Mercury Interactive's aim is to become one of the top five software vendors in the world within the next 10 years.

On one hand, this goal seems ambitious, given that Mercury's 2003 revenue barely broke $500 million whereas PeopleSoft, No. 5 on the list of biggest software companies, tallied more than $2 billion in revenue in 2003.

On the other hand, Mercury is on the rise, with revenue growth of 27% year over year for the past five years, a $41.5 million profit last year and $1.2 billion in the bank that could be used for acquisitions or other efforts designed to expand the company.

"It's not a two- or three-year proposition," says Jason Maynard, a software analyst with Merrill Lynch. "But [Mercury] saw a synergy between testing and management, and saw the opportunity to evolve its product into a broader market."

Mercury, which initially made a name for itself among application developers with its quality assurance tools, says it will attain its growth goal by expanding into all aspects of application management, ensuring peak performance without requiring companies to overhaul their networks. Its offerings include LoadRunner testing programs, Topaz management products and a suite of IT governance software it acquired in 2003.

IT governance is still a developing market of which Mercury is hoping to win a large share, says Jasmine Noel, a principal at Ptak, Noel & Associates. Start-ups such as newScale and Centrata compete today with Mercury's IT governance products, but service desk providers such as Remedy (part of BMC Software), Computer Associates, HP and Peregrine Systems will be looking to tackle IT governance in their efforts to align business and IT in their product lines.

As for its application management tools, Mercury also runs into BMC and CA there, but industry watchers say the two larger vendors have yet to prove their mettle outside of the mainframe environment. Another competitor is Compuware, which matches up well on the product front but has seen its financials wane of late. In the area of application testing, Compuware trails Mercury, which is the "gorilla" in that market, Noel says. Winning customers in the application management market, though, will be a challenge for Mercury.

"The service/application performance management arena is much more fierce because every management vendor on the planet wants a piece of that market," Noel says. "To add fuel to the fire, distributed performance-monitoring features are becoming a necessary part of application testing, and that is Mercury's potential weakness."

Management heavyweight IBM also is an increasingly direct competitor in light of its purchase of Rational and its application life-cycle management tools and amidst speculation Big Blue will look for ways to integrate those tools with its Tivoli management offerings. Yet Mercury's approach differs a bit from the established management players.

"Mercury has one advantage in that it already approaches management from a top-down approach," says Theresa Lanowitz, a research director at Gartner. That means Mercury focuses on optimizing application code and performance, and relating that to business objectives - rather than monitoring the underlying infrastructure. Mercury says it intends to leave deep-dive network and infrastructure monitoring to CA, HP and IBM Tivoli.

Another differentiator for Mercury is that its software is agentless, meaning its software doesn't need to be distributed across every managed system. Although Mercury is not the only company offering agentless monitoring, a majority of management products require multiple agents be configured and distributed, a time-consuming process for network managers.