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BEA at the crossroads

Facing competition from all directions, the Java server software heavyweight pins its long-term strategy on becoming an all-purpose infrastructure provider.

BEA Systems, facing one of its most challenging periods yet, will lay out its plan this week to gain market share in the multibillion-dollar business software market.
Read more about BEA's issues

At its annual customer conference in Orlando, Fla., the Java server software company will debut new products that are part of its strategy to tackle the markets for integration software and development tools. The strategy is a key part of BEA's plan to expand its product lineup and defend its core application server business from increasing competition.

The conference comes at a crucial time for BEA. The software maker clings to a slim lead over IBM in the application server market, according to market researcher Gartner. And open-source alternatives, made more attractive because of a prolonged squeeze on information technology budgets, are garnering increasing attention from developers and businesses.

"BEA is in a challenging position," said Bruce Richardson, an analyst at AMR Research, who recently met with the company's top executives. "They're surrounded by heavyweights, and everyone wants a piece of the business."

In its core Java infrastructure software business, BEA faces the deep pockets of IBM, which, like Sun Microsystems, can bundle in software at low margins as part of a package deal that also involves hardware and consulting. That puts BEA--which only sells software--at a tactical disadvantage.

BEA also faces price competition from Microsoft in the development tool market and a renewed middleware push from Oracle.

In the emerging area of integration software, BEA again faces entrenched competitors such as SeeBeyond, Tibco and WebMethods. Meanwhile, application powerhouses SAP and Siebel Systems are embedding software infrastructure--comparable to BEA's products--into their enterprise applications, Richardson noted.

"If everyone bundles the software infrastructure and gives it away, then it's like selling an operating system--who cares about that? It's invisible to me," Richardson said.

A larger concern among analysts is that BEA is hinging its strategy on new growth--with a limited product lineup--in a persistently tight IT spending environment. That's caused some nervousness about the company's long-term prospects, according to some analysts.

Weathering the storm
BEA Chief Executive Alfred Chuang downplayed concerns about the future and said the company is weathering the storm quite well. BEA's recent financial performance backs up his claim. For the past three quarters, BEA has met or exceeded its financial forecasts, and it tripled its profit in the most recent quarter.

"Look at our performance in the year. We are standing on our own, competing with anyone in the marketplace," Chuang said. "I don't think there is any one competitor out there that particularly concerns us."

Chuang said the company's plan to diversify its product set also is working. He points to $20 million in sales of its integration software product that it launched two years ago.

"The most important thing for us is to grow market share, which we believe we are doing," he said.

And that's the logic behind BEA's plan to expand its product set beyond its flagship WebLogic Java server software, which businesses use to build and implement customized applications. This week, the company will launch a test version of WebLogic Platform 8.1, formerly code-named Gibraltar, an upgrade to its server software suite that it will finish around the middle of the year.

In the past two years, BEA has added a corporate portal, specialized integration software, data access tools, and a set of programming applications--all of which will be enhanced in WebLogic Platform 8.1.

BEA competitors such as IBM, Oracle and Sun have adopted a similar approach to software infrastructure.

That's why it's crucial for BEA to generate revenue beyond its traditional application server stronghold, analysts said. To do that, the company needs to convince existing customers to spend more money.

An overhaul of BEA's integration software, code-named Vienna and set to debut midyear, could help. Demand for software integration remains high because integration is a perennial headache for information technology managers.

John Hitchcock, vice president of marketing and alliances for consulting firm eForce, said BEA is successfully selling its portal and integration broker to customers that already have the WebLogic application server.

Customers "seem to be making bets long-term with vendors that have an integrated, multi-product strategy a la BEA and IBM," said Hitchcock, who also works with IBM, Oracle and Sun. "From that perspective, (BEA's) WebLogic Portal and Integration with the enterprise platform underneath seems to be very attractive to our global 1000 clients."

A marketing battle
BEA's interlocking product line compelled Virgin Mobile USA to pick BEA over IBM for the software infrastructure that underpins Virgin Mobile's Web site.

"We thought (BEA's) WebLogic was more of a product than a marketing construct" versus IBM, said Mike Parks, chief information officer of Virgin Mobile USA.

"When IBM came to a meeting, they'd have five or six people representing the different components or (previous company) acquisitions. We thought (IBM's WebSphere) would be (the) more complex application to implement," Parks said.

IBM is working to remedy that problem, executives said. On Monday, IBM will announce an upgrade to its WebSphere Business Integration line that consolidates its portfolio of integration products, which has been compiled from IBM acquisitions and internal development, said Paraic Sweeney, vice president of marketing for WebSphere Business Integration.

"We're ready to do business--it's shipping in the month of March," Sweeney said. BEA "is trying to play catch-up to our definition of what a middleware platform infrastructure is."

Parks said he is not concerned about BEA's long-term viability because the technology is very strong, although he is monitoring how well the company improves its Java-based programming applications and tools to monitor WebLogic servers.

BEA will address the tools area this week. The company is expected to lay out its vision for combining development and application integration within its WebLogic Workshop programming application, which was introduced last year.

With WebLogic Workshop 8.1, BEA intends to make it easier for programmers to create Java applications that exploit the different WebLogic components, including the portal and integration software, said Byron Sebastian, vice president for WebLogic Portal and WebLogic Workshop.

Workshop uses common tooling across BEA's server products, which cuts down on training needs and thus the cost and time needed to build applications, Sebastian said.

John Rymer, an analyst at Giga Information Group, said BEA has excellent prospects with its new products. Rymer said BEA could do more to quell some of the nervousness around the company by being more open about its long-term vision. He said that over the past several months some BEA customers have expressed jitters over BEA's long-term viability. This week's conference is one step in that direction, he said.

AMR's Richardson said BEA should focus on getting the attention of potential customers and countering any new moves from competitors.

"Their biggest short-term challenge is to pump up the volume on the marketing, rather than take body shots from the infrastructure and hardware guys," Richardson said. "The whole world is watching."