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BEA customers face uncertain future as Oracle closes in

Expiration on Sunday of the original Oracle Corp. $6.7 billion offer for BEA Systems Inc. does not mean the deal is off, meaning BEA's SOA customers face an uncertain future, analysts say.

Shops using BEA Systems Inc. products for service-oriented architecture (SOA) implementations face uncertainty about the future, analysts say.

There's a sense that the sword of Damocles is hanging over BEA.
Dana Gardner
Principal AnalystInterarbor Solutions LLC.

The expiration Sunday night of the Oracle Corp. $6.7 billion bid to buy BEA does not take it off the auction block and only postpones the inevitable sale, said Dana Gardner, principal analyst at Interarbor Solutions LLC. Meanwhile analysts at Forrester Research Inc. issued a report this past week advising BEA customers to get ready for changes that are likely with the Oracle takeover.

BEA is unlikely to be able to continue as an independent company and every week it puts off acceptance of the Oracle bid it is likely to suffer financially as its uncertain status hurts sales, Gardner said Monday. While BEA executives rejected the Oracle offer, billionaire investor Carl Icahn, who has been buying up BEA shares, announced Friday that he is suing BEA to force it to hold and auction that would culminate in a shareholder vote on the sale of the company to the highest bidder. At present Oracle is the only known bidder.

"Time is really not on BEA's side," Gardner said. "They are stuck between two unpleasant realities. One is the Oracle offer, which it thinks is too low, but the alternative is to wait this out further which will deteriorate its ability to sell products in the market because the chances are some ownership change will happen. Icahn's suit means he is going to force some kind of change of ownership, or at least attempt to."

Because of the pressures from Oracle, Icahn and its competitors, Gardner predicts that BEA only has weeks or at most a couple months before some deal has to be made. The longer BEA waits, the worse things are likely to get, he said.

The uncertainty surrounding BEA will be taken advantage of by its competitors in the SOA marketplace, Dana predicted.

He said, "You can rest assured that IBM and Tibco and Red Hat are out there saying: 'Don't sign any contracts with BEA. You don't know what you're getting into. If you sign a contract now, you may end up with Oracle, and you're not sure that's what you want.'"

What BEA customers may face if they wake up and find that they are Oracle customers is the subject of a new report from Forrester Research Inc. The report details how the takeover is likely to impact current customers of both Oracle and BEA. While noting that there are synergies between the two companies' products for SOA, the report predicts a rough ride.

"An Oracle-BEA Combo: How It Will Affect You" by John R. Rymer and Mike Gilpin predicts BEA customers will likely face rising costs and some may decide to move to other vendors.

"Both sets of shops will face a year of confusion," Rymer and Gilpin predict. "After dozens of acquisitions, Oracle is now accomplished at integrating new companies and their products. But its large acquisitions have typically been followed by a period of confusion as the product sets, sales teams and engineering organizations get sorted out."

The Forrester analysts advise customers to be wary of the marketing messages that may come from Oracle and "insist on clear road maps."

"BEA's thousands of customers should start understanding their options now, with the assumption that if the acquisition succeeds, Oracle is likely to use both carrots and sticks to move them to its competing products," the Forrester analysts predict.

Forrester's take is that once it owns BEA, Oracle is likely to push forward its portal product, Oracle WebCenter, and try to move BEA customers away from their existing portal. This is because WebCenter is the core of the Fusion product line that is the heart of Oracle's SOA and Web 2.0 strategy, the report says.

Higher product costs are another problem BEA customers may face following an Oracle takeover.

"The risk for shops using WebLogic Server, AquaLogic Service Bus, AquaLogic BPM, WebLogic Event Server, WebLogic RFID Enterprise Server, and AquaLogic SOA Management (a BEA-branded product from AmberPoint) is that they will face higher costs, should Oracle's bid succeed," the Forrester report states. "Oracle sells alternatives to these products and is likely to coax customers to them in two ways. First, in its offer for BEA, Oracle mentioned the prospect of 'lifetime support' for BEA products. Lifetime support means that customers don't have to dump their products, but may over time pay elevated support for using them. If customers move from BEA's products to Oracle's alternatives, they pay for migration. Either way, their costs go up."

For more information
Oracle's SOA market play for BEA Systems

SOA Davids vs. Goliaths: Slingshots at the ready

However, with competitors spreading fear, uncertainty and doubt (FUD) among BEA accounts, the short-term result might be that BEA customers can get product upgrades at steep discounts as the BEA sales force desperately tries to close deals, Gardner said. But that is likely to be a Faustian bargain for BEA since loss of sales and discounts are likely to hurt its bottom line.

"BEA's next quarterly report could come out with disappointing results as a result of the uncertainty in the field," Gardner said. This leaves Oracle in the cat bird's seat possibly able to actually lower its bid if BEA suffers losses during this period, the analyst said.

"There's a sense that the sword of Damocles is hanging over BEA," Gardner said.

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