2002 Middleware Survey

By Hal McIntyre and Pam Pecs Cytron

The Summit Group Surveys Middleware for Fifth Year

In the five years that The Summit Group has been tracking the use of middleware products in financial services, the software has become widely accepted as a necessary product throughout the industry. Trends in the industry such as the reduction in global trade-to-settlement times and the corresponding convergence of asset settlement methods require an environment in which the need to quickly and efficiently process data across a variety of different standards and protocols is essential and middleware has effectively supported these needs.

Not surprisingly, as the applications for middleware (a term used to describe Enterprise Application Integration [EAI] products) and business process automation (Straight Through Processing [STP] products) have become more complex, so have the solutions.

To help firms throughout the securities industry better understand the capabilities of the available middleware vendors, The Summit Group has again conducted a survey that profiles and rates the leading middleware providers, and looks at how firms utilize middleware products. In addition, the survey also presents a profile of the functions users require from a middleware product, and the process by which potential solutions are evaluated and implemented.

By surveying both the users (present and potential) and the providers of middleware, this report identifies the trends that have made middleware an important element of efficient securities and information processing and also presents a summary of how middleware products are used and what factors must be considered in selecting a vendor.

How The Survey Was Conducted

The 2002 Middleware Survey was emailed to over 2,000 operations and technical professionals in brokerage firms, commercial, trust and custody banks, custodians, mutual funds, money managers and institutions with asset sizes ranging from under $1 billion to over $25 billion. The survey also queried respondents on their function and level in their firm.

The survey was composed of four sections, of which each respondent was asked to respond to three. The first section consisted of a respondent profile, while the second section queried general perceptions relating to the providers, functions and business benefits of middleware solutions.

Firms currently using middleware answered the third section. Respondents to this section were asked to explain why they chose their current product and offer an evaluation of its performance.

The fourth section, answered by firms not currently using middleware, identified the extent to which these firms are considering a middleware purchase, the products that they are evaluating and the progress that they have attained in their decision process.

Prospective middleware users were also asked to rate various factors behind the selection of a middleware product and how they see middleware supporting STP. Vendor ratings and various function-related evaluations were conducted on a traditional Likert Scale, with "5" being the highest possible score.

Survey Identifies Leading
Vendors and Key Criteria

The Summit Group's 2002 Middleware Survey looked at both current and potential users of middleware products. One focus of the survey was to examine the middleware experiences of firms currently using middleware. To accomplish that, the study asked respondents to identify the factors that led to their initial purchase and installation of the product and to evaluate their product's effectiveness. As a result of this approach, the survey results show vendor performance relative to client needs and expectations.

Firms that were not using middleware at the time of the survey were also solicited. In addition to asking what products, if any, were currently being considered, the survey also asked these respondents to identify the factors they perceived as important in their selection process.

Finally, all respondents were asked to identify their perceptions of middleware vendors whose products they do not use, and prioritize the most important functions with regard to middleware in general. In the two years since the last survey was published by TSG, there have been several organization changes and geographic expansions regarding middleware vendors, including:

• Neon was acquired by Sybase
• Heliograph has emerged as a leading contender expanding their presence in both EMEA and North America.
• One-Ten Salerio increased its presence by expanding to North America
• STC DataGate is now called See Beyond
• Microsoft released Biz Talk
• Web Methods emerged as a viable solution for EAI.

These organizational changes are not the only trends that have affected the middleware market this year. The slowdown in the financial services industry is the biggest single impact; however other factors have also affected the marketplace, including:

• Date changes and ultimate delay of T+1
• Lack of pressure to implement 15022
• Debate regarding VMU's
• OMGEO vs. GSTPA
• Movement of CLS deadlines
• STP focus on external issues vs. internal opportunities

While the marketplace has slowed down, the pace of technical change has increased. Some of the major technical changes that have affected middleware products are:

• Automating and modifying internal trade workflow
• Pressure to improve matching and reconciliation
• Integration with multiple matching utilities
• Integrating the investment process
• Improved service levels to customers
• Converting batch processes to real-time
• Standardization of reference data and adopting industry standards

The survey obtained answers to the following questions:

Which Products Are You Using and Why Did You Choose Them?

Figure 1 - Products in Use by Respondents

IBM's MQ Series ranked highest in this category with 26% of survey respondents reporting use of the company's products. Mercator followed MQ with 22% of the survey respondents, while Sungard and Tibco tied for third with an 11% share each. Heliograph, Dovetail, BizTalk, Coppelia and e*Gate were all represented.

Virtually all of the large firms reported using more than one vendor, and 27% of the medium and smaller firms use more than one middleware vendor. In selecting a primary vendor, respondents stated that the Functionality of the product was the most important factor, with Vendor Support During Installation and Throughput also ranked as very important. Following close behind was Vendor Support After Installation and Ease of Installation following close behind. The lowest ranked factors were the Availability of Upgrades and Cost.

Figure 2 - Factors in Selection of Existing Middleware Products

It is significant to note that the scores throughout this survey are lower, on average, than the score reported in previous surveys. This does not seem to indicate a disillusion with middleware, but more the result of the depressed industry.

