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Web App Server Market Consolidates

JANUARY 1999

BEA Systems Inc. is acquiring San Francisco start-up WebLogic Inc. for $192.5 million. The move by BEA Systems, a middleware vendor with expected revenue of $280 million this year, is the latest in a series of acquisitions that represent a rapid consolidation of the application server market, analysts said.

The class of software is a new one, reflecting the growth of business on the Web. Application servers start applications needed in response to Web browser calls and connect applications to databases and legacy systems.

"Down the road, every application you design will be designed with a Web application server in mind," said NationsBanc Montgomery Securities LLC senior software analyst Greg Vogel.

BEA Systems follows Netscape Communications Corp. (www.netscape.com), which acquired Kiva Software Corp. in November 1997 for $179 million, and Sun Microsystems Inc. (www.sun.com), which announced it was acquiring NetDynamics Inc. in July for a reported $160 million. That deal was predicted to be done early this month, although Sun hasn't announced a completion date.

Shortly after the Sun move, IBM Corp. (www.ibm.com) announced it was rolling a set of products, including its high-end transaction processing system, TX Series, into its WebSphere family of application servers. Last week it added the sophisticated Java business components and application frameworks, Release 3.0 of its ongoing San Francisco Project, to its WebSphere servers. The project consists of more than 750,000 lines of Java code at this point and includes Order Management Framework and General Ledger Framework, along with tools for building them into Web applications.

These moves show a belief in the importance of application servers as the developer's target platform for the next generation of Web apps. In recent months, vendors of object-oriented databases, Java development tools and Object Request Brokers (ORBs) said they, too, are application server vendors.

If you drew circles around transaction processing monitors, object-oriented databases and ORBs, and then used them to describe the application server market, "the three circles are starting to converge," said David Skok, president of SilverStream Software Inc. (www.silverstream.com), maker of the SilverStream application server.

BEA Systems' move "was a reactionary one" to keep other vendors from invading its middleware customer base, said Alistaire Rennie, IBM's Component Broker marketing executive. Middleware is the background software for connecting applications to each other. Component Broker is an object messaging and transaction handling product that also has been incorporated into WebSphere.

"BEA wants to be a premier supplier of the Web infrastructure," said Pat Vermont, director of product management for the Apptivity application server unit of Progress Software Corp. It wanted an app server to fill out a product line that already includes the Tuxedo transaction processing system and M3, an object component broker for handling messages and transactions between objects, or modules of software. Leaving a gap in the product line invites other vendors in under the rapidly changing conditions, he said.

Whether defensive or aggressive, the acquisition for BEA Systems is clearly strategic. Alfred Schuang, a founder of BEA, will become the new general manager of WebLogic.

Applications Server Consolidation

• November 1997 -- Netscape Communications Corp. said it would acquire Kiva Software Corp. for $179 million.
• July 1998 -- Sun Microsystems Inc. announced it would buy NetDynamics Inc. for a reported $160 million.
• September 1998 -- BEA Systems Inc. agreed to acquire WebLogic Inc. for $192.5 million.

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