Oracle Finally Grabs Up BEA

| Jan 18, 2008 | Application Infrastructure | Competitive Intelligence Report

| Analyst: Brad Shimmin

Current Perspective: Positive
Vendor Importance: High
Market Impact: Very High

Event Summary

January 16, 2008 - Oracle Corporation and BEA Systems announced they have entered into a definitive agreement under which Oracle will acquire all outstanding shares of BEA for $19.375 per share in cash. The offer is valued at approximately $8.5 billion, or $7.2 billion net of BEA's cash on hand of $1.3 billion. The Board of Directors of BEA Systems has unanimously approved the transaction. It is anticipated to close by mid-2008, subject to BEA stockholder approval, certain regulatory approvals and customary closing conditions.

Analytical Summary

• Current Perspective: Positive on Oracle’s announced acquisition of BEA Systems. The build up to this transaction, which began in October, and the length of time required to consummate the acquisition will put Oracle’s investment at risk, stemming from BEA’s tentative licensing revenues. And the two firms will also need to overcome technological overlap. However, the addition of BEA technology, expertise and market reach will significantly strengthen Oracle’s position amid top tier service-oriented architecture (SOA) infrastructure vendors.

• Vendor Importance: High to Oracle, as this acquisition will help the firm become more of an independent player and fill in a number of key gaps and weaknesses within its Fusion Middleware offering. Presently, the company relies upon third parties for its registry/repository and BPM solutions, working through HP/Systinet for governance and IDS Scheer for modeling. BEA will allow Oracle to free itself from any constraints on these two fronts. It will also help Oracle boost its event driven architecture (EDA) strategy, which has not taken off as the vendor had hoped.

• Market Impact: Very high on the SOA market. This acquisition, which is similar in scope and impact as the Software AG/webMethods and Sun/SeeBeyond acquisitions, will undoubtedly disrupt the market as a whole, creating instability within BEA’s ecosystem and customer base, which in turn will translate into opportunities for smaller vendors with open source and/or uniquely innovative solutions. For Oracle, this acquisition will give the firm a stranglehold on the telecom vertical and allow it to significantly increase its reach into lucrative geographies, especially within the Asia/Pac, and market segments such as software-as-a-services (SaaS).

Recommended Competitor Actions

• All competitors within the SOA market should position Oracle’s acquisition of BEA as a highly inefficient merger that will not yield any substantive market pressure until late in 2008 and perhaps early in 2009. Similarly, rivals should point out that Oracle and BEA field a very large number of overlapping products, particularly within development, BPM, portal, ESB and management product areas.

• Open source vendors should see this acquisition (and Software AG’s recent acquisition of webMethods) as a very positive sign that the SOA middleware market has entered a consolidation phase, which typically signals a slowdown in innovation. This favors vendors employing open source methodologies, which engender technological innovation without imposing customer costs. Further, open source rivals can expect Oracle to continue its moderate interest in open source, which will help these smaller firms differentiate amid larger companies like Oracle.

• Similarly, this acquisition represents a good opportunity for non-traditional SOA vendors to capture customer attention now that there are fewer independent SOA infrastructure vendors in the market. IONA, for example, can capitalize upon its endpoint-based integration architecture as an alternative to the dominant hub and spoke methodology. TIBCO should seize upon this moment to target BEA customers, positioning itself as one of the few remaining independent SOA infrastructure providers with the ability to support both .NET and Java equally.

• Over the long turn, this acquisition places SAP’s NetWeaver at distinct technological disadvantage, relative to Oracle’s Fusion Middleware, once combined with BEA’s WebLogic product line. To resolve this issue, before Oracle completes any product rationalization efforts, SAP should consider acquiring one of the remaining independent SOA infrastructure players such as TIBCO or Progress Software.

• Certainly this acquisition is a boon for any vendor competing with BEA, especially given the firm’s loss of momentum both in innovation and licensing fee revenues. This slowdown, which in part stemmed from Oracle’s original acquisition attempt last October, is likely to continue until Oracle is able to articulate and begin executing upon an acceptable converged product roadmap.

Recommended End User / Customer Actions

• Current BEA customers with Eclipse experience should pressure Oracle to expand its current relationship with the Eclipse developer community and either adopt Eclipse fully within JDeveloper or migrate to BEA’s Eclipse-based WorkSpace 360 solution.

• BEA customers should carefully investigate options for migrating to Oracle solutions. In some cases, choosing not to migrate to Oracle solutions may actually increase costs, owing to Oracle’s Lifetime Support contracts, which can potentially cost more than BEA’s original licensing and support contracts.

• Current Oracle Fusion Middleware customers should welcome this acquisition with open arms. First, Oracle has clearly declared its intention to retain Fusion Middleware as its primary SOA solution, thus preserving the investments made by current Fusion customers over the long term. Second, because both firms have employed similar, Java-based architectures, Oracle will be able to quickly integrate advantageous BEA technology within existing Oracle products.

• Despite overall concerns surrounding the length of time this transaction will take to close, executives in the carrier or related ISV space should still consider the WebLogic Communications Platform. Its new functionality in the area of a SIP server and network gateway functions will lessen development time and cost in comparison to native development or assembling multiple third-party products. And Oracle is unlikely to rationalize or neglect this product over the long haul.

• Existing BEA customers should press Oracle to commit to a product roadmap covering points of integration between BEA’s BPM solution and AquaLogic User Interaction, AquaLogic Data Services Platform, AquaLogic Enterprise Security, WebLogic Event Server, AquaLogic Enterprise Repository as well as AquaLogic Ensemble and Pathways. While Oracle will likely pull BEA’s BPM technology into Fusion, this technology is pivotal to all BEA solutions going forward.

CLIENTS ONLY

Current Perspective

Competitive Positives and Concerns

Recommended Vendor Actions

| Client access - Application Infrastructure | More information

Top