Analyze This, Rationalize That!

When IBM recently moved to acquire Rational Software , it touched off a frenzy of speculation in the
software industry.

While the deal had been pegged as all but a foregone conclusion for
the last several years, the debate roiled among analysts and other software vendors, many of whom
took different tacks in discussing the nuances of the deal. One true
consensus that has yet to be challenged is that the deal is a fine play for
Big Blue, who hadn’t made such a hefty software-centric purchase since it
nabbed Lotus Networks in 1995.

What the new purchase did was cause analysts to wonder how this affects the
market for software tools. Rational offers
integrated lifecycle tools in the requirements & analysis, visual modeling, testing, software configuration management, project
management and process categories. Rational is the leading maker of modeling
tools, which let developers collaborate on their programs before they build
them, and competes head-to-head with Borland in infrastructure; however,
both compete with tool initiatives from Microsoft’s Developer’s Network and the
IBM-led Eclipse. Now IBM has bid to buy
Rational, whom it has enjoyed a long-term relationship with, and wants to
fold it into its software division as its fifth unit ostensibly filling a
gap in the Eclipse framework.

IBM’s impetus for the purchase was no doubt sparked by the tendency toward
design-driven development, in which design models need to be synchronized
with code changes so that they stay up to date. Developers or business
analysts want the choice of working at either the code layer, or graphically
through the design layer, depending on what is most appropriate for the
task. Diagram changes need to become visible in the code immediately, and
vice versa. Project managers want to see all the tools put together in the
same package – modeling, coding, testing, performance management, version
control, installation, bug tracking and documentation. Once they are bundled
with the application server they can be integrated with other systems or
published as Web services.

All of this is fine and dandy, right? Well, no, not exactly. The problem is:
Rational enjoys partnerships with a number of software makers, including BEA
, Oracle , Sun and
, for which it has XDE Professional v2002, an integrated
development environment (IDE) tool for both .NET and J2EE. Rational also
sells its Rose modeling tool alongside Microsoft’s Visual Studio tools. IBM
competes with the former three on many levels.

Forrester Analyst Ted Schadler said he has questions about how the other
systems vendors will maintain “developer mindshare” now that Rational
appears about to become part of IBM.

“Microsoft’s value to IBM is clear, but you have to ask how the Sun’s
Oracle’s and BEA’s will maintain developer mindshare,” Schadler said.
“Rational’s value to IBM is high. We’ve been [stressing] integration for
years. The developer and runtime environments have to come together — you
can’t develop an application in isolation and just throw it over the wall.
In a multi-tiered application environment, you need to have a good
relationship between the developer tools and the middleware.”

While IBM shares strong partnerships and ideologies with Microsoft in the Web
services realm (IBM runs Windows on its WebSphere platforms), some analysts
wonder whether Microsoft will be keen on the idea that IBM will be able to
make Eclipse that much more influential for developers.

Jason Bloomberg, senior analyst of XML and Web services research firm ZapThink, doesn’t see Microsoft making a
big deal about the issue, noting that IBM and Microsoft support each other
in many ways.

“IBM will clearly take full advantage of XDE for WebSphere, while XDE for
.NET’s future is somewhat up in the air,” Bloomberg said. “My prediction is
that IBM will continue to fully support it — after all, many IBM customers
also have .NET, and IBM is committed to interoperability in heterogeneous

Folks at Sun Microsystems seem to think Microsoft might be a little on edge,
however. Mark Herring, senior director of Sun’s Java, Web Services & Tools
Business, said although the deal is par for the course in the software
industry, Microsoft might not take to kindly to IBM’s reach.

“If there are any losers in this, I would think it would be the .NET
developers,” Herring said. “I can’t see IBM allowing Rational to continue to
focus on MSFT technologies. I can see the .NET developer saying, ‘Oh no,
what am I going to do?'”

As it stands, Herring conceded Sun, fresh from its own legal
with the Redmond, Wash. software giant, is a spectator in
this one. Herring noted that Rational “isn’t abandoning the Java developer”
and said if Microsoft had acquired Rational it might be a different story.

Uh oh.

Microsoft declined to comment for this story, but reports have burbled out
of some outlets, such as Reuters, which said Microsoft is
contemplating its own bid for Rational to stymie IBM. If that fails, the
report said, Microsoft might then go after Borland to counter IBM. The
former route could tender some nasty legal battles between Big Redmond and
Big Blue.

So how have other software players taken to the would-be blockbuster deal? Find out more on Page 2

The Others

Maybe this is all speculation, fodder for water cooler talk. But how have
other software players taken to the would-be blockbuster deal?

