by Dennis Byron on January 17, 2008
Oracle-BEA. Sun-MySQL. Now that the enthusiastic financial-analyst briefings and press conferences have been held (well at least the Sun-MySQL was enthusiastic) and now that we’ve had time to crunch the numbers, let’s look at the details. Who wins and who loses in terms of competitors, partners, investors and users.
I analyze the two deals in two separate blog posts in order to pick up some separate issues such as the depressing effect of the Sun-MySQL deal on open source software (OSS) pureplay valuation and the depressing effect of the Oracle-BEA deal on WebLogic and AquaLogic revenues for the rest of 2008 (and maybe forever).
Oracle-BEA is discussed below. But there is one major interconnecting theme in the two deals: For users and investors the independent middleware market as we know it is going away.
BEA pretty much launched the independent middleware market as a separate entity in 1995 by acquiring several Bell Labs/Novell TUXEDO-based distributors, IMC and ITI. To be completely accurate, investors still have a few choices. TIBCO (TIBX) is left because Reuters spit it out a few years ago. And Iona (IONA)–which predated BEA–and Cape Clear are still standing presumably totally because of Irish hardheadedness. In addition, IBM (IBM) and Oracle have succeeded in changing the definition of middleware such that some might argue that Attunity (ATTU) and SAS Institute make middleware.
When I say middleware, I mean run-time code that’s really in the middle of something. And when I say independent I mean “pure play,” software suppliers not selling other types of information technology.
So what does this sea change mean for the users? In the 1990s, users did not buy from pure plays because they were pure but because they offered a choice other than–at the time–depending on the middleware built into application suites such as SAP R/3, built into their relational database, or spit out as a by product of their mostly systems-supplier-centric development tools. The bottom line for the user community now, as I have been modeling for years, is that because of the end of the independent middleware market each enterprise has to choose whether to get in bed with an application suppliers’ middleware—SAP’s NetWeaver or Oracle’s Fusion—or an infrastruture suppliers’ middleware. (The above paragraph summarizes extensive portions of a Research 2.0 client deliverable, so if you want to dig deeper, give us a call.)
Larry Ellison explained in his conference-call script how Oracle fits in both camps because of his commitment to open standards but that is not the same as open source. And therefore the Oracle approach does not really represent independent choice for the user.
Partners such as smaller ISVs that used BEA middleware in their products and even much larger companies than BEA that use BEA middleware in their services offerings face the same more limited middleware choice as users.
For investors, the independent middleware market was a great leading indicator of the overall IT market. This acquisition makes the challenge easier or harder depending on your investment-research technique. Do you try to understand the upstream/downstream aspects of the market when you are investing in auto makers? If so, your life just got harder because there is no more equivalent of Behr, Dana (DCNAQ), Delphi (DPHIQ), Eaton (ETN), Honeywell/Bendix (HON), Magna (MGA), Modine (MOD), Tower (TWRAQ), ZF and so forth in the IT market. But if you just bet on an auto maker because you like the looks of the latest coupe, and an IT supplier because the user interface looks cool, you’re all set.
The most important short term investment aspect of the deal is that it will probably kill BEA license sales until the deal is signed, sealed and delivered in about 6 months. I think the two companies recognize this, accounting for the difference between the $21 asking price and the $19.375 final bid. And the two companies will probably make every effort to prevent it from happening (but I’m not sure of that given the coldness of the joint conference call).
As for competitors, well, as I said above, there are none left– Dennis Byron
Tags: open source software, OSS, middleware, Sun, Oracle, BEA
by Kris_Tuttle on September 11, 2007
There will be a slew of updates and commentary on the BEA World announcements today and tomorrow after the financial analysts are briefed and put out their obligatory notes.
So to save the reading we’d say this:
It’s all fine. More of the same. Similar to an IBM. Problem is the SOA/SaaS space is being more granular and looking for simpler solutions. BEA is a good company with strong products but they are just too much big iron. We’ve said it for a year or more now but the big bang SOA stack is a non-starter in most places.
