by Thomas Wailgum

Analysis: Oracle’s Takeover of BEA Would Reduce Enterprise Software Choices

Oct 12, 20074 mins
Enterprise Applications

If Oracle s쳮ds, or someone else enters to acquire BEA's middleware offerings, the number of enterprise technology choices will dwindle yet again.

Perhaps Oracle doesn’t like it when SAP grabs headlines by announcing a juicy acquisition, as it did this week when SAP bought Business Objects.


Oracle Bids for BEA Systems

What SAP-Business Objects Deal Means to Customers

Whatever the case, Oracle launched a bid for middleware vendor BEA Systems, the maker of WebLogic, on October 12, worth roughly $6.7 billion. Unlike the SAP announcement, however, Oracle’s salvo was not surprising because of its recent history of growing through acquisitions — JD Edwards (ERP), PeopleSoft (ERP), Siebel (CRM) and Hyperion (business intelligence) are just some of the bigger ones. If this deal indeed goes down—and indications are that it is not a done deal, based on BEA’s notice to Oracle that its offer was too low—enterprise software market observers this will have a huge impact on not just the software industry, but also many IT operations.

“Oracle’s potential acquisition [of BEA] takes away the last remaining independent major middleware platform provider leaving future competitors without a large install base and a third party supplier,” says Ray Wang, a principal analyst at Forrester Research.

For years, though, many vendors such as SAP have preached “organic growth” as a way to bring new products and innovative services to the market. But as noted in this analysis of the SAP-Business Objects deal, that seems more and more like a bygone era for enterprise applications and software.

“If you can’t beat ‘em,” SAP seemed to say with the Business Objects purchase, “then join ‘em.” But what will all of these mergers and acquisitions mean for CIOs who have historically preferred some competition among their vendors and will now find themselves with fewer options?

Maybe it’ll be a good thing. For nearly a decade now, CIOs and their companies have been working to reduce complexity and siloed data and systems in their organizations. With fewer choices and, possibly, less integration chores to do because all of the available software applications will be under one vendor’s umbrella, CIOs’ infrastructure worries could decrease.

Forrester Research analyst John Rymer isn’t so sure. A merger between technology companies “does not necessarily translate to reduced complexity. There’s a bit of software engineering required first,” he says. “The biggest suppliers are mostly operating as ‘portfolio companies,’ meaning they can fill most needs, but product integration is required.

“The contracts [between vendors and customers] can also be pretty complex when lots of products are included,” he adds. “So reduced complexity is not automatic.”

Wang sees a mixed bag. “[CIOs] will see a reduction in complexity and open data standards,” he says. “The flip side is the cost to run these platforms will go up as more products and solutions use the platforms and vendors extract a connection charge. Lock-in will occur at the process and metadata levels, which is the scary part.”

Of course, this is all still very early. BEA has not accepted Oracle’s first offer, and it’s unclear if some other player will get involved. “This isn’t over yet. I think there may be a counter bid or offer for BEA [because] this is a crown jewel,” says Forrester’s Wang. “Oracle should expect a fight for BEA. Other vendors like SAP, IBM and HP need BEA more than Oracle does.”

To Rymer, one thing is very clear for CIOs running BEA: “You must start now to plan your exit strategy,” he says. “Your primary vendor is about to be owned by another company. If you stay on your BEA products, you are likely to pay premium support rates. If you want to get off, you need to plan your migration. Getting a handle on those costs and the potential disruption now is about the most anyone can do until this drama reaches its final act.”

Like the SAP-Business Objects deal earlier in the same week, this Oracle acqusition bid for BEA Systems foreshadows further consolidation in the enterprise software market.

So get ready for an interesting ride. “With so much liquidity in the market, expect continued and accelerated consolidation along key battle grounds of middleware platforms such as master data management, business intelligence, portals, business process management and other information management tools,” says Wang.

“For CIOs, this is a mixed blessing,” he adds. “The acquisitions are forcing CIOs to choose sides and enter into vendor lock-in on middleware. BEA is one of the last independents.”