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Issue Date: March 2008

AnalystWatch: Software AG maintains its momentum

March 2008
Rob Hailstone, Butler Group Analyst

It is nearly a year since Software AG acquired webMethods. Prior to that acquisition, Software AG had a relatively low penetration in the US, and despite several competent products in the integration and service oriented architecture (SOA) space, it was best known for its legacy Adabas and Natural products. We commented at the time that if the acquisition was managed well it had the potential to turn Software AG into one of the leading SOA infrastructure vendors. A whole swathe of recent announcements has suggested that this potential is becoming a reality.

During the course of the large CeBIT trade show in Hannover in the week of 3 March, Software AG launched a series of carefully timed announcements that have kept its profile in the forefront of IT news. The most strategic announcement was a statement of intent made by CEO Karl-Heinz Streibich that Software AG aims to become one of the 10 largest software companies in the world within the next five years, with ongoing plans to continue to double its size every five years.
Certainly its current growth seems on target, with growth of 24%-27% forecast for 2008, which if achieved will make it into a $1 billion revenue company. (This, however, has been aided by the weak dollar, so maintaining this growth rate over the long term will be challenging.)
Software AG is continuing to invest in Adabas and Natural, and is already one of the leading vendors in bringing the mainframe into the world of SOA and business process management (BPM). This aligns well with the need to modernise legacy systems that is recognised by many organisations.
To further this initiative, Software AG will extend its offerings by reselling Relativity Technologies Modernization Workbench as a complimentary component of the webMethods Application Modernization Suite. The webMethods Application Modernization Suite was due to have been dropped by webMethods, but has been revitalised since the acquisition.
However, most of the announcements focused on more mainstream SOA and BPM topics and on partnership announcements. One of the interesting partnership announcements concerns GFT Technologies, a German company that already has a development centre in Brazil. GFT will offer 'near-shore' development capabilities for Software AG's North American financial services customers. GFT will also act as Software AG's implementation partner in Brazil.
A further partnership announcement with Satyam described a new SOA framework for auto insurance claims processing built on the webMethods suite. Satyam will offer customisation and turnkey services based on this framework.
Not directly associated with Software AG products, but definitely focused on its association with major trends, the company also made two educational and community announcements. In the first, it announced the publication of the 'BPM Basics for Dummies' book in association with Wiley Publishing. The purpose of the book is to explain the concepts of BPM in simple and clear terms, using language that makes it approachable by business managers as well as IT staff.
The final announcement introduced a new online community targeted at business analysts. While there are many online communities hosted by software vendors, most of these are targeted firmly at technology workers, and particularly towards developers. BPM and SOA place a strong emphasis on the need for business analysts to play an active role at both the strategic and project levels. Providing a forum for business analysts to share their experiences and discuss issues around methodologies and business blueprints is a perceptive move, and one which should help bridge the gap between business strategies and IT implementations.
It has always been difficult for European technology vendors to establish a strong worldwide presence. For Software AG, acquiring an established name like webMethods appears to have been a sound strategy. Based on the recent activity it appears that the acquisition has been consolidated well, and the company is maintaining its initial momentum.
Its plans for the longer term are very ambitious, and it is difficult to see the optimistic doubling of revenues every five years being achieved organically. To become a top 10 software vendor, Software AG will need to extend not just the penetration of its existing products, but also the creation of new brands and extension into new areas of the market. We should therefore expect further acquisitions to be made by Software AG, not simply by buying up competitors, but to increase its breadth of coverage into other high-growth areas.

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