One of the few remaining standalone software tools vendors is Borland, which purchased
rival TogetherSoft
in October. Borland, in fact, would love being the
only standalone tool developer left, partly because they feel they are
unique and partly because they are confident they can compete.

“For Borland customers, the choice is clearer than ever: best-of-breed,
stack independent, cross-platform, standards-compliant products with
superior user experience and ROI versus an “all things IBM” alternative and
all that this stands for,” said a Borland spokesperson. “One example of how
the “new” Rational will behave as part of IBM, is that Rational has
officially decided not to continue to support a Borland/Rational bundle.
Borland is the only company the customer can depend on to support all
choices – IBM, Sun, Microsoft, Apple.”

John Abbott, managing analyst of research firm The451 agreed with Borland’s sentiments.

“I think Borland’s position is interesting. It agreed to acquire
TogetherSoft at the end of October, so it has the same basic idea as IBM –
integrating higher-level modeling and analysis tools into its language-based
IDEs. Borland now claims it’s the only significant independent vendor of
tools – as opposed to the systems vendors who, in Borland’s words are
“highly biased toward their own infrastructures. Until now, Rational has
made a point of not competing in the IDE space, but instead has tried to
embed its tools within other IDEs as seamlessly as possible. Now IBM will
have the advantage over any of the others. It made a point of saying how it
would be closely embedding the Rational tools with its WebSphere application
server and other middleware.”

Abbott continued: “Borland has its own application server, but can’t compete
with IBM and Rational on the breadth of middleware and software development
life cycle management. What it might do is partner more closely with BEA in
reaction. BEA, which also has a partnership with Rational, is likely to lose
out if Rational is integrated more closely with WebSphere. It’s already done
some close integration work with TogetherSoft, so it’s likely to start
pushing that as an alternative for WebLogic app server users. That’s good
news for Borland.”

Zapthink’s Bloomberg has a different perspective: “I’ve seen other analysts
predict that BEA will buy them. Well, that’s possible, but I don’t see that
being in character for BEA — their acquisitions have typically been to
augment their core
WebLogic platform, rather than to spread out their product line into new
areas. And everybody would accuse them of copying IBM, where they want to be
recognized as leading, while IBM does the following.”

Bloomberg continued: “Instead, the folks at Borland are probably arguing
over whether the Rational division of IBM will be a tougher competitor than
an independent Rational — and that argument could go either way. IBM shops
will be happy about the acquisition, and thus will be harder for Borland to
penetrate. However, non-IBM shops, whether they be smaller companies,
Microsoft shops, or companies that have avoided IBM for some other reason,
might be less likely to go with the new Rational than the old. The deciding
factor will probably be what IBM decides to do with the product line.”

As for the others, Bloomberg said there are many competitors who offer
products that the BEAs and Oracles of the world can take advantage of if
they don’t want to work with IBM.

Abbott differs on this score. He thinks Oracle might see IBM’s move as
something of a threat and concurred that the buy could lead to a dicey
situation between Microsoft and IBM: “Microsoft’s likely to stick with
Rational in the short term, because of the work it’s done with Rational on
.NET. But in the longer term the two are likely to drift apart if IBM pushes
the Java/WebSphere combination.”

BEA, who has seen its name added to the mix of potential Borland acquirers,
refused comment on the topic, but Oracle was cool as a cucumber, if not a
little snarky.

John Magee, vice president of Oracle 9i application server marketing, said
he didn’t think it was “rational for IBM to pay what it did for
Rational [Software].” Acerbic wit aside, Magee said Oracle isn’t breaking a

“At the big level, this is just more online consolidation in the software
industry,” Magee said. “It’s tough to make a viable business out of tools
standalone with Microsoft and IBM as the main players, so it was inevitable.
From our perspective our Oracle 9i JDeveloper already includes functionality
and modeling, so it’s not a big impact on us. Oracle’s strategy is to
deliver these tools in an integrated solution. This deal means Rational adds
12 or so products to the 70 products IBM already has and it’s up to users to
pick which ones they want. We think this is a flawed approach.”

Magee argued all the different code bases hurts productivity. JDeveloper, he
said, integrates UML modeling, profiling, Web services, to make them all
work together.

How will this play out if IBM succeeds in its acquisition bid? Giga
Information Group said it believes the
deal will challenge the ability for independent tool makers to remain viable
because major systems vendors are embracing integrated software tool
lifecycles. While the Borland’s and Oracle’s should be safe for now, Giga
warns that if they don’t move toward better product integration they will
lose market share.

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