November 13, 2000

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BEA Systems' CEO Leverages E-Commerce Initiatives

Vendor supplies many infrastructure components that power e-business

By Matthew G. Nelson

More on BEA Systems:

Not just For Tech Whizzes (10/30/00) Network Computing: Analysis -- WCM Offerings Span a Wide Range(10/30/00) Computer Reseller News: E-SOLUTIONS IN FOCUS -- Vendors offer increasingly sophisticated J2EE e-commerce tools (10/9/00)

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EA Systems Inc. was founded in 1995 by Bill Coleman, Ed Scott, and Alfred Chuang. The company is perhaps best-known as a middleware and application server manufacturer. BEA Tuxedo and BEA WebLogic hold approximately 46% of the transaction server market, according to industry analyst firm International Data Corp. Its principal product is the BEA E-Commerce Transaction Platform. The company also offers consulting, education, and support services to help companies design, build, and deploy E-commerce initiatives.

The company currently supplies many of the infrastructure components that power E-business innovators such as Amazon.com, E-Trade, Federal Express, Qwest, and United Airlines, to name a few. William T. Coleman III, the co-founder, chairman, and CEO of BEA Systems, recently sat down with InformationWeek senior editor Matthew G. Nelson to discuss the company.

InformationWeek: What does BEA stand for?

Coleman: Bill, Ed and Alfred, the three founders.

InformationWeek: Describe what BEA Systems does.

Coleman: We're trying to provide an E-commerce infrastructure. There are three things that are important now: Can I get there fast? When will I get there? Will it work? It's called reliability, Internet speed, and adaptability. That's what we build this environment around. I now believe it truly is an E-commerce platform.

InformationWeek: What factors are driving your success in this segment of the industry?

Coleman: There have been three--what Jeffrey Moore calls tornadoes in the computer industry. The first was about mainframes; IBM captured the business applications running on those, made them an $80 billion behemoth, and has owned [that market] for 30 to 40 years. The second was PCs, which Microsoft captured and has owned. The third was client servers, which Oracle captured the majority of and has owned. Whoever gets the applications to them will turn all three into commodities.

InformationWeek: All three are still up for grabs as they pertain to the Internet, aren't they?

Coleman: Yes. They have to be programmed to something else and that's becoming a Web application server. The good news is that Microsoft missed a step back in '95 to '98 when this market formed. It announced recently that it will get there in 2002. All the market share is going to be established in the next year because the pioneers and early adopters are going to pick their platforms if they haven't already, and build it out. It's being done on Enterprise Java primarily and we have about a 70% market share. IBM is somewhere around 20% and nobody else matters. Key to BEA right now is getting the design wins.

InformationWeek: What design wins has BEA gotten lately?

Coleman: Deutsche Bank just chose BEA for its Web applications server for all of its future E-commerce. For the next two or three decades, it's going to build the whole bank on WebLogic. We now have about 4,100 customers.

InformationWeek: Are you promoting a complete product, as opposed to one component at a time?

Coleman: We call it the E-Commerce Transaction Platform. The bottom line is, if all you need is to open up your storefront, point products are fine. That will work for small and midsize businesses. But if you're trying to build an E-business, there can't be a separate application for wireless, a separate one for business-to-business, and a separate one for business-to-consumer.

InformationWeek: So who do you see as your primary competitors?

Coleman: We're competing for architecture. We're the only new entrant that has the complete offerings and is big enough to be taken seriously to bet your company on. We compete with what we would call gorillas in an adjacent space--IBM, Microsoft, Oracle, and Sun. The only one of those that has a competing product is IBM. When we're up against a selection of a Deutsche Bank or a Fannie Mae or a J.P. Morgan, all of which we won against IBM and are former IBM accounts, it always comes down to IBM vs. BEA.

InformationWeek: Is BEA just catching the wave or is the company evolving? What's going on in the market?

Coleman: I don't think E-commerce started happening until a year ago. There was a first generation in the '95 to '96 timeframe. It was nothing but put up a portal Web site and do telemarketing or whatever, then people started doing support on it.

