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Borland's squeeze play

New CEO Scott Arnold tries to navigate the company between industry heavyweights and an assault from open-source products.

What's it like to have open-source products cut the legs from beneath one area of business while facing powerhouses IBM and Microsoft in another? Ask Scott Arnold.

The new CEO of Borland Software is trying to mount a comeback, one of many the company has had to stage over years of ups and downs.

Arnold took over the Scotts Valley, Calif.-based company in July from Dale Fuller, who left after eight years and the announcement of poor second-quarter performance. Arnold faces the challenge of generating revenue growth from Borland's application development suite as well as responding to calls for a company breakup from noisy shareholder Robert Coates.

CNET spoke to Arnold recently about the latest twists on Borland's strategy and the competitive environment.

Q: People talk about how open source "commoditizes" certain product categories. And you've said your JBuilder Java IDE (integrated development environment) has seen a marked drop-off in sales. What's your response to Eclipse (the open-source IDE framework)?
Arnold: We're embracing and building on top of it. One of the things we're seeing is that the traditional product category called the IDE is disappearing. The notion of a developer working separately from a team is much less compelling than it used to be. The IDE as a part of a broader developer role in our ALM (application lifecycle management) suite is still a very compelling opportunity for us as we think about adding on top of things that are available in Eclipse.

Does growing interest in simpler tools, often available cheaply, pose a problem for your ALM strategy where you're selling a suite of tools suited for a more structured development process?
Arnold: The real problem is not getting cheap and cheerful functionality for one particular role on the team. It's really making the team work together as a team and deliver a great outcome. Part of the core value-add we aspire to is making open source and Borland-provided pieces work well together so the team (has) a good output.

As the new CEO, how do you want to modify the current Borland strategy?
Arnold: A lot of people have tried to build the next new whizbang technology. We're taking a fresher approach of marrying improvements in the software development process with technology--leveraging that and really looking at the system much more holistically, as you would with any other part of your business.

Borland has the pieces as well as anyone else and the capabilities at least as well as anyone else. And what we have to do is execute against that--and that's where we've had the transition.

You already have the suite of ALM tools that addresses everything from getting requirements, modeling, coding and testing. But what you seem to be talking about is more high-touch consulting. Is that where you want to go?
Arnold: The ALM tools are absolutely the core of it. What we're adding to that--which was born of the acquisition of TeraQuest Metrics earlier this year--is a way to engage with customers in a much more holistic fashion. In the past, we were coming across as pushing technology on them.

We now have a whole different level of discussion with these folks. It's still about selling the software from a financial perspective but approaching the problem more from a holistic and business-oriented way than we have in the past.

Do you have the consulting skills to advise customers on good development processes?
Arnold: Some of it is more consulting. A lot of it is just a different way of engaging customers at the front end of the sales cycle. We have a larger number of SEI (Software Engineering Institute) assessors--software process doctors, if you will--than any organization.

Two people in particular who came from TeraQuest--Bill Curtis and Charlie Weber--they are the guys that wrote the book on CMMI (Capability Maturity Model Integration) process. So we can give a diagnostic on a company's software development processes. The dirty little secret here is that everyone knows that (the average company is) pretty bad at software (development).

Sounds like what IBM might say they could deliver with their consultants.
Arnold: We've resigned ourselves to the fact that we're competing with IBM directly. Whenever we go into a situation that's an IBM Global Services account with a ton of WebSphere and other IBM infrastructure and they're a Rational tools shop, we shake the dust off our shoes and move on to the next customer. While they are big, they don't have everyone. The second thing is, everyone who doesn't like IBM is our friend. Think about all the global systems integrators--they have a vested interest in seeing us be successful because they don't want IBM to rule the world.

What about Microsoft? Are they an ally or competitor in this strategy?
Arnold: They are primarily an ally but also a competitor in one sense. Part of what neither Microsoft nor IBM can or will do is that we go across both .Net and Java. We can span across those domains. And most customers do not have just Java or just .Net. Increasingly we're seeing data and hearing customers saying at least 30 percent of projects involve Java and .Net in the same project. Microsoft can't even say the "J" word, certainly won't say it in public. What we can do working with them is provide that kind of linkage for .Net.

Yet Microsoft is clearly interested in the ALM market as well. Can you keep it symbiotic without getting pushed to the side in any particular area?
Arnold: The evidence so far is that we have delivered. (We demonstrated) "together modeling" on (Microsoft's) Visual Studio, and a version of Caliber requirements gathering product on (Microsoft's forthcoming collaborative development suite) Team System. In both cases, Microsoft has welcomed us with open arms. With our Delphi installed base, we have a huge chunk of Win32 developers we're helping to move ahead on .Net. There are a lot of reasons for Microsoft to see us an ally, and I think it would be our intent to keep it that way.

Can you address the calls from shareholder Robert Coates to break up the company, which he says will improve shareholder value?
Arnold: I'd love to see the details of whatever plan he has. As you'd expect, we've looked at a lot of things as part of normal strategic process. And we've concluded there are important synergies between the relationships between our developer (products) and our ALM suite. And we have unique capability that makes the ALM stronger and better.

On the specific part of our deployment, or middleware, products--as we think about what gets in the way of building and deploying software--a chunk of the gap is between the application team who doesn't know what kind of environment they're deploying into it. (The) handoff isn't working very well. Part of the reason we think it makes sense to have those products (is because) with the benefit of the run-time experience, we know a little bit of what it takes to take applications from development to operations.

We have some products we have developed, and (we) continue to look at developing (more) that address the apps-to-ops gap. It's not a huge focus, but it's not obvious why it's so compelling to "break this up."

I think it's very easy to stand on the side and say you should break something up, without really understanding the details of how things are linked together.

Has selling off pieces of the product line been a consideration in the past?
Arnold: We think about portfolio issues all the time. It's a normal course of doing business if you're running the company properly. In my opinion, it's much ado about not much. There's been no specific plan delivered by Mr. Coates or anyone else. And frankly, not a lot of new content or new thinking involved in what they've said publicly.

Some people argue that with industry consolidation, the big will get bigger, which perhaps shuts out midsize companies. What do you think?
Arnold: I can tell you there are a bunch of examples where we've gone head-to-head against IBM and we've beaten them. And in one case, which was one of our largest ALM deals ever, we beat them when they were free. So there's something about really thinking about these things holistically, about a process plus technology message that is really compelling to some of the largest, most notable, name-brand customers on the planet. So we're getting something right.

In terms of the broader question, we believe we're clearly over the bar in terms of being big enough to be sustainable. There are a bunch of smaller competitors still offering point products in the ALM space that've got to be having a tough time of it.

Historically, you've been known as an IDE company. How difficult has the transition to the suite strategy been culturally?
Arnold: Piece of cake. People change very easily. (Laughs). Of course it's hard--people build a lot of identity in the success of a specific product line. And we've spent a lot of time talking to them--it's not unlike the railways which forget they're in the transportation business. There's a huge set of problems that have yet to be solved.

One of things we're spending a bunch of time on is (working) on how we can rev up the innovation engine. It's not about putting another blue knob or red level on JBuilder. It's conceiving the role of the individual developer as part of the team.

Given the disruption, what are you focusing on?
Arnold: First and foremost ALM is our growth engine, and we're focused on driving ALM revenue. Second is we are really trying to step up efforts in measuring our own success in how we make customers successful.

Third, the company over the last couple of years has undergone a huge amount of change. We've had a huge influx from different companies. We've got a bit of a melting pot right now of approaches and ideas. We've got to...combine those with the traditional Borland culture of technical excellence (and customer focus) and meld that into a new Borland culture.