BEA World hints at trials ahead for Java vendor

Company now competes in a market becoming commoditized by open source

SANTA CLARA, Calif. - Times have changed for BEA Systems. Once the brash darling of the Java application server market, the software vendor put forward a more humble face at its annual BEA World show this week in Santa Clara, Calif.

Gone is the luxury of taking the top market-share spot in a lucrative market, the confident attitude of a company that knew it was on the right track and the bustling activity of customers and partners jockeying for a piece of the magic.

In its place is a perilous second-place slot in a market that is becoming increasingly commoditized by open source, an opening-day keynote by a chief executive officer (CEO) who encouraged customers to place BEA software alongside competing products the company once spurned, and a handful of partners -- primarily emerging software vendors -- touting their wares on a trade show floor that was about half the size it was during the height of BEA's success.

Far from being the leader it was, BEA is now in the humble position of reinventing itself as it plays also-ran to much larger companies in a market it pioneered.

"Between a rock and a hard place," is how Dana Gardner, principal analyst for Interarbor Solutions LLC, described BEA's current predicament. While the company continues to have strong technology and a loyal install base, it's unlikely BEA will ever recover completely from losing its prominent position in the Java application server market to larger companies like IBM and Oracle.

Also posing a problem for BEA is the increasing adoption of open-source software, notably from JBoss, to do the job of BEA WebLogic Server, which remains the primary source of revenues for BEA.

Ironically, the biggest Java announcement on BEA World's first day had nothing to do with BEA itself. On Tuesday BEA rivals JBoss and Microsoft surprised the industry by announcing a partnership to optimize their software to work better together.

What appeared to be a ploy to upstage BEA didn't dampen the San Jose, Calif.-based company's attempt at the conference to tout a strategy for making applications in IT systems "liquid" by using new software called Aqualogic. The company is developing this new product line to work with software that runs in a distributed fashion, called service-oriented architectures (SOAs) by BEA and others in the industry.

During a keynote Tuesday, BEA Chairman and CEO Alfred Chuang said that BEA's vision is to provide the SOA glue to enable all disparate applications and software to interoperate seamlessly in a single IT system.

"Enterprise IT is no longer a world of BEA or IBM, BEA or Microsoft, BEA or even Oracle," Chuang said. "Now more so than ever what you need and what you want -- and what BEA alone delivers -- is BEA and IBM, BEA and Microsoft, BEA and Oracle, BEA and everything else -- all those legacy applications sitting out there. ...Our job is to make enterprise computing fluid and simple."

A few years ago, the idea of BEA's CEO standing on stage in front of the company's constituency and promoting the use of chief rival IBM's software alongside BEA's would've been unthinkable. In today's market, though, the company has no choice, said Ron Schmelzer, senior analyst for research firm Zapthink LLC. "A big dose of reality set in," he said of BEA's change of tune.

Faced with dwindling market share and only minuscule gains in revenue growth, BEA had to find a way to differentiate itself, and its SOA strategy isn't a bad way to do it, Schmelzer said.

"I feel better about BEA now than I did a year and a half ago," he said. BEA's strategy was "SOA running on top of BEA [software]. They were counting on WebLogic being the center of the SOA universe. Now it's BEA running on top of SOA. They realize there is heterogeneity."

Complicating BEA's attempt to recast itself as the leader of the SOA-enablement software market is the fact that it doesn't have hardware or a host of other applications, such as ERP (enterprise resource planning), CRM (customer relationship management) or a database, to earn revenue to keep shareholders happy as it undergoes this shift. This is one reason BEA kept its license prices higher and has been unable to move to subscription-based or on-demand models for its software as readily as its competitors, who don't rely solely on infrastructure software for income, Gardner said.

That also makes it more challenging for BEA to compete, he said. "Customers want one throat to choke, and [they figure] we're going to have IBM, Oracle and SAP [in our system] anyway," Gardner said. "If I'm going to Oracle for the database and business applications and Oracle gives me middleware, too, I might as well go with them."

Still, BEA could use its position as the one neutral player in the Java-based software infrastructure market to its advantage as a differentiator, said Shawn Willett, principal analyst at Current Analysis Inc.

"They're not trying to sell you applications or a database -- that's their angle," he said. "There's nothing wrong with being a niche player if you have a profitable niche."

And even as it undergoes a challenging transition, BEA remains a visionary company with some of the most innovative technology in the software industry, analysts said. This alone means it could be saved from its plight by an acquisition, though some feel BEA is well past its prime for such a deal.

"BEA has some very valuable technology that will and should be of interest to other companies through partnership or acquisition," Gardner said. He suggested that a likely scenario would be that a larger company approaches BEA first "as a dance partner, and see what happens after a couple of drinks."

One very visible technology partner at BEA World was Intel Corp., a company that BEA took great pains to remind attendees was the top sponsor of the show.

Gardner said Intel's looming presence at the conference showed some marketing savvy on BEA's part, as it hinted to customers that instead of looking for cheaper options for their software infrastructure, they might consider saving money at the hardware level instead.

If BEA could convince enough customers this is the way to go, the vendor might buy enough time to get back on track and maintain if not the leadership it once had, at least a profitable business for the longer haul.

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