There was a second wave of "let's actually do business" by Amazon.com and E-Trade and eBay. In '96 and '97, companies built their stuff on the Oracle database using the same old techniques. In October 1997, E-Trade failed and it took them three days to get back in trading, because--guess what? They didn't do anything but transactions and the Securities and Exchange Commission doesn't let you trade another stock until you can reconcile all the trades. They had to rebuild by hand. Then it happened to Amazon in January 1998.

That sent a signal to the marketplace: If you don't build on a Web application server that can scale, you're going to be left behind. Both companies threw away everything they did and rebuilt on us. We had $30 million in sales to E-Trade last year. We're Amazon's and E-Trade's infrastructure.

InformationWeek: Are there other trends driving BEA deployments?

Coleman: It wasn't until last summer that Enterprise Java really started taking off. In the last half of last year, it happened in two really big markets: the financial trading markets and the Internet service provider markets.

In the last nine months, we're the future for Chase, E-cities, J.P. Morgan, Lehman Brothers, Morgan Stanley, and Wood Sound View. They're going to build on us for the next 20 or 30 years. We've captured more than 500 ISPs. There's almost not an ISP I can think of that has decided to build Enterprise Java that's not on us. Commerce One and Siebel aren't there, but the Aribas, the Blue Martinis, the Tendexes, etc., went with us.

In the beginning of this year, other industries got disrupted. Priceline .com disrupted the economics of the airline industry. Airlines make their money out of pricing models--the most sophisticated in the world. When Priceline got between them and their customers, the airlines started losing quickly. Star Lines has adopted us and so have British Air, Delta, Air France, Northwest, SAS, and United Airlines. They have to move fast and we're the only place they can turn to. The only two markets that invested in Corba were ones that had to move in the last decade: Telcos got caught in the Corba era and they aren't being disintermediated yet, but it will happen; and banking is going at it whole hog right now.

InformationWeek: Are you more worried about the big companies that are out there or are you worried about the startups in garages?

Coleman: At the moment, I'm not worried about either one's growth in the next couple of years. The market is tipping too fast for a little guy to get big enough to challenge us, and the big guys are moving too slow. There's fear, uncertainty, and doubt created when Microsoft comes out with an announcement. They're going to have something in two years that everybody is already going to be building on their own.

I'm actually more concerned about where the markets are going in the next three to five years because the consolidation of this market means we have to commoditize what we're doing. If you're an infrastructure player, I think you have to move more to a services-based model because the software is now virtual and what happens when the customer has 90% of everything they need except for a few components?

If you're Intuit, you don't have to do that horrible software stuff anymore, you just sell a service that's an information service. You make lots of money, but the whole model of distribution and charging for software is changing and that will disrupt the market yet another time. So we're looking out more strategically and where that's going to happen.

InformationWeek: If you were to look into your crystal ball and predict what business is going to be like two years from now, five years from now, what's going to happen?

Coleman: I would say that five years from now, we're going to see that everything is going to be much more customer-driven. What's really happening is that we're changing the leverage of what's called the chain of commerce.

The Industrial Revolution created a chain of commerce that was long and expensive. For the first time, I could have a long distribution channel going all over the world and I could have a long supply channel, and I could create mass production, and that created what we had. That went from the invisible hand to the visible hand and we had markets that fluctuated like crazy because we couldn't forecast inventories.

So when a company such as Dell says it's not going to have three months' worth of distribution and give away 40% of my dollars, I'm going to let the customer order directly from me and I'm going to take the 40% that I would have given to someone else and keep it for myself. Then I'm going to use the customer's credit card to order the parts and build it and deliver a one-on-one configuration that the customer can figure out tomorrow. That changed the whole economics and put the customer in charge.

Technology is enabling a rewriting of the map of the global infrastructure for commerce and it's about one-on-one services and products that change and adapt as fast as customers want them to. Products and services are produced in a fast amount of time with the minimal amount of dollars. If I take dollars out of my distribution costs and out of my supply chain at the same time and use that infinite information where I know exactly what my inventories are, I can give customers something better and quicker than someone else. I win.

That transforms the economics. That gets us out of the boom-bust economies that's driven by imperfect information on inventories and on demand. What we've just done is start taking the first few steps on the treadmill. It's going to go faster and faster because it's all about who can give the best, quickest, fastest with cheapest amount of investment. The world becomes virtual.

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