BEA and Oracle and "caveat emptor"

As someone who wrote a little on the potential acquisition of BEA by Oracle, I've been in a quandary since the news of the acquisition broke: frankly, I felt that I needed to write something - but there was already so much other commentary out there (much of it saying the same thing), I didn't want to just add another voice to the global egosystem. (The perils of writing in the age of the web, I suppose.)

So I asked our excellent partners Freeform Dynamics if they could help us look behind the headlines - to understand what regular IT people out there think of the deal. As it happened, they'd already kicked off a quick research effort on that precise topic without me knowing. Great minds think alike.

Freeform conducted a quick poll of readers of The Register (this is a big multinational IT news site, and its readers are typically IT managers, developers and ops people - people at the coal face of enterprise IT). They asked a couple of high level questions:

• Is the acquisition of BEA by Oracle positive or negative for the IT industry?
• Will the acquisition of BEA by Oracle be positive or negative for your business specifically?

They also asked respondents to provide "free form" answers to provide reasoning for the answers to the two main questions. The Freeform guys got just under 300 responses overall. So what did people think?

Well, there were no real surprises in the response to the second ("what does it mean for you") question. There appears to be a large degree of nervousness amongst respondents who are BEA customers (this is bound to be true whenever a company buys something you've already made an investment in). In this group, around 40% were "unsure" and a further 35% or so felt the impact would be "negative". For the Oracle customers, things look a lot rosier: around 40% felt the impact would be "positive", and a further 35% or so thought the outcome would be "neutral". Given Oracle's standing as a middleware provider (the technology is good enough if you're working within an Oracle environment, but not regarded as top-tier for cross-enterprise use in a heterogeneous environment) it's understandable that Oracle customers are keen to get their hands on some more beefy middleware alternatives.

What was much more interesting to me were the responses to the first question, because they can't be explained away by understandable acquisition jitters.

When asked "is the acquisition positive or negative for the IT industry?" fewer than 30% of respondents felt the outcome would be positive (45% or so were negative, 10% or so were unsure, and 15% or so were neutral). Within the BEA customer base, two-thirds of respondents were negative - but given my earlier points about why people buy BEA, I'm not too surprised by that. Tellingly, though, even among respondents with no investment in BEA or Oracle, over 40% felt the outcome would be negative for the industry (around 35% were positive, just over 10% were neutral, and under 10% were unsure).

Looking at the respondents with Oracle investments and those with investments in both BEA and Oracle, both camps were decidedly ambivalent about the impact of the deal on the IT industry in general. In both cases, more respondents answered "negative" than "positive" on this question.

When we looked at the freeform responses supplementing the other questions, there was more food for thought.

The most common explanations for "negative" responses could be grouped into one common answer: "it'll lead to reduced choice in the market". Other popular comments can be summarised as concerns about the viability of existing investments (this was cited by both BEA and Oracle customers), and concerns about the potential loss of innovation within BEA's technology. Interestingly, the poll also threw up a significant number of respondents who were concerned about the degree of power that Oracle (after the BEA acquisition) would have over them as a customer.

There were, of course, freeform comments on the positive side (there were just fewer of them). The most popular positive responses could be best summarised as "a more mature solution will emerge". The second most popular category of positive response can best be summarised as "it'll enable the rescue of some good technology from a company that has lost its way".

Looking back over all this data (and a more comprehensive analysis will appear soon on The Register, courtesy of Freeform Dynamics), my message is this: whether you're the company buying BEA, or a company that has previously bought BEA technology, this shows the eternal truth of the phrase "caveat emptor".

If you've historically bought BEA technology because BEA was an independent middleware technology provider, the lesson is that just because your middleware supplier is independent today, doesn't mean it will be independent next year. If supplier independence at key points in your IT landscape is really important to your IT strategy, do a proper risk analysis and plan what you'll do if things change.

If you're an Oracle exec, the lesson is that many of the customers you're about to acquire might already be customers of yours - but they may well have bought BEA technology precisely to avoid getting too deeply attached to companies like yours. You're going to have to tread very carefully.

Labels: acquisition, BEA, Freeform Dynamics, Oracle, strategy planning

posted by Neil Ward-Dutton @ 2:36 PM 0 comments permalink

IBM to buy Telelogic: Rational, but not inspirational

I know in the blogosphere, waiting a few days to provide comment on an announcement like this one hardly puts me at the leading edge - but hey. Although I can't claim to be breaking any news, there are a couple of other points about IBM's purchase of Telelogic that I think are worth making.

As many other commentators have explained, in one respect the purchase of Telelogic takes Rational back to its roots as a tools provider to assist with the development of embedded systems. In this respect, the purchase of Telelogic is really all about IBM capturing market share and consolidating the market for engineering tools for complex systems development. This analysis was given extra weight by comments made by Danny Sabbah, the General Manager of IBM's Rational business, when he stressed that investment in Telelogic's tools and capabilities would absolutely continue. If IBM keeps the commitment made by Danny Sabbah, Telelogic customers can breathe a sigh of relief, and so will IBM. Embedded software developers love their tools, and many Telelogic customers will have made an explicit decision in the past not to go with Rational.

