Just one year ago, executives at Vitria Technology Inc. (VITR) were doing their best impression of a hobo in Waiting for Godot. They believed a market would arrive for their whizbang product--a new computer program that makes a critical connection between Internet software and a company's regular digital tools for such business processes as ordering and customer service. They just didn't know when. At the end of 1999, annual revenues were stuck at a measly $27 million.

Then it happened: The market arrived with a bang. Vitria's revenues took off as corporations rushed to take their businesses online. As the end of 2000 approached, sales were jumping 400%, to an estimated $150 million. "It took some time," concedes Vitria Chief Executive JoMei Chang. But with the full-fledged arrival of the new order, "companies need us now," she adds. "We have become very important to them."

Expect the hot growth to continue this year. Barring an unforeseen recession, e-business software companies look to be the industry's shining stars. Their products run the gamut from infrastructure for e-commerce transactions to managing supply chains and customer relationships. Those three categories are growing at an annual clip of 50% or better.

BUSINESS WEEK also made bullish predictions about e-business software last year--and 2000 was indeed a blockbuster. Sales of e-commerce software skyrocketed to $3.9 billion, from $1.7 billion, according to AMR Research Inc., a market watcher in Boston. This year, AMR expects the same categories to top $6.4 billion as companies continue to depend on software-based automation to cut costs and increase revenues. "It's amazing to me the things you can do over the Internet in order to drive out internal costs," says Mary Pat McCarthy, global vice-chairwoman at consulting firm KPMG.

Not all software ships managed to get on the hot Gulf Current, though. The overall industry is lagging way behind the Net's young software stars, which account for about 13% of the market. Worldwide software sales in 2001 are expected to grow about 18%, to $207 billion, according to International Data Corp. That's about in line with 2000 but a tick below 1999's growth.

The huge but lumbering mainframe business is part of the problem. Now that Y2K worries are long past, global corporations are showing little interest in mainframe software unless it directly bears on their online operations. As a result, expect software sales at mainframe companies such as Computer Associates International Inc. (CA) and Compuware Corp. (CPWR) to be relatively stagnant in 2001. Sales of big enterprise systems--the sort provided by German giant SAP (SAP)--are also likely to be flat. That's why SAP is banking on online services to bolster revenues. Analysts applaud SAP's moves and forecast growth of more than 20%.

The outlook for retail PC software is disappointing--again. Market researcher PC Data Inc. predicted 20% growth for 2000, but the sector managed only 9.5%, to about $5.9 billion. Next year could be worse. "Things are looking rather grim at the moment," says PC Data analyst Roger Lanctot, who blames the PC software slowdown on a lack of innovative programs.

Still, e-business systems vibrate with excitement. Why? They save money. Ariba Inc.'s (ARBA) procurement software, for example, can reduce purchasing costs for office supplies by up to 20%, as various surveys have documented. Another big cost-cutter is supply-chain management software. Companies that have installed these programs say they slice inventory costs by 10% to 20%. So look for sales of supply-chain tools to jump from $5.4 billion last year to $7.8 billion in 2001. Leading this sector is i2 Technologies Inc. (ITWO), which doubled in size last year--and should notch a healthy 50% hike in 2001.

TORRID PACE. Where e-biz software shines is in nurturing new online relationships outside traditional supply chains--business-to-business exchanges being the premier example. Just two years ago, revenues from exchange-related software were a tiny $66 million, according to AMR. But last year those sales doubled--and the same is expected this year. Sales of programs for customer-relationship management, a market that is dominated by Siebel Systems Inc. (SEBL), will also continue last year's torrid growth. Such programs make it easier to track customer satisfaction and cement long-term loyalty. The CRM software market should increase 44%, to $9.8 billion this year, according to AMR.

Even put together, those big chunks of software represent only part of the digital tapestry that e-business software has become. To help all the pieces work together efficiently, a newer breed of programs is becoming popular. These tools come from software vendors with names like Vitria and WebMethods Inc. (WEBM) and SeeBeyond Technology Corp. (SBYN) They specialize in truly geeky stuff--software that can link business systems that weren't originally designed to interact with one another. This may sound dreary, but it's turning out to be critical. By installing such "integration software," a company can connect its old business systems with Net-based systems. "These companies fulfill a vital need, especially for brick-and-mortar companies," says McCarthy. Customers agree. "[Vitria] is the most important critical element in our new infrastructure," says Francis A. Dramis Jr., chief information officer of BellSouth Corp.

Software industry giants are taking notice of these upstarts. After watching them reel in new business, big infrastructure software players such as Microsoft (MSFT), IBM (IBM), and Hewlett-Packard (HWP) have kick-started their own efforts in integration software. Among the Old Guard, Oracle Corp. (ORCL) may be in the best position to take advantage of the shift to e-business. Its database software remains the vital underpinning to other business software systems, ranging from e-commerce to supply chain management. On Dec. 14, when Microsoft Corp. cut its fiscal 2001 earnings estimates 5%, Oracle executives said they are still gathering steam and expect the company to maintain its 30% uphill trend well into 2002. "We are in a tech sector that is much more immune to economic issues than others," says Oracle Chief Financial Officer Jeff Henley.

A final software bright spot is in security. With hacking incidents on the rise, corporations are flocking to security specialists such as VeriSign Inc. (VRSN) and Check Point Software Technologies Inc. (CHKP) These companies and their rivals offer the first line of defense against malicious or criminal attacks. With companies becoming increasingly reliant on the Net, market researcher Dataquest Inc. predicts that sales of security software will rise 22% or more annually for each of the next three years, starting from $2.5 billion in 2000.

Every year has a wild card. This time, it is shaping up as Microsoft's new Windows 2000 operating system. Boosters thought W2K, as pundits call it, would change the face of the software industry. Didn't happen. The new operating system for business servers and PCs was released later than expected. And those all-important partners that sell programs on top of Microsoft's software have so far yawned at W2K. But W2K is now picking up steam. In two years, AMR forecasts, Microsoft software will be running 59% of PC servers--up nearly 9% from last year. Despite its growing domination of operating systems, Microsoft no longer is the thermometer for the entire software industry. Equally important are Net-centric giants such as Oracle and Siebel and the upstarts with snazzy new e-business wares.

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