The New Mr. Bill Show
In another lifetime, Bill Coleman probably worked for UPS. Just like the dependable guy in the brown hat, BEA Systems CEO always seems to deliver the goodsespecially to his shareholders.
With Coleman behind the wheel, BEA has generated record revenue for 20 consecutive quarters. The companys flagship software packages, Tuxedo and WebLogic, drive thousands of e-commerce systems throughout the world. Proponents think BEA could be the software industrys next giant. Skeptical? BEAs annual revenue is nearing $1 billion, up from $61.6 million in 1996.
"The word about BEA has gotten out to CIOs," says Guy Kurtz, director of alliances at Tanning Technologies, one of BEAs integration partners. "We often participate in a project after a CIO has made the decision to go with BEA."
Other integrators are sitting up and taking notice. From Computer Sciences Corp. (CSC) to iXL, dozens of consulting outfits want to ride shotgun with BEA.
Dangerous Curves But dont expect Coleman to take his foot off the gas. Rival software from IBM, Oracle and Sun loom large in BEAs rear-view mirror. And just down the road, BEA will need to win over a few lingering skeptics.
The challenges begin Feb. 22, when BEA is slated to announce Q4 financial results. Anything less than another record performance could force BEA into the service lane. Coleman will face a second hairpin curve on Feb. 25, when BEA hosts its sixth-annual user conference in Dallas.
Hit the Road During the show, critics say, BEA needs to clearly articulate why partners should remain loyal amid heightened competition. Most notably, IBMs WebSphere is winning converts, and iPlanetSuns joint software initiative with AOL and Netscapeappears to be gaining traction with customers.
"IPlanet recognizes that the Fortune 500 isnt going to fuel sales forever," says Michael Mogavero, VP of corporate alliances at Data Systems Worldwide Inc., an integrator in San Jose, Calif. "Theyre changing pricing to directly compete with BEA."
Coleman has been down this road before. Microsoft, for one, has bundled a free Web server and basic transaction-processing software with Windows NT for several years. But the NT bundles have yet to slow BEAs momentum.
Still, BEA knows it needs savvy partners to stay ahead of the competition. Enter Rauline Ochs and Rich Farber. Ochs, an IBM veteran, joined BEA in July, as VP of worldwide alliances. Farber arrived in August, as VP of partner programs. Sources say BEA also retained McKinsey & Co. to help the company polish its alliance strategy.
BEAs partners are attuned to the changes. "They hired the right people," says Lorin Coles, VP of alliances at iXL. "Im a pretty tough judge, but BEA really gets it."
Coles should know. Two weeks ago, he sat down with BEAs alliance team to review the companies relationship. The scorecard from that meeting is quite impressive. IXL has influenced 20-plus BEA deals over the last few months. And nine of iXLs 10 offices can deliver BEA solutions to market, says Randy Long, an iXL portfolio alliance manager.
IXL certainly doesnt have the BEA market to itself. In August, BEA vowed to line up 27 global allies and to train 4,000 consultants on WebLogic and/or Tuxedo. Sources say 23 of the 27 global alliances are signed, and nearly 2,000 consultants are now up to speed on BEAs software.
During the upcoming user conference in Dallas, more than 110 partners are expected to demonstrate applications based on WebLogic and Tuxedo. BEA also will announce alliances with a Big Five consulting company and a major independent software developer (ISV) at the event, sources say. "Lining up more ISVs for our software is a major thrust for us," says BEAs Farber.
Meanwhile, BEA has overhauled its internal compensation plan. BEAs direct-sales force now receives higher commissions for deals that involve outside partners. "Even if we created the best partner program in the world, it wont be worth much if we dont have harmony with our own sales team," says Farber.
Ironically, BEA has to be careful not to overdose on partners. The company now has 1,200 allies, and roughly 250 new partners are coming on board each quarter. Some allies are concerned that their consulting fees will fall rapidly, as WebLogic experts flood the market. "I saw it happen with Microsofts SQL Server, and I think it will happen with WebLogic," says one BEA partner. "If BEA doesnt start trimming some of its weaker partners, I may have to move up the food chain again."
Too many partners? BEA didnt have such problems in its early years. But even at the start, BEA had a knack for spottingand exploitingshifts in the software market.
Start Me Up BEAs rise to power can be traced back to another companys breakdown. Flash back to the summer of 1995: Braveheart ruled the box office, Netscape was readying its IPO, and Microsoft was putting the finishing touches on Windows 95a make-or-break desktop upgrade for the entire PC industry.
