As the recent acquisitions of Retek by Oracle and Ascential Software by IBM indicate, the standard playbook of enterprise application vendors is being thrown out the window. A new one is being written and it will change the products we sell and the players who survive to sell them.

The new game is called, "Applistructure," the merger of enterprise application and infrastructure technology. It is being driven by customer need to simplify the Gordian Knot of support technologies they have installed. On-demand by IBM, an increasing stack of applications from Oracle, Indigo and Longhorn from Microsoft and NetWeaver from SAP are all different strategies focused on delivering more value to customers and thus increase per-customer revenues.

Given the likelihood of increased price pressures and lower than historical spending growth by buyers, Applistructure will be one of the few ways that the largest of sellers will be able to increase market share and capitalization. Smaller players, those with revenues under $1 billion, will need to recalibrate go-to-market and sales plans once Applistructure takes hold.

If Applistructure is realized, the enterprise software industry is poised to be restructured much in the same way that it was in the early 1990s with the advent of client-server and ERP.

It will take much longer than 24 months, however, for applistructure leaders and losers to find their place as a combination of technological and business factors conspires against any quick settlement in the upcoming applistructure wars between IBM, Microsoft, Oracle, SAP, and a few dark horses (such as India Inc.) Unfortunately, buyers and sellers don't have the luxury of time as they are forced to answer some important questions in the next few years.

Why is Applistructure needed?
The concept of an integrated stack of enterprise applications and infrastructure is coming from buyers and sellers. The overall complexity of maintaining myriad IT systems has created an entitlement base of technology within most corporations that consumes between 60 percent and 80 percent of the total budget. Integrated enterprise applications were to rein these expenses in, but they haven't. To illustrate the cost and complexity of integration, PeopleSoft and IBM were to spend $1B the next five years to integrate IBM WebSphere and PeopleSoft applications (Oracle's acquisition of PeopleSoft notwithstanding).

Thus, IT buyers are looking to cut down on the number of technology platforms and partners in the hopes that standardization can help slash their entitlements costs. At the same time they want technology deployments (either purchased or built in-house) that are more flexible, meaning technologies that can be selected, implemented, and used before the business strategy they were selected for is no longer relevant. Additional benefits for Applistructure include the rapid reconfiguration and reuse of code, business flexibility and cost savings.

A successful Applistructure will comprise five elements:

• Continuously decrease the operational cost of information technology
• Permit a fast and flexible reconfiguration of business processes
• Deliver secure and reliable service levels
• Permit upgrades and product enhancements on the fly
• Allow different technology providers as well as custom/legacy code to plug and play seamlessly

To deliver applistructure, an integrated and complete set of applications and infrastructure are provided. The components may come from different companies but are managed and guaranteed by a single one. The top four companies here, however, are split as to current approach: IBM and Microsoft are choosing application partners (for now) while Oracle and SAP are doing so by themselves (for now). Both sets can (and most likely will) alter their current paths to become a bit more like their counterparts.

There are two routes companies must take to meet these requirements: technological and business practices. For example, service oriented architectures and the use of composite applications will be key to permit a fast and flexible reconfiguration of business processes. On the other hand, rationalization and coordination of functional, technical and security upgrades as well as standard service-level agreements will be essential to decrease the operational cost of information technology.

The Emerging Applistructure Market

Source: AMR Research

Thus it is not a whiz-bang technology that will be key to the success of Applistructure but rather whiz-bang business practices that focus on results and demonstrable benefits. For winners the stakes are high as increased revenues from Applistructure would be many multiples of current revenue for all players given the automation, productivity and cost savings gains passed on to buyers.

What's in it for me?
If Applistructure takes hold, it implies that the myriad of software solutions that are custom configured by buyers will become managed by a select few providers. The ramifications of this for smaller vendors are high as only those who properly align themselves with (or get acquired by) the dominant Applistructure players will thrive in the future.

Few markets will be immune as the increasing availability of on-demand software from IBM and others are giving buyers a taste of Applistructure and its benefits.

An integrated stack of applications and infrastructure from a few key vendors is poised to change the enterprise market significantly. As a software vendor or services provider, what changes do you need to make to best play in the new world?

Erik Keller is principal of Wapiti. He provides strategic consulting services for companies seeking advice on enterprise-software business models and technologies. In the spring of 2004 his book, Technology Paradise Lost, which predicts the future of IT spending in corporations was published. Before forming Wapiti, Erik was a Research Fellow, Director of Research and Vice President with Gartner Inc. He is currently a Research Fellow in residence at AMR Research and a Research Fellow at Saugatuck Technology. He is also on the Board of Advisors for Questra. -