CRN Interview: BEA Systems CEO Alfred Chuang

While some observers think BEA Systems is losing its leadership position in the Java software market, BEA Chairman, CEO and President Alfred Chuang remains as confident and optimistic as ever. The outspoken executive took time Wednesday to speak with CRN Senior Editor Elizabeth Montalbano after BEA, based here, announced that the company met its Wall Street numbers for its first quarter of fiscal 2004. Chuang spoke candidly about increased pressure from IBM, which seems intent on knocking BEA off the software map, as well as BEA's channel plans and the company's relationships with competing hardware partners Hewlett-Packard and Sun Microsystems.

CRN: I'm not going to belabor the point on the recent Gartner report [which shows IBM pulling ahead of BEA in Java application server market share], but there's no doubt that IBM is out for blood and wants to put BEA out of business. How are you moving forward to meet the increased challenge from them?

Chaung: IBM has been around just about 90 years [sic] before BEA has so I assume they're going to be around for a long time. I think during this [economic] downturn this battle has intensified because I think the pure growth opportunity in the marketplace has shrunk. Obviously, the IT budget has shrunk, IT spending is tight. But look at all the aggregate data I talked about today on the call--we added close to 400 customers [in first-quarter 2004]. I think we are looking for more growth, there's no doubt, but nevertheless it's a solid set of numbers we've been able to put out, and we are the real deal. This is a company that sells software for people to deploy and take revenue in based on how much they've deployed.

IBM puts out a lot of these [revenue] numbers. I was listening to IBM's earnings call and an analyst asked a question, "How did the PWC acquisition impact top-line revenue?" [IBM executives] said, "There is no impact." I think PWC had quite a few employees the last I looked when IBM bought them. So these things just don't jive, and I think a lot of people are looking past some of these numbers. This is probably the first time that we've gotten some IBM market-share data that the market really from an analyst and a press perspective didn't react to it very much because I think people just don't believe it. BEA is giving them SEC-certified numbers, and IBM gives them a number that is inconsistent with what they file with the SEC [because] they don't break out [application server] numbers specifically.

CRN: Well, you are out there fighting against companies that are so much bigger than BEA. How large do you think BEA can grow? Would you ever consider an acquisition by, say, Hewlett-Packard?

Chuang: We're the seventh largest software company. We have $1 billion in top-line revenue. So we're small compared to IBM's total revenue, but what is their real software revenue? No. 2, our vision has not changed. We have always believed the enterprise needs a standard software platform to develop and deploy and manage the software. If that materializes, which I think it has to--people have to standardize on something--this opportunity is bigger than anything we have seen. Why would I want to give up that opportunity after spending [umpteen] years on it, working my butt off, and pass up the opportunity? That's why I'm here, when I get up in the morning, that's what I get excited about. I think the inflection point hasn't even happened yet.

CRN: Some BEA solution providers, as well as BEA's partner leader Morris Beton, BEA's vice president of business development, said BEA is working with a handful of key partners, not adding a lot of new ones. However, some solution providers I've spoken with said they would work with BEA more if there was more outreach from the company. What is your channel plan?

Chuang: Realistically, we ultimately have developed a business model that we don't compete with anybody that's in the solutions business, whether you are selling applications or reselling software as a bundle. Just look at our reseller network and our systems integration in the federal government business alone. That's our most phenomenal success because they know we don't compete with them. [For example,] Northrop Grumman, why would they work with BEA so closely? Why wouldn't they work with IBM? Because they know if they work with IBM, there will be no deal for Northrop Grumman. In this context, this strategy works.

I think the challenge we're running into is we have limited resources while we're growing and we cannot possibly give the same tender-loving care to everybody. Especially smaller solution providers today are looking for BEA to give them deals. Look at how tough the whole solution business has been over the last three years. Oh my God, it's been really tough on them. We're trying our very best to pass the fortune around. But we're also relying on the big guy, like Accenture, and their goodwill to bring us into deals, which at their size they can do. The smaller guy, we have to bring them in. And I have to say, we've brought plenty of smaller guys into deals, more than anybody.

Am I making everybody happy at all times? I'm not there yet, and I need some more size to be able to do it. But look at it, my total consulting revenue is less than 9 percent of our business. I don't do anything to infringe on anybody's enterprise, I don't do anything in the application field. I think compared to Oracle and IBM, we really have stuck to our guns in protecting the franchise of our partners. I think that has been clearly understated in what we have really focused on in our company, to be partner friendly.

CRN: Is hiring former IBM executive Charlie Ill to head up your sales department a sign that you will try to build out a bigger channel strategy, perhaps in the midmarket?

Chuang: Absolutely, and I think IBM's midmarket franchise is a very significant one because they do sell, other than the software products, a lot of the other products into the midmarket arena. So Charlie has a lot of connection into those people, and we have every intention of leveraging all of those connections that he has. It has to be a growth market for us because our product doesn't discriminate. The prices, and the way that you can adopt [WebLogic], can suit a mom-and-pop grocery store, and they can just spend $500 [the price of WebLogic Express, BEA's lowest-level configuration]. To reach that, we have to reinvent ourselves and access some channels we don't have access to today.

CRN: How will your partnership with HP affect your channel strategy? Will you leverage their considerable channel?

Chuang: That has been leveraged very well so far. I talked about on the call if you look at just our platform sales, HP has one of the broadest platforms other than IBM out there in the marketplace from supercomputers down to PC desktops. They have them all. They are the second-biggest PC manufacturer. We have gone from an 11 percent deployment on HP one year ago to 30 percent now. That's the most dramatic improvement I've seen ever from any [hardware] platform. I think it's a testament that we've been able to leverage HP really well. That only happens when their sales force and their partner network is really out there selling our product. So we have every intention that especially in the SMB marketplace, we're going to leverage their channel in a big way by putting our software into their world.

We will be seeing our technology being used very differently in the future that we never thought before [with HP]. We're working with HP in a very large automobile manufacturing deal to embed [WebLogic] portal in a car, which is just barely happening in the marketplace. It's really exciting stuff. Those are the kinds of things we will be using their channel for to help us to continue to grow this stuff.

CRN: How is your relationship with Sun Microsystems?

Chuang: I would say the relationship with Sun is good but it's always up and down with them. I would not be the first person you interviewed to give that answer! I spent nine years at that company; it was the same way when I was there.

I think in the field, we partner really well. But I think they go for the gyration every quarter. In the first [part] of the quarter they say, "We're going to be the biggest software giant." They blast the hell out of the stuff. By the time we get to the second or third week [of the quarter], they say, "You know what, we really are a hardware company. BEA, please come back to Mama." We go back and we go full circle, and things get well, and then they do it again. I have no idea what the hell they're doing. And of course, I think it's hurting them more than anybody, reflected mostly in deployment market share. I feel terribly about it, because it's a company I have a lot of allegiance to. This is not great. I don't like to see that either.