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Emphasis of Java Fund firms changes

Market shifts and technological hurdles are forcing companies in the Java Fund to change the focus of their products.

The tide has changed for venture capital giant Kleiner Perkins Caufield & Byers and its Java Fund.

In the nearly three years since Kleiner Perkins formed its Java Fund to back emerging Java development companies, markets have shifted and technology has changed. These shifts have led to changes in the products of the companies backed by the fund.

Most of the companies funded originally specialized in client-side Java applications, which have rapidly lost support in the development community. In the meantime, server-side Java applications have been winning increasing praise and endorsements, forcing many of the fund participants to rethink their product strategies.

The $100 million Java Fund was formed in 1996 to buttress start-up Java companies that could help develop a market for the new technology. Java, and its ability to work on any platform, was considered the perfect stone and slingshot to bring down software titan Microsoft and its ubiquitous Windows operating system.

Besides Java's creator Sun Microsystems, the fund also received financial backing from Microsoft's most vocal opponents, including Netscape Communications, Oracle, and IBM.

Despite the scales tipping from client-side to server-side Java, Kleiner Perkins is not about to back away from client-side firms in its Java Fund.

"I have plenty of companies that use client-side Java quite successfully, and I have a lot of companies that don't use it if they don't need use it," said the fund's manager Ted Schlein. "It depends on the application, and it depends on what you need to do." Many of the 18 firms in the fund use a mixture of client- and server-side technology, he said.

Four of the 18 firms have had bang-up initial public offerings, including Internet Security Systems, Intraware, Healtheon, and Marimba. These companies all at least did the obligatory doubling on the first day of trading now commonly associated with Internet IPOs. As of yesterday's closing prices, the four companies have a combined market capitalization of more than $5 billion.

Kleiner Perkins has hopes that other companies in the fund will catch a ride the Internet IPO jet.

More IPOs coming
Net consulting firm Viant is now taxing on the runway after filing for an IPO in April. Schlein also noted that two other Java Fund firms will go the IPO route by year's end, but declined to name them.

The fund also got a boost last October when IBM acquired the Web content assembly tool Build-It from Wallop Software for an undisclosed amount.

But Schlein admits that the fund's stellar performers weren't necessarily banking on client-side Java. For instance, Healtheon has emphasized Java server code, and Marimba has migrated to software distribution systems not dependent on Java.

Netiva Software, another fund-backed company, radically revised its business strategy and went so far as to change its name last year to Portera. Formerly a Java tools maker, Portera is now forging ahead with plans to deliver "business portals" for mobile users in mid-sized companies.

In defense of shifting strategies at the fund's companies, Schlein said: "A hundred percent of venture-backed companies in the industry that have ever existed have changed their focus in one way or another. Suffice it to say that a good number of Java Fund companies have as well."

Still, many analysts note that client-side applications have mostly been lemons in the Java world.

"The primary growth in the Java market has really been on the server side," said Uttam Narsu, an analyst for research firm Giga Information Group. "Java server pages as well as application servers based on Java have been fairly successful and are starting to see deployment in the enterprise."

Client-side problems
Analysts blame the near-demise of client-side applications to their hobbling pace over most Internet connections.

"There were significant problems associated in putting Java in a browser because you were never sure it would be able to run," said Anne Thomas, an analyst at research firm the Patricia Seybold Group. "The real issue associated with using Java in a browser is that it takes a long time to download it."

Analysts also note that the emergence of Enterprise Java Beans, which enables development of standard componentized applications, and Java HotSpot technology, which can drastically accelerate application performance, is likely to make server-side Java programs more practical and widespread.

"[Enterprise Java Beans] solves a lot of problems from when you didn't have good technology to depend on and you had to depend on several different vendors without any standards in place," said Narsu. "When they put the second round of optimization in place, the server-side will see even more improvements."

Schlein is hopeful that Java's HotSpot will also give client-side a boost, though most analysts disagree.

"I actually have to live in the trenches with these companies that have to focus on solving real customer problems and some of those problems require Java client code," Schlein said.

He noted that Extensity, which develops Web-based enterprise applications that manage a company's operating costs, relies almost exclusively client-side Java. But again, Schlein said the company is in the process of working on a system where more stress will be put on the server-side.

The ability to roll with the punches is vital for startups in the fast-paced, and rapidly changing technology landscape, Schlein said.

Schlein concluded: "That's why you pick a great management team. One that can adapt and change with the marketplace."