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Oracles $6.7 billion bid for BEA Systems on Oct. 12 leaves, at this early stage, more questions than answers.
Clearly, Oracles acquisition strategy—its bought 36 companies in the past two years—is to buy companies with a hefty customer base that add to its bottom line and expand its market share. And BEA, with its blue-chip client roster in key financial services and communications verticals, fits nicely into Oracles strategy.
But what does Oracles nod to BEA say about Oracles Fusion Middleware (and applications) strategy, given the fact that Oracle has pounded the middleware pulpit for the last two years, evangelizing the completeness of its suite?
Furthermore, Oracles Fusion Applications suite—which is supposed to bring together the Oracle E-Business Suite with “best of” functionality from Oracles other acquisitions, such as PeopleSoft, JD Edwards and Siebel Systems—is underpinned by Fusion Middleware.
With the acquisition of BEA, would Fusion Middleware remain the basis for Fusion apps? Rumors floating around the week of Oct. 8 suggest that Oracle will announce a major delay to Fusion Applications, currently expected in 2008, at its November OpenWorld conference in San Francisco.
Click here to read about whether BEAs rejection of Oracles initial buyout bid will prompt Oracle to up the ante.
Vinnie Mirchandani, founder of IT analysis firm Deal Architect, wrote in an Oct. 11 blog that he expects Oracle to acknowledge at OpenWorld that Fusion apps will be delayed through 2009 at the earliest, and that the projects technical lead, John Wookey, “may be a casualty as a result.” Others have suggested that Thomas Kurian, senior vice president of Fusion Middleware, will take Wookeys place. The rumor mill surrounding Fusion Applications will only pump out more data with BEA thrown in the mix.
There is also the question of BEAs response to Oracles bid. BEA, long rumored to be an acquisition target of Oracle, has made no bones about its fierce desire to remain independent. But with steadily declining stock prices and investor pressure to sell, BEA is ripe for acquisition.
Forrester analyst Ray Wang pointed out in an Oct. 12 blog post that Oracle should be ready for a fight. “Other vendors like SAP, IBM and HP [Hewlett-Packard] need BEA more than Oracle does,” Wang wrote. “SAPs NetWeaver is among the weakest of middleware platforms, despite [having] one of the strongest ecosystems.”
Oracle is bidding for BEA because “they want the customer set. BEA has telcos and financial services companies, and thats where the money is,” Wang wrote.
“IBM will be threatened by an Oracle dominance in middleware. HP could use this as an entry point to gain traction in the market. Oracles potential acquisition takes away the last remaining independent major middleware platform provider, leaving future competitors without a large install base and third-party player,” he wrote.
Furthermore, Wang said he believes BEA President and CEO Alfred Chuang “wants to keep the company independent.”
SAP, which announced its acquisition of Business Objects Oct. 7, essentially did an about-face of its strategy in order to grow organically and acquire smaller companies as “tuck-in” acquisitions to augment its own technology. The question is whether BEA could present yet another opportunity for reversal, given SAPs intense rivalry with Oracle.
Oracle has implemented a “Surround SAP” strategy designed to, well, surround SAP customers with Oracle technology. Those users that are SAP and BEA customers would now be in the direct sights of Oracles sales force.
Wang said theres even a “wild possibility” that a consortium of system integrators could pool resources to bolster BEAs independence. “[BEA] is the crown jewel in the market,” Wang said. “There are SIs that would want it to remain independent. … Customers chose BEA for a reason—they thought it was the best product out there for their needs. Ultimately, one of those customers could decide to buy BEA themselves and help support it or keep it independent.”
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Oracles Bid for BEA
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The big unknown in Oracles bid to acquire BEA is whether Oracle would fold BEAs middleware technology into Fusion Middleware, as there are huge overlaps in both companys offerings, or run it as a separate stack.
“The question is, which stays—Fusion or [BEAs AquaLogic middleware]? Because it doesnt make sense to have both,” Wang said.
Analysts have differing opinions. AMR Research analyst Bill Swanton said the real question is what Oracle would do with BEA from a technology perspective. “If you really looked at it, BEA is a stronger finished story with its SOA platform. They are further along than Oracle,” he said. “BEA has done far more major heavy transactions in the communications and finance industries than Oracle, and thats one way of looking at tapping into the customer base.”
In May, Swanton released a report titled “SOA and BPM for Enterprise: A Dose of Reality” that pits Oracles technology against BEAs (along with technology from IBM, SAP, Tibco and WebMethods).
What could convince BEA to accept an Oracle bid? Read more here.
In his research, Swanton found several areas where BEAs technology is stronger than Oracles, he said. “BEAs [services] registry and repository are much more complete. They have a better user interface, better Business Activity Monitoring and slightly better business process management technology,” he said.
Swanton pointed out that BEAs registry, repository, user interface, BAM and BPM technologies are all capabilities that could be directly applied to Fusion Middleware.
Joshua Greenbaum, principal of Enterprise Applications Consulting, said Oracle offers a broader integration platform than BEA. “[Fusion Middleware] comes with a tremendous amount of built-ins to the application stack that Oracle also owns,” he said.
Buyout rumors have been swirling around BEA Systems for months. Click here to read more.
While a tender offer from Oracle might not be good news to BEA officials, Greenbaum said he believes it will be better received by customers. “Theyve been hanging on to a company of dwindling importance and dwindling relevance for a long time,” Greenbaum said. “They will get the opportunity to get a really painless infusion of Oracle technology.”
Greenbaum said he believes that Oracles motives in acquiring BEA are essentially customer-driven rather than technology-driven. “This is about locking in these customers and essentially pulling the same kind of play as theyve done in the applications space—owning maintenance and eventually moving customers over to Oracle,” he said.
Oracle has indeed built up an applications business through acquisitions. In 2005 the company, in a belligerent takeover battle, acquired major ERP (enterprise resource planning) vendor PeopleSoft, which had itself just acquired another ERP vendor, JD Edwards, for over $10 billion.
While Oracle added substantially to its customer base with the PeopleSoft buy, it has continued to acquire applications companies, including Siebel Systems (for $5.85 billion) in 2006 and Agile (for $495 million) in May.
Where Oracle wins in the software deals is in its database-middleware-applications tie-in strategy—one that could work well with BEAs technology.
“The old one throat to choke perception is real here,” Greenbaum said, pointing out that middleware technology is becoming more a commodity and less a strategic advantage. “At this point no one needs to be using middleware because of some religious fervor,” he said.
Executive News Editor Michael Hickins contributed additional reporting to this story.
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