The year in software: Oracle rules the roost

Enterprise software is dead -- long live enterprise software.

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The white flag Siebel Systems Inc. flew this year poignantly illustrated the shift that's under way in the software market. The days of sales megadeals and rapid growth are gone, replaced by smaller, incremental buying and a tight focus on ROI (return on investment). Some of the industry's once-bright stars, like Siebel, won't survive the transition. Here are a few of 2005's notable events and trends:

Oracle conquers all

PeopleSoft's capitulation to Oracle Corp.'s takeover plans after a bitter, drawn-out battle took the fight out of Oracle's next targets. When Siebel's board fired Mike Lawrie in April, less than one year into his tenure as the company's chief executive, the surprise move sent a sharp signal that Siebel had a little time left in which to overhaul itself or find a buyer, before its shareholders revolted. Analysts questioned the wisdom of Oracle acquiring another set of enterprise applications so soon after picking up PeopleSoft's, but none doubted that if Oracle expressed interest, Siebel would sell. When the companies announced a $5.85 billion buyout deal in September, the news was almost anticlimactic.

The next two years will be a transition period for Oracle and its customers as it works to build an entirely new set of enterprise applications, code-named Project Fusion, incorporating features from all of its acquired products. Meanwhile, the software industry's big fish says it's still looking for tempting guppies: Siebel was just one among the dozen acquisitions Oracle announced this year. For now, Oracle rules the roost, but its position is tenuous. The industry's previous acquisitions champ, Computer Associates (now CA Inc.), spent the first half of this decade cleaning up the wreckage left by its rapid growth and lax management.

'SaaS' takes off

The awkwardly named "software-as-a-service" or "on-demand" movement doesn't have a good buzzword, but it does have a lot of interested buyers. Pioneer Salesforce.com Inc. increased its revenue more than 80 percent for the first nine months of the year, as the subscriber count for its hosted, subscription CRM (customer relationship management) service grew to more than 350,000. A swarm of startups have flooded the market with on-demand offerings, and every top-tier vendor has developed a strategy -- with varying degrees of success -- for countering Salesforce.com. Industry giant SAP AG says it will have an on-demand product some time next year. Siebel offers a cautionary tale, though. Two years after launch, its on-demand service remains relatively small, ending last quarter with just over 44,000 users.

SOA transforms the data center

Software vendors have found religion on standardization -- or so they claim. Every top vendor is working to revamp its application suites to take advantage of SOA (service-oriented architecture), a methodology for connecting software components through standards-based Web services in order to ease IT integration. Forrester Research Inc. estimates that 77 percent of large enterprises will be actively implementing SOAs by the end of this year. But don't expect simplification from the SOA trend, analysts warn: building an IT system from components gives an IT manager flexibility, but it also means every one of those components has to be maintained.

Microsoft comes (a)Live

Twenty-seven-year-old Microsoft has navigated many rocks and waves in its decades at the vanguard of software. Ray Ozzie's now famous memo about "The Internet Services Disruption," sent in October to Microsoft managers, outlines the company's thoughts as it works to adjust to the new "seamless model of connectedness" made possible by standardization and technical advances. Ozzie exhorted all of Microsoft's divisions to map out their plans for putting services at the heart of Microsoft's forthcoming products. Spotting the iceberg is easier than turning the ship, though. Microsoft's underwhelming launch of Windows Live, its platform for blending a collection of consumer-focused online applications with content and applications from a user's PC, illustrated how far it lags behind Internet innovators like Yahoo Inc. and Google Inc.