State of the Markets

This year's Emerging Companies to Watch are making a run at the more established players in their market segments. Here's a look at the state of the market in each segment and what the emerging players are offering to their customers.

Application Services, Development Tools

As long as legacy code exists, so will tools designed to migrate that code to new languages.

Gartner Inc. estimates that the legacy transformation tools market is worth $100 million. The market includes competitors such as Micro Focus International Ltd. in Rockville, Md., and Transoft Inc. in Atlanta. Yet the accompanying services market is significantly larger, because these types of projects can be time-consuming and costly, says Dale Vecchio, an analyst at Gartner, a Stamford, Conn.-based market research firm.

Newcomer Relativity Technologies Inc. targets legacy applications with its RescueWare code transformation tools. These tools take code written in older languages, such as Cobol, and transforms them into more modern object-oriented languages, such as Java or C++.

"Going from procedural to object-oriented code is difficult," says Vecchio. "Tools that extract and identify parts of that code and then offer some level of automation improve developer productivity, without a doubt." Vecchio suggests that companies revamp select parts of the application as opposed to the whole program.

But Cary, N.C.-based Relativity is finding that many companies are choosing large-scale legacy transformation projects.

National City Corp., a bank with more than 1,500 corporate and retail chains, used Relativity conversion tools to transform a three-tiered application built in Cobol to a Web-enabled and browser-based architecture. The Cleveland-based bank spent $10 million six years ago to custom-build a customer support application, a vital tool for tracking credit and transaction histories and contacts of its corporate accounts.

CIO Jim Hughes says it cost National City about $3 million and took nine months to revamp the application, but it would have cost twice that amount to rewrite the application from scratch.

Owens & Minor Inc. also transformed a legacy enterprise resource planning (ERP) system written in Cobol to Java using Relativity's RescueWare, says David Guzman, CIO at the Glen Allen, Va.-based medical supplies distributor. Guzman estimates that that project will take three years to complete but adds that it's necessary to maintain the valuable functionality in that extensive ERP system, which contains accounts payable, inventory and customer service applications.

"If you've built an application over the past 15 to 20 years, then you've built in specific business rules to support how you do business," explains Guzman. "If you retire it, you risk throwing out the baby with the bath water."

But Phillip Murphy, an analyst at Giga Information Group Inc. in Cambridge, Mass., also cautions that most automated conversion tools can tackle only parts of the application transformation process. "It's like driving a 1948 Edsel, and out comes a brand-new Maserati," he says. -- Lee Copeland

Customer Relationship Management Software

Customer relationship management (CRM) applications remain a crucial investment to many companies, despite the general IT market downturn.

According to Joanie Rufo, an analyst at Boston-based AMR Research Inc., a recent survey saw 48% of respondents say they plan to increase their CRM investments in the near future. AMR also predicts that the CRM market will grow to $37.8 billion by 2005, up from $10.6 billion this year.

Some smaller companies are finding they can succeed in the CRM market by carving out a niche that the bigger players are missing.

For example, Columbus, Ohio-based Astute Solutions' PowerCenter contact-management system competes with applications such as San Mateo, Calif.-based Siebel Systems Inc.'s call center software. "I didn't want to buy from a customer service vendor who was everything to everybody," says Chris Garrity, director of customer satisfaction at McDonald's Corp. The Oak Brook, Ill.-based restaurant giant opted to go with the PowerCenter application from newcomer Astute to handle customer feedback. "What appealed to me was this company was focused on consumer affairs -- and not dabbling in help desk," says Garrity.

Whether a company is selling cars or burgers, capturing customer feedback is crucial, he says, adding that PowerCenter allows McDonald's to dissect data to locate possible customer issues and the biggest opportunities.

For user Jack Schumaker, customer service manager at Beverly, Mass.-based Electric Insurance Co., the unusual flexibility, ease of use and scalability of its products has made Billerica, Mass.-based EnvoyWorldWide Inc. stand out. The company currently uses the EnvoyExpress multichannel messaging system to notify customers about renewing their policies, among other things, which relieves traffic to and from its call center operation. One of the draws of EnvoyExpress was its ability not only to handle voice, e-mail and fax communications, but also to be able to message wireless-enabled devices, such as personal digital assistants, says Schumaker.

Envoy's relatively small size was appealing to Electric. "Our needs and requirements change rapidly, and we found that their culture and size afforded them the opportunity to quickly respond to our needs," says Schumaker.

The customer messaging market area on which Envoy is focused has potential, according to Rufo. This is a unique area where Envoy has few, if any, direct rivals, she says. In addition, says Rufo, Envoy offers its product as a hosted service, taking away pain and expense for customers and providing them with "quick business value." -- Marc L. Songini

Data Management Tools

When you boil it down to basics, there are two things a storage administrator needs to do with data: back it up regularly and restore it in an emergency. Experts say emerging companies focused on the data restoration function have a wide-open, nearly untapped market, particularly in the hot area of SQL Server.

As any database manager will tell you, the dearth of restore software on the market contrasts sharply with the glut of backup software, leaving storage administrators with few options but to restore entire databases when a user loses a file or drops a table.

With the backup and restore marketplace expected to reach $10 billion to $15 billion next year, selective restore products in the database area have a big opportunity, says John Webster, a storage analyst at Illuminata Inc. in Nashua, N.H. "One of the trends we're seeing is [moving] capabilities you find in the mainframe environment into the open systems environment," he says. "There are going to be a number of people chasing this opportunity for various databases and with various products."

