DATABASE MANAGEMENT: RDBMS Upswing -- Smarter customers, more competition fuel growth among vendors

Notwithstanding the recent uproar over disappointing earnings from Sybase Inc., the market for client-server relational database management products (RDBMS) continues to experience strong growth. While the RDBMS market is maturing, it is still growing more than 20% per year.

With strong enterprise players in Informix, Sybase, and Oracle and a fourth serious entry, Microsoft the RDBMS industry will remain healthy. A strong collection of vendors means lower costs and more innovative products.

The healthy outlook is one reason Oracle and Informix share prices have remained firm, even though technology and revenue problems caused a 40% drop in the Sybase share price over the past few weeks. Several factors, though, are putting more pressure on vendors' efforts to maintain revenue and earnings growth.

All DBMS companies see their sales cycles lengthening; Customers are getting more sophisticated, with the help of consultants and systems integrators, and are taking longer to choose their vendors.

The established suppliers are also beginning to compete more aggressively against one another, a trend best demonstrated by a recent Oracle campaign to convert Sybase users.

Highs And Lows

Overall, the RDBMS market is splitting into high-end and low-end sectors, with the suppliers offering products tailored for each sector. High-end enterprise products require extensive training and support. The fastest-growing segment is the less-profitable, low-end market for workgroup RDBMSs. These potentially will sell more copies than high-end products. Microsoft's low-end SQL Server undoubtedly will heat up competition for the established RDBMS vendors.

Each of the established suppliers appears capable of continuing to be a strong player. Sybase remains a formidable competitor despite a sharp drop in revenue and profit growth in the first quarter of 1995. Sybase's 1995 revenue should still hit $1 billion. The Emeryville, Calif., company also projects that its next major release, System 11, will ship by Sept. 30, and will address the scalability issues that have impeded sales of System 10.

Oracle, of course, still holds the No. 1 market position with a 40% share, more than $2 billion in revenue, and a strong alliance with Novell. Oracle recently introduced its Workgroup/2000 product, a desktop and workgroup version of the Oracle7 database. The company is expanding aggressively into consulting to accompany its software licensing and tool development. Informix, which is due to enter the massively parallel processing database arena this summer with Dynamic On-Line Server 8.0, an upgrade to its current 7.1 release, already may have leapfrogged the competition with 7.1.

Strong Growth Seen

Overall, the increasing growth and sophistication in client-server applications software, systems management utilities, and online transaction processing (OLTP) software should drive growth by 25% to 30% over the next few years. Of course, earnings may not keep up as profit margins decline. Tech managers will be rewarded by the heightened competition as vendors offer better products, a broader product spectrum and more service.

William Schaff is chief investment officer at Bay Isle Financial Corp. in San Francisco. Bay Isle maintains the InformationWeek Financial 100 stock index.