best of breed. Users Will Prefer Java-based Integration Offensive: Integration based on a whole set of Java standards, from integration servers running on J2EE application servers, to JMS, JCA, and the emerging set of new Java Business Integration standards will meet user requirements for standards support. These will increasingly take over non- Java integration techniques and standards. The vendors favoring these standards will be big winners in the marketplace. Defensive: While users have shown a preference for non- proprietary technology, Java based integration is only one set of standards in a sea of XML, Web services, B2B, and other standards. Complete Java-based integration also leaves out Microsoft environments and users will increasingly need to bridge these two environments. Finally, while JMS is relatively mature, JCA is not, and the new set of Java Business Integration standards remain in the planning stages. In sum users will need to plan for heterogeneous environments and support a full range of standards, not just Java standards. Users Will Need To Merge Integration with Development Tools\/Application Server PlatformsOffensive: Putting links between application servers and in particular application development tools and portals allows users to put back end integration into an application more easily, or to front end a business process with a user interface. While admittedly not all integration projects require such tools, users will prefer it if such integration was in place. Defensive: Most integration projects develop independent of application development (and in many cases after the fact) and are in, in fact, major IT projects in their own right. This makes links in so called suite products, vastly overrated. Links between BPM and interface\/portal tools is a legitimate concern and most integration\/BPM vendors have been working on providing this. Web Services Standards Will Eventually Lessen the Need for Integration ProductsOffensive: Web services will greatly lessen the need for traditional adapter, brokers, messaging systems, and transformation. When application players provide Web services directly into their applications, this will eliminate the need for most adapters and transformation. New standards such as WS- Reliable Messaging will eliminate the need for many messaging systems. While this evolution will take several years, it will revolutionize the industry and create a whole new set of market players. Defensive: Web services will change the industry, but it will take time and create the need for a whole new set of infrastructure technologies. For example pre-built Web services directly into applications will only cover a small minority of existing applications. There will still be a need for BPM, and messaging that can move large numbers of messages around. Transformation will be needed until the foreseeable future, even between different XML formats. The creation of large numbers of Web services will in turn create the need for SOA management applications. The Integration Market Has Become CommoditizedOffensive: Lower cost integration from Microsoft, application server, and other firms has dramatically changed the maket. It will no longer be feasible to charge a huge premium for the "plumbing" associated with integration and this will have a negative effect on EAI firms, who are built around high margin, high cost sales. Defensive: While costs have come down on basic "plumbing," higher value functions such as BPM, event management, BAM, and B2B supply chain management will continue to support high value software and high margins.