Oracle Gets BEA: Coping Tips for Both Customer Camps

After fending off Oracle’s advances since October 2007, BEA Systems acquiesced to Redwood City’s latest offering of $8.5 billion, which was nearly $2 billion more than Oracle’s original October bid. CIOs and IT departments must get ready for a year of confusion, analysts say, as product sets, sales teams and engineering organizations get sorted out. But there are smart ways to cope.

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The announcement of the deal came as little surprise to anyone who follows the industry or is the least bit familiar with Oracle’s modus operandi. Can anyone remember the last time Oracle made a serious bid for a company that it wanted to acquire and didn’t get its target? “I cannot think of a case,” says Mike Gilpin, a VP and research director at Forrester Research who follows middleware.

Like JD Edwards, PeopleSoft, Siebel, Hyperion and many others before it, BEA management took the money. For Oracle and its customers, the acquisition will fill several holes in its middleware product line, such as Java-based development tools and service lifecycle management, says Gilpin. In addition, Oracle CEO Larry Ellison said that BEA’s products “will significantly enhance and extend Oracle’s Fusion middleware software suite” in the announcement.

To Gilpin, though, this latest deal and the year of splashy acquisitions by the major technology vendors that preceded it in 2007 have significantly altered the playing field. He describes a cumulative “psychological impact” of the deals that will affect CIOs’ strategies going forward. “Until now, you could fool yourself into thinking that if you were a buyer of middleware technologies that the world was pretty much like it had always been,” he says. “That there’s a lot of choice [in the market], that choice matters, that some products were better than others, and that you should be buying the better products.”

But that has all changed, he says. With all of the acquisitions, buying software is all about “channels” and “camps” now: Who are the partners and solution providers in your vendor’s stable? “The size of the partner channel and the ways that vendors can offer comprehensive solutions and linkages to application portfolios—those are more important now [than just the best one-off product],” Gilpin says. “And that’s clearly playing to the advantage of the big multiplay firms, like Oracle, IBM and Microsoft too.”

Possible Costs for Both Camps

With a market cap of more than $100 billion, roughly $20 billion in annual revenues and a parking lot’s worth of acquired high-tech brands under its red banner, Oracle is a force to be reckoned with.

And despite Ellison’s promise that BEA customers will be able to “choose among Oracle and BEA middleware products, knowing that those products will gracefully interoperate and be supported for years to come,” these types of deals always come with a cost to the customer base of the acquired companies.

Forrester’s Gilpin notes that BEA’s current customers using the Portal product will ultimately find it desirable to migrate to Oracle’s Web Center. “They won’t be forced to do that,” he explains, “but it means that some investments made in the context of BEA’s portal will not return their full value, in the long run.” They also might experience cost pressures from one of two sources. “Either they will migrate and have those costs (in a few areas, not just the portal),” he says, “or they will not and will likely have to pay Oracle’s ‘Lifetime Support’ fees which will probably be higher than what they have been paying to BEA.”

In addition, Gilpin notes in a report analyzing the deal that “BEA’s WebLogic products, in particular, are widely loved by enterprise Java developers—much more so than the Oracle Application Server,” he writes. “The many customers who value BEA not only for its quality products but also for its independence will suffer a disappointment.”

Some of Oracle’s customers could face migration costs in some areas where BEA’s products are stronger, but “it is the Oracle customer who gains the most,” Gilpin says. “[The deal] provides Oracle and its customers with a much more credible set of application platform capabilities at the high end of the market.”

Forrester has seen a significant increase in interest “in middleware to enable high-end application workloads in the financial services, telecommunications and government sectors—right where BEA already has a strong presence,” he says.

What to Do Now

As with any deal of this size, both sets of customers are sure to face a “year of confusion,” Gilpin writes, “as the product sets, sales teams and engineering organizations get sorted out. During this period, ignore the messages coming from Oracle, and drill into the facts about the products and tools that you use. Insist on clear road maps.”

Gilpin advises CIOs to ensure that their “technology strategy” is more than just “we’re an Oracle shop.”

This all-too-common fallacy of equating technology strategy with adoption of a particular vendor’s products, as he puts it, won’t work in this new megavendor era.

“CIOs should preempt their business partners’ disbelief when they hear the cost of migrating from a product they’ve never heard of by defining and communicating a strategy that guides technology portfolio decisions—and makes sense with their business peers and executive management,” Gilpin writes. “With a strategy that’s understood by businesspeople, CIOs will be able to prepare for the costs of future migrations.”

For those enterprise architects and other IT staffers who are going to be the ones charged with the frontline grunt work, Gilpin advises them to “examine key technologies that Oracle is replacing or changing, key technology costs that Oracle is increasing, and the likely benefits of consolidation if you’ve got both companies’ products in your shop,” he writes. “And, of course, factor in the possibilities of moving to different suppliers altogether,” even though that’s becoming tougher to do these days.