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Is open source remaking the ESB market?

The acquisition of Cape Clear this month and the announcement that Iona is up for sale, raises questions about where the ESB market is moving and the impact of open source vendors such as WSO2 and MuleSource.

The enterprise service bus (ESB) market is evolving as open source players enter it, but as in biological evolution, it appears to be a matter of adapting to survive.

I think this whole notion of integration as a service has some very interesting implications.
Dana Gardner
Principal AnalystInterarbor Solutions LLC

Questions about the ESB market arise from the acquisition of Cape Clear Software Inc. by Workday Inc. earlier this month. Then there was the announcement this past week by Iona Technologies Inc. that it has retained Lehman Brothers Inc. "to evaluate and advise its board of directors regarding strategic alternatives for the business including, but not limited to, the sale of Iona or merger of Iona."

What is the state of the ESB market in light of this? Are pure play closed source ESB vendors such as Cape Clear and Iona being swept up in the tide of mergers and acquisitions that has been a fact of life in the larger service-oriented architecture (SOA) vendor market?

Analysts interviewed for this article see this more as a subtle change in an SOA sub-category that is not as dramatic as when a major platform vendor like Oracle Corp. picks off a major competitor like BEA Systems Inc.

"I don't think we have any mega trends here," said Dana Gardner, principal analyst of Interarbor Solutions LLC. "ESB is not the fast-paced business we've seen in other areas. Each company needs to look at its particular business model. We have to look at this through the lens of what is the business model for the vendor."

For example, he sees a future for the acquisition of Cape Clear by Workday, an ERP vendor started by former executives of PeopleSoft, who left in the wake of that company's acquisition by Oracle. Workday's business model is to provide human resources and other ERP applications on the software as a service (SaaS) model. It was already in partnership with Cape Clear to provide an ESB as a service.

"I think Workday with the Cape Clear acquisition is going to be leading the innovation on this front," Gardner said. "There's more to the Cape Clear acquisition than just a vendor going to a services company. I think this whole notion of integration as a service has some very interesting implications. Workday opens up a whole new opportunity for mixing and matching services on-premises, third-party, and pure on-demand sources. And being able to manage that through an on-premises or cloud-supported ESB is very fascinating conceptually."

The fate of Iona is less clear because it is in exploratory merger and acquisition limbo. An Iona spokesperson said hiring Lehman Brothers followed an unsolicited bid to buy the company from a potential buyer that Iona will not name. The announcement was made to comply with laws in Ireland where Iona is based, the spokesperson said. In its statement last week, the company said it would have no further reports unless and until there was something definitive to announce.

Jason Bloomberg, senior analyst with ZapThink LLC, said both pure play vendors suffered from a failure to gain traction for their ESB in the SOA marketplace.

"Iona and Cape Clear are clearly examples of a broader consolidation trend in the industry," he said, "but in their particular cases, it's more examples of better technology that both vendors were unable to market and sell effectively enough to grow their business sufficiently."

Bradley F. Shimmin, principal analyst of application infrastructure at Current Analysis LLC., said Cape Clear tried to scale up to compete with the major vendors such as Oracle, but didn't sway enough customers.

"Last year, Cape Clear was locked in a death match with Oracle over transactions per second," Shimmin said.

Iona is trying a different strategy as it positions itself as a hybrid in the growing move toward open source ESBs where analysts see MuleSource Inc., WSO2 Inc. and Red Hat Inc. having success.

"Open source options from Mule and WSO2 are raising the bar for the commercial vendors, as open source does in any segment of the market," Bloomberg said.

Open source ESB vendors are much more nimble in the marketplace than their closed source cousins because they have not had to invest heavily in the development of the technology they support and are not tied to any single marketing strategy or niche, Shimmin said.

"They're not tied to any line-of-business app," he explained. "They're not tied to any vertical market. They're not tied to any facet of application integration."

Responding to the growing interest in open source, Iona has repositioned itself from its pure play commercial heritage by offering a hybrid approach selling Artix, its closed source ESB, and FUSE, its open source ESB based on technology developed by the Apache Foundation.

Several analysts say it is a good strategy, but a difficult transition.

Shimmin said it can be effective with IT departments that don't want to buy into one of the major vendors suite approach.

"Iona is making good progress with their open source solution," he said. "They are able to go into an environment where they need some basic integration, but don't want to pay Oracle for the entire suite."

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Gardner said that for closed source commercial vendors such as Cape Clear and Iona, it can be a difficult transition to move from the old school software license model to the open source subscription approach.

"Iona went for a hybrid model based on having a commercial heritage," Gardner explained. "WSO2 and MuleSource have evolved from a more purely open source environment and therefore have a different business model. They sustain themselves based on subscription, the business model of open source. Iona is going to an open source model and that can be a difficult transition."

What is making open source attractive to CIOs and causing commercial vendors to move to in that direction is the pricing pressure in the software marketplace that goes beyond ESB or SOA software, Gardner said.

"It's really indicative of the shifting business models for paying for software," he said. "Basically, you're facing price pressure in the market."

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