Even Novell wanted a piece of the Windows 95 action. At the time, the server king was pushing onto the desktop through its WordPerfect division. But the initiative stalled Novells lucrative server business. The near casualties included Tuxedo, a neglected stepchild that Novell adopted when it purchased Unix Systems Labs from AT&T in 1994.
Tuxedo is a complicated but powerful transaction processor that guarantees data integrity across financial systems and other mission-critical applications. E*Trade, for one, uses Tuxedo to process more than 25,000 e-commerce transactions per day.
Novell never quite knew how to sell Tuxedo, but BEA Systemsa startup at the timecertainly did. Instead of gambling on Windows 95, BEAs Coleman bet that the Internet soon would eclipse Microsoft at the center of the computing universe. Tuxedo, Coleman believed, could become the default transaction processor for electronic commerce. BEA snapped up Tuxedos two leading distributors in 1995 and purchased Tuxedo outright from Novell in 1996 for about $90 million.
By 1998, BEA had built a mature network of Tuxedo resellersincluding big names like Hewlett-Packard, IBM and Unisys. As BEAs annual sales surpassed the $50 million mark, BEA pushed aggressively into new markets, licensing Suns Java in March 1998 and buying WebLogic in September 1998.
Today, those deals look clairvoyant. Sales of app servers like WebLogic are expected to skyrocket to $9 billion in 2003, up from $1.64 billion in 2000, predicts Giga Information Group.
Yellow Flag? Still, its unclear whether BEA can stay in the passing lane during the current economic slowdown. Many enterprise software companiesfrom PeopleSoft to Siebel Systemscontinue to generate strong sales. But even PeopleSoft CEO Craig Conway says no software company is immune to a recession.
BEAs outlook for 2001 wont be fully known until later this week, when the company discloses Q4 financial results on Feb. 22. Financial forecasts are a tricky business, but anecdotal evidence points to another solid quarter. CEO Coleman didnt raise any red flags last week when he took the podium at a Goldman Sachs conference in Palm Springs, Calif. BEA co-founder, president and COO Alfred Chuang delivered a similar speech at a Robertson Stephens event in San Francisco on Feb. 15. BEAs stock rose $8, or about 16 percent, after the two events.
Money Men Wall Street appears to be upbeat. Two major investment firmsDain Rauscher Wessels and U.S. Bancorp Piper Jaffrayrecently issued positive research notes on BEA. Asserts U.S. Bancorp analyst Mike Marzolf: "We believe that BEA is the clear leader in the e-infrastructure market, with incredible momentum specifically in the application server market."
Many of BEAs integration partners agree. Dozens of companies have lined up to service and support WebLogic and Tuxedo. BEAs goal is to blanket the market with repeatable vertical-market solutions. Accenture, for instance, wrote an EasyTax program that runs on WebLogic. Multiple Accenture customers now use components from that system.
Meanwhile, CSC recently vowed to market BEAs software throughout the world. The agreement is BEAs first strategic alliance with a global outsourcing firm.
Smaller integrators like Tanning have partnered with BEA for several years. Tanning senior VP Bipin Agarwal, for one, is a Tuxedo guru. He designed a transaction-processing system for 20 large mutual-fund companies in Canada. The application, based on Oracle software and Tuxedo, won the Canadian Information Productivity Award for best use of technology in 1995.
Today, BEA and Tanning are forging even closer ties. More than a dozen Tanning employees recently completed training courses on WebLogic. Tannings Kurtz recently visited BEAs Top Gun sales conference and is heading to BEAs user conference in Dallas next week, he says. More than 3,500 customers and allies are expected to attend the event.
The user conference provides a critical stage for BEA to win over skeptical partners like Data Systems Worldwide (DSW; www.dsw.net). Despite BEAs recent alliance efforts, DSW claims that BEA sometimes doesnt give its resellers proper credit for the deals they influence.
"BEA spent much of last year lining up Web integrators as partners," says DSWs Mogavero. "That doesnt describe us. We came out of the reseller space. Id say we have a lukewarm relationship with BEA. We tend to push iPlanet and Oracle Application Server instead. "
DSW isnt alone. Several other former BEA partners are now lining up behind IBMs WebSphere. The biggest group of converts are DB2 veterans pushing into the e-commerce space. "IBM will be on top a lot longer than BEA," asserts one Big Blue partner.
Not if BEAs Coleman can help it. Look for him to make several special deliveries over the next week. Care to hitch a ride?