THE DATABASE MARKET GOES VERTICAL
by John McCormick, Analyst, Frost & Sullivan

The management of information has always been a challenge to businesses of all sizes, which is why the database management systems (DBMS) market has become such a major market. The list of vendors reads like a "Who's Who" of software companies: Oracle, IBM, Microsoft, the list continues. Since their inception, client/server-based DBMS have grown rapidly, reaching $3.66 billion in 1997 for the U.S. market alone.

However, 1997 was as hard on DBMS vendors as El Nino was on the West Coast. Growth rates for the world market dipped to single digits, Informix reported staggering losses, and even the stalwart Oracle failed to meet analysts' expectations. But before you write off the DBMS market to flood damage, take a closer look. Much of the slow down in world revenues was due to currency fluctuations and poor Asian sales. The U.S. market still performed fairly well, growing 13.1 percent from 1996. While that percentage may seem puny compared toemerging markets, double digit growth for a three billion dollar market is significant.

Many of the major vendors, including IBM, Oracle, and Informix, made significant improvements to their DBMS in 1997, adding among other things extended data type capability. In the past, images and other non-text data had to be stored externally or as a binary large object (affectionately called a BLOB), neither of which allowed for true indexing or search functionality. With the addition of object-oriented technology, some DBMS can now handle images, video, audio, complicated text, and just about any other type of data. These object-enabled DBMS still use a relational structure (the ol' two dimensional table) so are dubbed `object-relational' DBMS, or ORDBMS.

ORDBMS were not generally well received in 1997, however. Witness Informix, which bet the farm that its new ORDBMS would launch the company to the top but instead led to severe losses. Like any new technology, object-technology was viewed with skepticism by many decision makers. Why risk downtime and other complications if current technology does the job? Despite the slow adoption, it will be object-technology which saves the DBMS market from declining market revenues.

Even without the Asian financial crisis, the DBMS market is slowing down. In the U.S. market, most enterprises already have DBMS systems in place. Sure, growth in the World Wide Web and data warehousing will increase the demand for information storage, but that will not be enough to sustain high growth rates. DBMS vendors need new customers if they want to continue to expand.

The key to finding the new customers lies in identifying the needs of specific vertical markets. Companies which understand the benefits of DBMS have already bought the software and will continue to do so. These companies can be reached by direct sales, and will purchase the DBMS and then go find an application. But there is a percentage of companies which do not understand those benefits. These companies couldn't care less about the actual DBMS, they want to see the applications and how the company can benefit. These companies are a smaller percentage of the total market, but they represent virgin soil. Vendors need to develop strategies specific to vertical markets in order to tap the those resources.

The major vertical markets for the DBMS market are the healthcare, banking/finance, telecommunications, manufacturing, retail, and government. Eachhas a unique set of drivers and restraints which vendors must understand in order to succeed. Below is a bulleted list of some of those drivers and restraints split by vertical market:

• Healthcare
  • Drive to reduce costs and increase quality of care
  • Goal of a unified patient record
  • Switch to managed care
  • Health organizations reluctant to change
  • Healthcare budget crunch
  • Sensitive to security issues

• Financial/Banking Market
  • Increasing competition within the banking and finance sector
  • Need for better customer management
  • Increasing demand for home banking services
  • Market saturation for major banks and financial institutions
  • Problems combining object and relational technologies
  • High fault tolerance requirements

• Telecommunications Vertical Market
  • Deregulation of the telecom industry
  • Growth in the Internet
  • Growth in wireless networks
  • Trouble meeting local competition requirements
  • The existence of proprietary solutions
  • Disparate networks cause compatibility problems

• Manufacturing Vertical Market
  • Demand for inventory access and ordering via the Web
  • Development of product document management
  • Higher quality-assurance and standards and requirements
  • Legacy data translation issues
  • High accuracy and reliability requirements of manufacturers
  • Lack of integrity for intensive production and delivery scheduling

• Retail Vertical Market
  • New distribution methods open up market for new competitors
  • Proliferation of object-oriented languages
  • Need for one-to-one customer relationships
  • Size of consumer database is intimidating
  • Mainframes still the platform of choice for VLDB
  • Costs of system need to be justified

• Government Vertical Market
  • Automation of government processes
  • Military planning and training simulations
  • Need to replace legacy systems
  • Year 2000 problem
  • Decrease in military spending
  • Security issues

Already you can see several vendors dividing their sales staffs into vertical markets. While this is a step in the right direction, it is not enough. Direct sales forces alone will not be able to penetrate the remaining companies. DBMS vendors will need to depend more on application vendors to sell their software, a la Microsoft. Using companies more familiar with the vertical markets will allow the DBMS vendors to sell to all verticals, not just specialize in a few.

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