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BEA's billion-dollar bet

With the easy days a fading memory, CEO Alfred Chuang is counting on cutting-edge technology to stay ahead of rivals big and small. Can he pull it off?

All eyes were on Alfred Chuang at BEA Systems' eWorld user conference in Orlando, Fla., earlier this month.

As CEO of the Java business software maker, Chuang is shepherding his company through a crucial transition from a supplier of application servers such as its flagship WebLogic product to becoming an all-purpose provider of software infrastructure.

The journey is not likely to be easy. As BEA tries to grow by broadening its product portfolio, the company faces stiff competition from rivals like IBM and Oracle as well as from other established integration software firms. All the while, open-source application servers such as JBoss and Tomcat are becoming increasingly popular.

BEA's bet lies in large part on its plan to simplify Java programming and to marry application development with application integration. Chuang, who was BEA's first developer, knows how important developer loyalty is to the company's success.

"I may be a CEO, but I'm really one of you," Chuang told the crowd of developers at eWorld. "I know what you go through."

A few days before taking the stage at eWorld, Chuang spoke to CNET News.com about the company's technology, direction and competition.

Q: Analysts have pointed out a certain amount of risk in your strategy and that has created some nervousness or uneasiness about BEA. What's your response?
A: I think, generally, people are obviously uneasy. We have a looming war coming. The stock market is extremely jittery. I don't think it's BEA, but I think the market is significantly more volatile than BEA is right now. There was a report that a General Electric division was using JBoss instead of WebLogic and that sent your stock down. How do you think open-source application servers affect BEA?
Believe it or not, I'm actually a big proponent for open-source application servers because I think it's critical that we have multiple angles pushing proliferation in the marketplace. I think open-source application servers will help proliferate and educate people on what a J2EE (Java 2 Enterprise Edition) standard really is and where it's heading.

However, we have to be pragmatic. I saw a report coming out from one of our financial analysts that shows there are millions of downloads of JBoss. And obviously everybody knows there are many, many millions of downloads of WebLogic to the point that it becomes irrelevant for us to really publish those numbers any more--people believe those. But (JBoss) has only 75 paid customers for support. BEA has 14,000 paid customers for support. So I think it may well be premature for what we're seeing where people (are) hinting at erosion of open source getting into our space.

Believe it or not, I'm actually a big proponent for open-source application servers.
What does that suggest about the impact of open source?
Our customers look at the cost of buying our technology as buying peace of mind. That's something you can't achieve if you have many participants, who come in and out and disappear when coding the thing. There's no guarantee how well it's going to be integrated.

Look at Linux (an open-source operating system), for example. Linux is seeing tremendous success in the marketplace now. But it took the industry 32 years since the inception of Unix to get to where we finally have an open-source technology, to the point where it is really trying to fulfill the promise of how Unix got started. Linux is bringing (Unix) back to basics.

And secondly: People are not programming directly on Linux. Nobody is using the operating system APIs (application programming interfaces) to develop application code anymore. There's a tremendous amount of shielding away from the operating system, hence allowing a list of vendors that provide core Linux support and let the customer have a very contained environment to deploy this kind of technology. And in the application server world, where people are programming directly to it, the risk is just too high.

How will all this affect BEA?
You have to separate what market space these technologies are trying to address. We are in mission-critical applications. True enterprise. Open source is really trying to help proliferation. And I think both are needed and we'll do whatever will help to make that success. But I think people are absolutely overreacting?It's like somebody who decided in the middle of the night to build a better car than BMW. They build a car and can replicate three more of them and (say), `I'm going to kill BMW tomorrow.' It's not possible.

What would you tell financial analysts who say that BEA needs to diversify?
I think we have done a very good job of diversifying. If you look at our last quarter, we generated $20 million in license revenue for an integration product that has been shipping for only two and a half quarters. That shows substantial strength. That business alone, if you add services to it, is bigger than most public software companies in the marketplace.

The majority of developers in the enterprise are still using some very dated stuff like assembly languages on old mainframes and Cobol.
I'll contend that the diversification in our product line is substantially more successful than Microsoft's. By and large, its revenue is generated from Windows and Office, and it has many product lines that are not making money. Our products are actually making money.

BEA has emphasized business integration. But since other companies bundle integration brokers into their application servers like Oracle or IBM. What is that you want to do differently?
They are all a hodgepodge of stuff that people have either bought or were created at a different time for a different era of applications. Look at what IBM has. It has CrossWorlds, which it bought. And I don't know how many--four or five--integration solutions it has built or bought at different times. So it is trying to support a variety of legacy integration technologies.

The goal of the WebLogic Workshop (programming tool) when you introduced it last year was to appeal to the Visual Basic-type developer skill level--not really the hard-core system-level person. Have you met that goal on a technical level?
It has certainly hit the mark better than anything I've seen in the marketplace. I am strongly encouraged by that. But we also have to look at the reality where the majority of developers in the enterprise are still using some very dated stuff like assembly languages on old mainframes and Cobol; these are things that we thought would die a long time ago but are still alive and kicking.

That's why I'm so excited about where the world is going. The actual mass deployment and adoption of distributing enterprise computing is in front of us.

What's your long-term vision for the company?
For the next two or three years, our focus will be very much on making continuous enhancements and filling out the stack that we have.

And longer term?
Longer term (we will be) helping people build horizontal building blocks for applications and assisting in dramatically accelerating hardware performances for software, resiliency and auditing capability. It's a continuous enhancement to a point where an end user can compose applications on the fly. That's ultimately where enterprise applications are going.