To their credit they have introduced the concept of their own microService Architecture (mSA) but it stands as a bit of a contradiction to the BEA SOA 360 degree platform. As far as just how granular it gets and how well it will operate with other systems remains to be seen in the implementation.
BEA may get a a boost from the virtualization opportunity which is part of what they are positioning for. It’s probably the best chance they have in the market right now and should be enough to keep them going.
At a minimum they probably can cut a better figure today next to IBM, Oracle or Microsoft versus where they were six months ago.
There were a few puzzlers in the mix including an alignment with Adobe on form processing and SOAAPPS with EnterConnect?!? Do we really have to clutter up the press releases with sponsor-injected junk?
Tags: BEA, BEAWorld 2007, SOA, SaaS, Software
by Kris_Tuttle on November 16, 2006
We haven’t covered BEA for many years but did follow them pretty closely during their ascendancy back in the 1999’s. Ironically their very success made them somewhat uninteresting to investors for a few years because they reached $1B in revenues so fast they were left with few meaningful growth prospects and had to work hard to replicate the same level of success each year.
Recently we just started to become a bit more interested in the company and started to look at them more closely again. They company just reported and the results disappointed most of the analysts who have been recommending the stock the last few quarters.
We’ve been out of the loop for some time so all the minutiae are lost on us. From our point of view the results and near-term guidance was pretty much inline with what we would have expected. BEA is a fairly large and complicated company with enough moving parts to defy easy analysis. A few million dollars either way should not make much of a difference.
During their call management talked about SOA moving out of the experimental phase and into mainstream enterprise deployments. We agree that SOA is au courant but disagree that this is a recent fact. We would observe that mainstream market adoption started a few quarters ago in our view and has probably been driving BEA results since then.
Claims about the business of SOA being driven by the business rather than I/T seem doubtful to us. BEA has fielded a BPM product that might be touching there but we have yet to look at it in detail.
Analysts are out today with downgrades citing a range of reasons including the point that BEA is losing market share to Oracle and IBM. We can’t refute the claim but we don’t believe it. BEA does have a challenge in that customers have limited resources and Oracle has forced many of them to allocate a significant portion to navigating the Fusion path to reach some converged application architecture. IBM, Oracle and BEA have all failed to attract new generations Web 2.0 technology developers into their fold.
They company spent quite a bit of time talking about their new generation products like SOA360 and Workspace360. They are also focused on creating fine-grained components of their functional products that sounds sensible. The idea of unifying endeavors of development in Eclipse, business process management and application management with OpenView is interesting but hard to visualize without more concrete information and code.
Management touted new technology (Guardian) that sounds very similar to the IBM autonomic computing initiative which as been around for quite some time with limited impact.
One emerging thing that is interesting is the increasing SOA and related software content in the network layers. BEA talked about some deals and has been working in the communication area for some time. Their micro service architecture is said to allow very small implementations of SOA to be driven all the way to the edges of intelligent networks.
So what’s for real in this network infrastructure area? Does it help explain why Oracle bought Portal Software? We know SIP is becoming real and creating new disruptive applications. Plenty of work is going on to drive 3G and IPTV application networks.
We believe software infrastructure that reaches out from behind a virtualized infrastructure behind the firewall to deliver service-enabled applications out to devices at the edge of the network will be a very promising place to be. We just can’t yet say that what BEA doing is going to really get them there.
So what is BEA worth? We took the time to punch some rough numbers into our long-term valuation model and came out to about where the stock is trading now, $14. We will publish the model later on but our assumptions included a 15% long-term growth rate, operating margins of 12-15%, a 30x earnings multiple and a 15% discount rate.
In conclusion we can see people got ahead of themselves on BEA, which seems like a company that only just now is hinting at some interesting things. Corporate portals and the Plumtree acquisition certainly did nothing for us. We have yet to delve into many of the newer products but our nature is skeptical. For us this is something that could be an interesting situation a few months from now depending on what the company does.
So we would advise people to focus on other things now and stay tuned for more informa-tion on BEA as we figure it out. Our best bet on the M&A side is that HP buys the company and puts Alfred in charge of their overall software business much as IBM has done with Steve Mills. (HP are you listening?)