BMC Software Inc., Legato Systems Inc. and Computer Associates International Inc. are among the larger players in the backup and restore marketplace, but none offers restore capabilities at the file and directory level.

Michael Shannon, manager of database systems at CyBerTrader, a division of San Francisco-based Charles Schwab & Co., is using transaction log software from Concord, Mass.-based emerging player Lumigent Technologies Inc. to track usage and restore data.

"The Log Explorer works really well for debugging," says Shannon. "If we wanted to go in and see what happened in a particular instance in a transaction log, we can do it either live or saved." The tool is also useful to audit SQL Server use and chargeback to individual departments, he says.

Shannon says he installed Lumigent's Log Explorer Enterprise Edition on five SQL servers 18 months ago, and he hasn't had a problem since. The servers perform tests and deal with the production side of online trading data. CyBerTrader chose the start-up because "there wasn't anything else out there," says Shannon.

Illuminata's Webster says Lumigent's products have promise because of their ability to restore data when common mistakes are made -- without having to restore an entire database.

"[Is Lumigent] going to take market share, are they going to be successful? Absolutely -- if they can execute," Webster says.

Lumigent's Log Explorer Enterprise Edition offers selective data recovery using database transaction logs, security and data integrity auditing, and business-problem analysis. A single-server license costs $995. Log Explorer Professional Edition provides a browse-only view of the SQL Server transaction log and is used to understand how users and applications interact with the database. The software license starts at $395 per server. -- Lucas Mearian

E-Commerce Software and Services

Far from dead, some public e-marketplaces are actually making headway toward becoming consistent trade mechanisms for the corporate world.

According to market research firm GartnerG2, a unit of Gartner Inc., natural gas and oil trading marketplace Altra Energy Technologies Inc. has already grabbed 14% of the $140.8 billion business-to-business market, ranking second behind Houston-based energy trading giant Enron Corp.

According to GartnerG2 analyst Gale Daikoku, Altra should crack $30 billion in sales this year as one of the leaders in the ever-increasing move to online trading in the fuel and gas industries.

"It's fairly easy to take those commodities and move them online," Daikoku says. "It's a simple order-and-request procedure, and you get large dollar transactions. In general, buyers also need to find products quickly."

Houston-based Altra also offers e-business applications for scheduling, accounting and invoicing. In a 1999 acquisition of Unified Information Systems Inc., the company also picked up a Java-based online trading platform, as well as transaction management, scheduling, risk management and settlement software. Through an agreement with San Francisco-based business-to-business portal vendor Epicentric Inc., it offers the My Altra portal, which provides customized, real-time, industry-specific information for energy traders.

Chuck Bailey, president of Texaco Natural Gas Inc. in Houston, has been using the Altra exchange since its inception. "It's not our main exchange, but we do a lot of business through it," he says. "They've done a nice job of drawing companies in there, and that keeps it active."

In addition to the more than 500 companies that trade in the marketplace, 130 companies have installed Altra's software.

"The main thing is they come from the energy industry, and they've got solid customer software for the industry," says Daikoku. "What they're not trying to do is jump into 50 other vertical markets at the same time."

Another emerging company has been selling collaboration software to link supply chain partners. Engenia Software Inc. in Reston, Va., creates secure communications portals in which companies can share information and documents while negotiating transactions.

Petroleum industry software vendor PetroVantage Inc. in Cambridge, Mass., has taken the Engenia collaboration capabilities and incorporated them into its offerings.

PetroVantage Chief Technology Officer Girish Navani says he was most impressed by Engenia's peer-to-peer collaboration capabilities. "We wanted something we could install and then have it work across firewalls," he says. Navani says he looked into IBM's portal server technology but decided against it because it was more of a hosted solution.

Engenia faces stiff competition because larger vendors such as IBM, J.D. Edwards & Co. and i2 Technologies Inc. are building their own collaboration systems. Yet Engenia has struck deals to provide collaboration technology in joint offerings with large installed-base vendors such as BEA Systems Inc., Intel Corp. and GE Global Exchange Services Inc., providing the peer-to-peer capabilities found in products from these other companies. -- Michael Meehan

Internet-Based Applications

With paper mail sparking security fears in the past two months, the resulting rise in electronic communications could create a boon for emerging companies in the e-mail space. And with administrators on equally high alert for attacks on their messaging systems, there's a growing need for software that not only scans for viruses, but that also manages user access and identity, thus protecting corporate assets.

The overall messaging management market is still relatively small, but it's growing quickly, according to David Ferris, president of Ferris Research Inc. in San Francisco. Messaging management is usually done by third-party vendors that build special monitoring application on top of the two major e-mail systems, Exchange and Outlook from Microsoft Corp. and Domino and Notes from IBM subsidiary Lotus Software Group.

"Overall, our sense of the market for messaging management tools is that it has about $100 million in software revenues annually. It's probably growing at about 100% annually, fueled by the substantial migrations that Exchange customers will undertake over the next two years," Ferris says.

While virus-scanning software from companies such as Wakefield, Mass.-based Sophos Inc. and Sunnyvale, Calif.-based McAfee.com Corp., a division of Network Associates Inc., is commonly used, there is also a large market for more sophisticated software that does more than look for virus signatures.

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