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Candle heads for Web services management party

Candle is trying to recast itself as a complete Web services management shop. It has laid off staff and cut costs from its mainframe data management business in order to focus on J2EE management expertise.

Candle is trying to recast itself as a complete Web services management shop. It has laid off staff and cut costs from its mainframe data management business in order to focus on J2EE management expertise. It already manages WebSphere, and will soon support BEA.

President and COO Andy Mullins is under no illusions about the move, and the company clearly understands the nature of the challenge it faces. The fact is that Candle is more than $100m lighter than it was in 2002. With the mainframe business in long-term decline, Candle must reinvent itself if it is to return to growth. Being a private company limits its ability to raise capital for M&A.

Products and strategy: The mainframe business is at best flat or decreasing. The datacenter (mainframe) application infrastructure market is in decline. And this is a permanent buying pattern -- not a temporary one, as the mainframe management companies had once hoped, Mullins says. "We've all come to accept it's permanent -- that deal sizes are smaller, that customers are no longer forward-buying capacity and have stopped putting applications up on MVS. They're either moving applications onto Linux on the 390, or they're starting up applications on other platforms."

Its long-standing agreement with IBM means that Candle will continue to track whatever IBM does in the mainframe space with software to manage it.

Candle made a belated run at the distributed application and platform management market in order to break out of the mainframe ghetto, but missed the boat completely and got no piece of it. However, it believes it is early enough into the application server management market to mount a serious challenge.

Initially, its focus is on WebSphere. What Candle now calls PathWAI offers development tools, management, integration, monitoring and security for the entire WebSphere stack, from the application server through MQ messaging. It acknowledges that it overlaps with IBM in some areas, but says if offers a degree of post-deployment management that IBM doesn't. It provides fuller integration with a customer's existing management systems and has development tools that fill niches IBM hasn't filled.

Candle is also going to apply the PathWAI technology to other middleware stacks. It will take the J2EE management functionality it has developed for the WebSphere application server and create new products that manage other vendors' J2EE application servers. There will be a PathWAI offering for BEA and other middleware; an early developer release is available now.

It's the beginning of a shift to become a complete Web services management shop. Mullins believes the strategic focus of IBM, HP and others on utility and on-demand computing models is a good one conceptually, but says the same emotional challenge looms as it did with the managed service and time-share markets -- namely, that users don't want anyone else being on any system they are on.

Candle is also actively engaged with IBM in trying to map out grid management -- in the first instance, how to manage grids. Managing by the application will drive up cost, but managing the system as a whole poses a question of scale, mixed loads and even multiple customers on the same system.

Business model: In its fiscal 2002 through June, Candle made a profit of roughly $16m on revenue that declined 15% to $271m from $320m the previous year. It had earlier forecasted that its 2002 revenue would be flat with the prior year.

In February, the company laid off 161 staff from a head count of some 1,200, although it says it's hired 60 staff in other areas. This restructuring is principally associated with the plan to scale back its emphasis on the moribund datacenter management business and take cost out of it, even though its Omegamon mainframe management suite remains its key revenue driver.

The back-office and support infrastructure has been revamped. Mullins explains that the company couldn't afford to have consultants sitting around when no deals were coming in. It's shifted resources over to its application infrastructure (PathWAI) and service-level management activities (Insight). About 40% of business is now non-Omegamon.

While Omegamon deals are typically in the $450,000 range, PathWAI is averaging around $150,000 for initial engagements. However, that's expected to turn into a $500,000 opportunity over two or three years. Moreover, where suppliers were typically asked to bid on RFPs that would span an entire project lifecycle, users are now requiring suppliers to bid on individual phases of a project.

Candle's Roma A2A application-to-application framework was dropped 18 months ago, but it has over 1,000 consulting engagements on integration.

The451 assessment

Candle is trying to reinvent itself again, this time around in Web services management. The last time it did this, it missed the boat completely -– that was distributed platform management. To break out of its mainframe and IBM ghetto it will turn to app server and J2EE management. At least it's more timely. But there are different dynamics at work here than in managing mainframes, with many more players to begin with. Given its previous track record, the odds are long that Candle will succeed this time around. However, it clearly understands the challenge and what's required. Will customers buy Web services management from a mainframe shop?

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