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02/15/2004

"Low-end" EAI Is Where The Action's At

While most of the attention in the Enterprise Application Integration (EAI) space has been focused on the development of high-end features such as business activity monitoring and business process management, some of the most interesting innovations are actually occurring at the low-end of the EAI market.

High-End For a Reason
Historically there has been no such thing as “low-end” EAI. EAI, by its very nature, is a complex, costly and technically demanding space that generally involves integrating high-value, high volume transactions systems. In such a demanding environment, failure is simply not an option. Thus, EAI software has typically been engineered, sold, and installed as a high-end product.

“High-end” is of course just another way of saying “very expensive” and EAI surely is that. The average EAI project supposedly costs $500,000 and that’s just to integrate two systems. Try to integrate multiple systems and you are soon easily talking about budgets in the millions of dollars.

Ideally, there would be a way to offer high-end EAI software at low prices, but unfortunately the economics simply don’t work. First off, the software engineering effort required to ensure a failsafe environment for high-volume transaction systems is non-trivial and therefore quite costly. Second, the infrastructure that vendors must build to sell, install, and service such high-end software is inherently expensive.

Thus, the very idea of low-end/low-priced EAI software was thought to be a pipedream and any vendor that was crazy enough to sell their software for $10,000 instead of $500,000 was thought to be on a fast path to going out of business.

A Volkswagen vs. A BMW
Despite the conventional wisdom that “low-end EAI software” is an uneconomic oxy-moron, there are in fact an increasing number of start-ups quietly pursuing this space. These start-ups believe they will be successful not because they are trying to replicate high-end EAI at a lower price, but because they are creating a new “low-end” market by offering a different product to an entirely different, and potentially much larger, market.

To be specific, these low-end EAI vendors differ from their high-end compatriots in several important aspects:

1. Focused on Data Sharing vs. Transactions: High-end EAI vendors have traditionally been focused on building failsafe, ACID-compliant, transaction systems that can handle a corporation’s most important and sensitive data. Low-end vendors do not even attempt to manage transactions, they simply enable basic data sharing between applications without guarantees, roll-backs or any other fancy features. Such software is much less robust than high-end offerings, but it’s also much less complicated and therefore easier to build and support.
2. User vs. Developer Centric: High-end EAI products are generally designed to be manipulated and administered by developers. They have extensive API’s, scripting languages and even visual development environments. Low-end EAI vendors are designing their products to be used by end-users or at worst, business analysts. By eliminating the need for skilled developers, the low-end software significant reduces set-up and maintenance costs.
3. Hijacking vs. building: Most high-end EAI products come with their own extensive messaging infrastructures that have been painstakingly built by their developers. In contrast, low-end EAI vendors try to “hijack” or leverage existing infrastructures, such as the web or instant messaging, to support their products.
4. Indirect vs. Direct: Selling big expensive software is a difficult and complex task. That’s why high-end EAI firms have expensive direct sales forces that can spend 6-9 months closing the average deal. In contrast, the low-end firms are trying to build indirect sales models that can leverage other companies’ sales channels. They can use these channels because their products are less complex to sell and install and their prices are low enough to make their product an attractive “add-on” sale to other products.

EAI For The Rest of Us
At this point you might be saying to yourself “no customer is going to be crazy enough to trust its mission critical systems to a non-transactional EAI platform that is sold by distributor and uses third party infrastructure for key components”. You’re right. Using low-end software for traditional EAI tasks, such as linking payment systems together, would be extremely foolish.

However, these low-end systems aren’t designed to go after the traditional EAI market, they are designed to go after a much different market, the market for ad-hoc intra and inter enterprise data sharing.

Today, only a fraction of intra and inter enterprise data sharing takes place via EAI systems. Instead, most data sharing takes place via e-mail or fax machines and the data involved is often stored in Microsoft Office documents or simple text files. A fairly typical example might be a sales forecasting exercise in which a Vice President of Sales e-mails out a spreadsheet to a group of Regional Directors and asks them to fill in their forecasts for the coming quarter. Each Director fills in a different spreadsheet and then e-mails it back to the VP who has a business analyst open each spreadsheet and combine all of the results into one master spreadsheet.

The Vice President could spend $500,000 on high-end EAI software to build a system for the real time collection and updating of sales forecasts, but spending $500K to automate this task just isn’t worth it. However, it would be worth it to spend $10K or $20K as that would free up the business analyst’s time to actually do analysis and dramatically improve the speed and accuracy of the data collection effort. This is precisely the market that the low-end EAI vendors are targeting.

Just how large is the market for this kind of low-end EAI software? It’s hard to tell exactly, but I challenge you to spend more than 5 minutes with a business executive talking about this software and not find at least a couple projects in their area that could make immediate use of it.

The beauty of these low-end EAI systems is that they make very basic EAI capabilities available for the most mundane applications and allow end-users to set up and tear down these ad-hoc integrations without IT’s involvement. It truly is EAI for the masses.

Early Pioneers
Despite the promise of low-end EAI, most of its vendors remain largely anonymous. One such vendor is an Australian firm called Webxcentric. They have built a low-end EAI system that allows end users to turn any Excel spreadsheet into a sophisticated data collection system. Using Webxcentric’s system, users can define data collection templates from within Excel using a simple wizard interface and then automatically e-mail those templates to end users who in turn fill in the templates via a web form. One of their customers is a large convenience store operator. The customer was having each of their store managers fax in a sales report at the end of each day. These faxes were then manually rekeyed into a SAP system (a surprisingly common practice). Using Webxcentric, the store managers simply updated a spreadsheet template and the results were then automatically fed into SAP.

Another low-end EAI vendor is CastBridge. CastBridge allows end users to publish and subscribe to data both inside and outside of their enterprise from within packaged applications, such as Microsoft Excel. I like CastBridge’s architecture so much that I made an investment in them last year. One of their early customers, a government in Asia, is using their software to link police stations and hospitals together to enable real time tracking of health and crime statistics. This is a project that they could have used high-end EAI software for, but they preferred the user-friendly, flexible, cost effective approach offered by low-end EAI.

In both cases, these low-end EAI vendors are not trying to displace existing high-end EAI installations, but to expand the overall EAI market by bringing automated data sharing to previously manual processes.

Low-end = Big Market
While in many ways these systems are highly inferior to high-end EAI software, they still get the job done to the customer’s satisfaction and they do so at a price point that is accessible to far more potential buyers.

By making basic EAI capabilities more accessible, the low-end vendors are dramatically expanding the overall EAI market size to encompass a wide range of manual data collection and dissemination processes that up until now were not cost effective to automate. This new market should provide both start-ups and incumbents with far more opportunities for growth than simply adding additional features on top of the high-end systems. Who ever thought the “low-end” could be such an interesting place to be?


February 15, 2004 in EAI, Middleware | Permalink

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The thoughts and opinions on this blog are mine and mine alone and not affiliated in any way with Inductive Capital LP, San Andreas Capital LLC, or any other company I am involved with. Nothing written in this blog should be considered investment, tax, legal,financial or any other kind of advice. These writings, misinformed as they may be, are just my personal opinions.