What process did you use to select the product?

When asked how they selected the product, 29% reported that they did so because the product was already being used elsewhere in their firm. Along with the continued trend of merging banks, brokers and managers, software vendors have seen that having an installation in one of the firms is a good way to make the short list for future sales to a customer. The downside is that newer products have an increasingly hard time getting in the door. Technology managers find it much easier to adopt a product that a sister organization has already successfully installed because of the shorter learning curve, and the fact that most vendors will sell a second (or subsequent) license for less than an original license. This makes it economical (and politically safe) to continue with an existing product.

Decision Makers also rely on recommendations by other firms 24% of the time. Tied for third, Consultant Recommendations and the Results of an RFP are relied upon 19% of the time. Only 9% report that they rely on Product Market Share as a major factor in selecting a product.

Figure 3 - Reason for Selection

How satisfied are you with this product?

Survey respondents were asked to rate their current level of product satisfaction with regard to several criteria. The main decision criterion is the Overall Value of the product. The next three reasons are tied for second place: Throughput, Integration with Existing Software and Integration with External Networks with other criteria trailing in importance.

Figure 4 - Middleware Decision Criteria

What Was Your Approximate Cost?

In the last survey, the majority of the firms reported that their firm's software and installation costs were each between $0 - 100K, and less than 20% reported that software and installation costs were over $500K. In this survey, the results were significantly different. Only 15% reported that their cost was under $100K, while 55% reported that their costs were over $500K. This is much more in line with TSG's experience in selecting and installing middleware in several firms

Firms Not Currently Using Middleware

In another major change from previous surveys, only 17% reported that they are considering purchasing middleware at this time, and most of them were looking to acquire the software in the next 12-24 months. In the last survey, of those respondents whose firms were not currently using middleware, 64% stated that they would purchase a product in the near future. This change in intentions is probably the result of the increased cost pressures on firms, as well as the lack of regulatory pressure to make a change in how they process. The implementation of T+1 in the US would have forced significant changes on virtually every firm in the US, and in every international firm that deals in the US markets. Now that T+1 is no longer being recommended by the Securities Industry Association (SIA), it is very unlikely that the Securities Exchange Commission (SEC) will require the industry to shorten the settlement cycle.

Of the few firms that are actually in the process of selecting a product, 60% have almost made their decision and 30% are just starting to consider alternatives. There is almost a complete lack of people in the middle of the process, and the people who are just starting do not expect to make a purchase in less than 18 months on average. This seems to indicate that the firms that started their process more than a year ago have continued, but in the last year, very few firms started a search for middleware. This is probably the result of the economic situation and the firms' existing level of integration.

Nearly 50% of the respondents reported that their vendors have already made the necessary middleware changes, and 21% have already made the changes themselves. The remaining 31% said that they are waiting to see what systems will be required in the future. The survey was completed prior to the SIA's announcement, and therefore these firms will not be getting the guidance they sought.

Figure 5 - Reasons for Not Evaluating Middleware

Of those respondents actively seeking a middleware product, the most popular applications being investigated were Connextive Enterprise (Connextive), GSS (Mercator Software), WebMethods (WebMethods), BizTalk (Microsoft), SBI (SunGard), MQ Series (IBM), Rendezvous ETX (Tibco), and Financial Fusion (Sybase). Also being reviewed were STP Tool Kit, Cloverleaf, and Tuxedo.

What are customers looking for in middleware?

According to respondents actively seeking a middleware product, Anticipated Throughput Performance was in first place as it has been in the past. It is interesting to note that people say that they are looking for throughput before they acquire product, but after they acquire it, they say that other factors were the most important in making a decision. This may have to do with the fact that middleware decisions have previously considered IT needs and are increasingly seen as a business decision.

The remaining factors in this category are the Anticipated Ease of Integration with Existing Applications and with Planned Applications.

Figure 6 - Middleware Selection Requirements

How do customers perceive vendors capabilities?

An underlying theme evident in the survey results is the significant level of difficulty in selecting a middleware solution. When asked to rate their perception of various middleware vendors, respondents continued to indicate minimal perceived differences. Since there were only slight differences in the vendors' overall ratings, it is important for potential middleware customers to fully identify their specific requirements and match them to the functions provided by each vendor.

When comparing vendors that firms have been evaluating, the respondents reported that the most important factor was in the Advertised Functions, with a 2.3 rating on a 5 point scale, the remaining factors of Upgrades, Integration, Cost, Vendor Support and Installation are all rated between 2.1 and 1.8, which is not a significant difference.

Figure 7 - Importance of Functions

There were some significant differences between the vendors, as is shown in the following charts. The rating is on a five point scale, and only the top three respondents are shown in each category. Some of the vendors with smaller market shares received very high scores, but there were not enough responses to be statistically significant.

Figure 8 - Advertised Functions

Figure 9 - Upgrades

Figure 10 - Integration

Figure 11 - Cost

Figure 12 - Vendor Support

Figure 13 - Installation

What middleware functions are the most important?