When you look at this (the biggest) part of Telelogic's business it's clear that this isn't just the usual story of mature markets consolidating, however. Back in 1999 I spent more months than I care to remember on this project, which convinced me it was only a matter of time before ubiquitous broadband networking, consumer electronics and the digitisation of content would open up major new markets for tools vendors. The "pervasive computing and content" thing is starting to happen in earnest, in a variety of sectors - including automotive, healthcare, consumer electronics, retail and travel. Where these things come together, consumer-friendly (and that means high-performance, highly-reliable, bulletproof) software is appearing in more places and in more guises. This is new market opportunity, and Telelogic gives IBM the chance to grab more of it.

So far, so Rational.

But what's been more interesting of late, to me at least, is not Rational's heritage but it's future direction. IBM has made it clear that Rational's focus is shifting from being a provider of development tools to being a provider of tools to help manage the process of software delivery - and helping customers turn IT inside-out. A big gap here has been in the provision of tools that really help customers model above the level of individual systems, and the surprise to me has been that although Telelogic has these (obtained when it bought Popkin back in 2005) IBM's early talk hasn't put much emphasis on their value. To me this is a major missed opportunity as it's a capability that more and more "mainstream" businesses with IT organisations are starting to realise that they need. Enterprise Architecture competency is quite thin on the ground and IBM has a chance to take a significant step forward in guiding customers here.

Assuming IBM does start to think and talk a bit more about Telelogic's enterprise modelling tools (which would seem to make sense, you'd think) my take is that this is one area where the technology would be best served within Rational's own product management structure rather than under Telelogic. As Rational moves its focus more towards managing the process of software development, the Telelogic assets naturally form a specialised sub-piece within the overall picture - but System Architect fits naturally alongside things like RAM, RMC, RPM, and some other stuff I can't talk about yet.

So - I really hope we start to see more from IBM about how the more mainstream capabilities of Telelogic will be taken forward, and if/how it will start to separate those mainstream capabilities from the specialist "complex systems engineering" capabilities.

Labels: acquisition, architecture, EA, ibm, inside-out IT, Telelogic

posted by Neil Ward-Dutton @ 11:34 AM 0 comments permalink

webMethods becomes SWAG

Apologies for the poor pun, it's the evening before the Easter break (public holidays on Friday and Monday here in the UK) and I'm feeling festive.

So, it's finally happened. For those of us with the dubious title of "industry watcher" it's not a particular surprise to see webMethods acquired. We'd heard rumours for some time that the company might be readying itself financially and organisationally for a sale. Clearly the 25% price premium that Software AG (SWAG) plans to pay in purchasing the company at $9.15 a share represents a good deal for its shareholders, as webMethods' stock had got stuck around $7 for quite some months.

But what is a surprise (to me at least) is the buyer.

For one thing, we're used to big industry whales swallowing small specialist minnows: this is one medium-sized software company buying another medium-sized software company. SWAG's 2006 full-year revenue totalled in the region of $500m$650m. webMethods has a different financial year to SWAG, but its revenue in the equivalent period totalled roughly $200m.

There's one particular feature of the two companies' income statements which is shared: both companies make more money from software maintenance than they do from selling new product licenses. Both companies are living more off their past success than their current success (although the balance seems as if it could be tipping the right way in SWAG's case).

Software AG is a company with a long history as a middleware company, but it's not a glorious one. It scored huge success in the 1970s with the ADABAS DBMS and 1980s with the Natural language and development environment, but none of its more recent infrastructure product developments - EntireX (object and message broker), Tamino (XML database/integration platform) and Bolero (Java app server) have penetrated far beyond its established loyal customer base. What's interesting, though, is that with new SWAG products Centrasite (SOA registry/repository) and Crossvision (BPM, ESB, legacy integration, composite application development) now on the market, the webMethods acquisition certainly doesn't look like one to be based around technology. There's a hell of a lot of technology overlap.

So this acquisition appears to be more about acquisition of customers and "mindshare" in complementary regions. Despite a US subsidiary with a long history (which started off independently in 1972, was bought by its parent in 1988, then spun off through a venture buy-out in 1997, and re-purchased in 2001), SWAG's visibility in North America is not high (any of our US readers heard of EntireX, Tamino or Bolero?). Despite webMethods' reorganisations which have cut back the size of its European operations over the past years, it seems to retain very high recognition in North America.

What will I be watching? I'll be watching to see what happens to products and people as the two companies come together. Given the huge portfolio overlap, from a product and technology - and ultimately a customer - standpoint, this will be a difficult integration to pull off.

UPDATE: John Conley, webMethods' Director of PR, got in touch with me to point out a couple of errors in the original post, which I've changed above.

Labels: acquisition, SOA, Software AG, webMethods

posted by Neil Ward-Dutton @ 8:15 PM 0 comments permalink