Tuesday, July 16, 2024

The Price May be Right: Oracle Finally Lands BEA

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Larry almost always gets his way, particularly when it comes to buying software companies. So it came to me as no surprise that the BEA deal finally happened; its inevitability was foreordained. But was it a good deal?
Some think that Oracle paid too much for what it bought. I think Larry and company will probably do just fine with the deal.

It was a little surprising that Oracle paid such a high premium for BEA – a whopping 45% more than its original asking price last year, and some 24% above the closing price earlier in the week. That’s a lot of wampum, many analysts believe, for a company that is in decline and clearly had no other viable suitor lined up.

While it’s possible Larry could have gotten a better deal (anyone privy to the Larry/Carl Icahn face-off over BEA’s price would have been witness to one of the great negotiations of the software industry), the real issue is whether Larry’s shareholders and his new customers will be happy five years from now. I vote for a definite yes on the latter and a qualified yes on the former.

Indeed, the customers should be ecstatic, if they know what’s good for them. Oracle has made a virtue out of keeping its new legacy customers happy – for the price of an average 22 percent annual maintenance fee – and it’s clear that, absent any other suitors, ending up in Oracle’s warm but costly embrace is by far the best possible outcome for the customers of this dying brand. Oracle has made it clear that it won’t force anyone to move to Fusion Middleware any time soon, and I’m convinced it intends to keep its word.

Of course, there will now be lots of incentives to move to Fusion Middleware, particularly for those companies looking for a modern, SOA and modeling-based software platform. But Oracle seems very content to play a waiting game with its customers, fueled of course by knowledge that five years of maintenance revenue is the rough equivalent of a new license deal, minus the enormous costs that come with new license deals. What’s not to like about that?

But don’t be fooled by the apparently benign nature of the strategy: This is a waiting game clearly skewed in favor of some switch – either to Fusion or a competing platform such as NetWeaver and WebSphere – and Oracle is gambling that it has a couple of good years to convince BEA customers to make the switch work in Oracle’s favor, during which time it will, theoretically, be quite hard for an SAP to come in and try to usurp the new incumbent.

And what about IBM? As I’ve noted here before, there’s an IBM connection that looms behind almost all of Oracle’s big deals. Charles Philips has said that IBM is regularly consulted on the big acquisitions, and if IBM had been asked its opinion, I have no doubt they would have approved the deal. You have to imagine the joy in Armonk this week as a major middleware competitor was taken out of the market by IBM’s favorite software partner. Of course everyone knows that WebSphere and Fusion will continue to compete against one another, but it’s also clear that taking Weblogic out of the competitive mix is good for these two partners.

Finally, I want to put to rest once and for all the rumors that BEA has something to offer technologically to Fusion Middleware. Okay, there may be some little thing here and there that BEA might be able to add to Fusion, but there’s no doubt that Oracle considers Fusion the superior product and the standard-bearer for its (pun intended) integration, orchestration, SOA, and modeling efforts. Not to mention single sign-on and integration with Oracle’s business intelligence and database offerings. BEA has nothing to add to this, and it won’t. Full stop.

For Oracle’s shareholders, the real question, as with all the other acquisitions, is whether BEA customers will stick around long enough to make the deal worthwhile, particularly by shifting to Fusion Middleware in the next five years. There’s a lot of reasons why this is possible, starting with the fact that they’ll have to shift to something else in that timeframe one way or the other. Only once we see where a critical mass of these customers are headed will we know how well the deal has worked for Oracle. But, at a minimum, it’s starting strong. And, so far, that means the odds are good for a strong finish too. We shall see.

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