In addition to being asked about their perceptions of middleware vendors, respondents were also asked to provide their impressions regarding the importance of specific middleware functions. There was a much wider range of answers in this survey than in the past. The most highly rated functions were: reformatting, routing, message monitor, SWIFT connectivity, the presence of a SWIFT message library and the ability to perform protocol conversion. This ranking was exactly the same as in prior years.

Figure 14 - Middleware Requirements

The additional responses indicated that the need for a Database and DTC Connectivity is higher than in the past, and there was increased recognition of FIX as an important consideration. Connectivity to VMUs and International Securities Depositories was not ranked highly, presumably because firms that need this connectivity already have it or plan to get it through a vendor.

What are the business benefits of middleware?

This year, for the first time, the survey asked firms to identify what they perceived as the business benefits of middleware. This was the result of several interviews that have shown that the middleware decision has moved beyond the IT department. The four major reasons were all rated very closely, and there was no significant difference. These four reasons are: Lower Processing Costs, Improving the Technical Environment, Increased STP, and Reduced Settlement Risk.

Therefore, as in most things, cost and risk reduction were important from a business perspective.

Figure 15 - Business benefits from middleware

What are the roadblocks to STP?

The survey also asked firms to identify the roadblocks that they perceived as preventing STP. Expense and Implementation Complexity led the list with ratings of 3.3 and 3.2 respectively. The Lack of Standards and Inertia were tied in third place with a score of 3.0, while Conflicting Demands was rated as 2.7.

Figure 16 - STP Roadblocks

What functions are critical for internal STP?

After asking respondents to identify the roadblocks to STP, the survey also asked them to identify the factors that they feel are essential to implement STP. Workflow Automation led the list with a clear 4.1. The next four factors are also related to workflow: Automatic Reconciliation, Central Securities Master File, Central Reference File, and Automated Investigations.

Middleware was only rated at 3.0 in this question, which also says that most firms are looking beyond mere technical connectivity towards using tools to improve their internal connectivity and processing. Many middleware vendors have already seen this trend and have been adding workflow functionality to their suite of products.

Figure 17 - Keys to STP

What functions are critical for external STP?

As firms look outside of their own processing requirements, they report that they need Simplified Connectivity and Centralize Delivery Instructions most of all. Also cited as important are Common Message Standards and Improved Utilities. The basic middleware functions of connectivity and reformatting messages help firms with their external STP, and the enhanced versions(with workflow) are needed to support internal STP.

Figure 18 - Key to External STP

T+1 The Survey also asked respondents about T+1.

The survey was conducted before the SIA decided that they were no longer going to support the implementation of T+1 by 2005, which has been covered in several articles in Securities Operations Letter. The sophistication of the respondents was reflected in their understanding of the trends that are driving the industry. Well before the SIA announcement, 67% of the respondents felt that T+1 would be delayed by one year or more, and in a separate question 86% felt that the only way T+1 would happen was if the SEC mandated it.

Figure 19 - Implementation of T+1

Middleware Survey Covers Additional Vendors

Fifty-two percent of survey respondents reported being the middleware Decision Maker in their respective firms. Evaluators represented an additional 19%, while 10% of survey respondents reported being Implementers, 18% categorized themselves as a User and 1% as Project Managers.

Figure 20 - Level of Respondent

Investment Management firms were the most represented type of organization, as 62% of all investment professionals who answered the survey reported being affiliated with an asset manager. Brokerage firms and Banks represented only 7% and 31% of the respondent pool, respectively. This year's survey was not sent to industry utilities.

Figure 21 - Type of Firm

Just over 41% of all respondents also reported being affiliated with large organizations (assets between $1 billion and $25 billion), while 31% stated that they worked for medium firms (assets totaling over $25 billion), and 28% were from small firms. This is comparable to previous surveys.

Figure 22 - Size of Firm

Also, 41% of survey respondents were from the ranks of senior management, while only 14% identified themselves as middle managers (as opposed to 55% in the previous survey). An additional 35% of respondents labeled themselves Operations Professionals and 6% as Technical Professionals. Another 4% identified themselves as being Consultants or Traders.

Figure 23 - Function of Respondents

Since this year's survey was distributed entirely by email for the first time, there were several international respondents. The most responses continued to be from the US (86%, but 7% were from Europe, almost 5% from Latin America, and over 2% from the Middle East and Africa).

Figure 23 - Regions of Respondents

Vendors Tracked by Survey

• BEA
• Connextive
• Constellar
• Dovetail
• E*Gate
• Financial Fusion Inc. (Sybase)
• HelioGraph
• HIE
• IBM
• Level 8
• Mercator Software
• Microsoft
• Netik Inc.
• One Ten Limited
• SunGard Business Integration
• Tibco
• Wilco International

 

Research By The Summit Group

This research report was prepared by The Summit Group. TSG supports the securities industry by providing management consulting and systems integration services, as well as market research activities, which include:

• Product Comparisons
• User Satisfaction Surveys
• Employee Attitude Surveys
• Cost Benchmark Surveys
• Market Evaluations

The data and conclusions included in this report are based upon a sample that is believed to accurately represent the total population of users of pricing services.

For additional information about TSG's research activities, call The Summit Group at 212.328.2500, ext. 231.

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