Microsoft's entry into this market is likely to have the most significant impact on market leader BEA. BEA and IBM dominate the market for Java application servers with a combined share in excess of 65 percent. However, many of IBM's customers have acquired IBM technology in part because of the reputation of IBM as a technology provider and the services that it offers. BEA, with significantly less brand loyalty, and with less ability to sell services and to create software/hardware/service bundles, will suffer most from the Microsoft incursion. In addition to Microsoft, there are likely to be growing challenges from other major platform vendors, as Sun and iPlanet modify their strategy, HP makes an aggressive move into the Java world by giving its application server away for free, and Oracle improves its share. With all these changes in the Java market, Microsoft and IBM remain the primary beneficiaries of Web services.

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However, though Web services may make it difficult for some vendors to maintain share positions, it will spark a new round of custom application development. Most of the applications that are being actively developed are Web-architected applications, designed for use by large numbers of users over a corporate intranet or extranet. These applications are primarily focused on facilitating human interactions and are designed to present and accept information through HTML-based screens. The next upgrade to many of these applications will be to add Web service capability to them, so their functions can be invoked by systems, as opposed to the current requirement for a human user interface. In addition, Web services and some derivative concepts (such as Web Services Remote Portal) will spark the desire to re-engineer even these existing applications, as a means of incorporating new technology and increasing the flexibility of deployment.

Web services have also caused a great deal of thinking on the part of leading organizations about how they can be service providers or consumers in the new world. This will lead to a broad set of initiatives to expose automation and automated capabilities to customers, suppliers, and other partners of the organization, as well as to other organizational subunits within the company. These services will demand custom applications, because each service will be some embodiment of the capabilities of the organization. This increase in the development of services will lead directly to increasing development spending on custom applications, or at the very least maintaining current levels that are now spent on human-facing systems. Although "a rising tide will lift all boats," Microsoft stands to gain significantly from these developments in Web services.

Business impact: Supporting a standards-based development and deployment environment will simplify application creation and enable organizations to best exploit new technologies.

Bottom line: Users should plan to support heterogeneous environments. Microsoft will become an increasingly viable choice for the next generation of Web-services-based applications, as Java will maintain incumbency for many projects.

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