The answer about need, as always, has become, "It depends." From a Microsoft perspective, the functionality included in an application server really belongs in the OS. Being able to tightly bind functionality like load balancing or database connectivity to the OS has some significant performance and security advantages. So, if you're working primarily in a Microsoft environment, the answer is no. But if you work in a heterogeneous environment, where you have to support a mix of J2EE and Microsoft applications, or you work primarily with J2EE applications, then you really have no choice but to adopt someone's application server platform in order to get the functionality required for enterprise environments. And that, of course, is the ultimate irony. In your quest to get the "best of breed" applications by using J2EE as the standard runtime for applications, you can't get the best performance and interoperability without standardizing on a single vendor, most likely IBM or Oracle. Companies who made early bets on smaller application server providers (like ATG or BlueStone) have already been forced to reevaluate their decisions as IBM and Oracle add more application server features to their platforms. Within five years, I think the application server world will look a whole lot like the database world. There will be three or four primary vendors (Microsoft, IBM, and Oracle) who have basically moved application server functionality into their environments, and lots of niche players for specialty markets or special application scenarios. The real long-term losers become BEA and Sun. The company that launched the Java revolution (Sun) will ultimately be swept away by the companies who perfect the application server environment that makes truly scalable enterprise applications possible (IBM, Microsoft, and Oracle).
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When the dust settles, if IBM, Microsoft and Oracle are all that's left, then there is something seriously wrong with the criteria on which business chooses their middleware. There is no way a vertically integrated company can deliever the best technical solutions in each horizontal domain, and this is borne out in this technician's assessment of these three companies past and current offerings.