Mike,
The prospect of a tornado emerging in this market was apparent to Geoffrey Moore when he wrote the introduction to Inside the Tornado. Moore noted that the heterogeneous mix of multiple systems was a showstopper for B2B e-commerce. According to Moore (1999, p. xx), "There is simply too much complexity, both initially and in maintenance over time, to retrofit this market. That portends, in time, yet another tornado as the whole world swaps out client/server infrastructure for web-enabled."
Coleman's conceptual advantage was his single-minded focus on creating a platform for integrated business applications on the Internet. Coleman understood that arriving in the market at the right time with a superior technology product would enable BEA become a first- and fast-mover. As a first-mover, he knew that network effects would continue to drive his growth. As a fast-mover, he knew that it was important to continue to innovate because his competitors and sometimes partners, such as IBM, Sun, and Oracle, were large established companies with significant advantages because they already were established in diverse markets and had significant financial resources. All were in the Java camp, which implied an allegiance to "openness" (as they battled the monolithic and monopolistic Microsoft gorilla), but each had what they saw as a sliver of proprietary competitive advantage built into hardware, databases, or middleware. Coleman realized that these supposed strengths were actually weaknesses in the eyes of customers who had learned the hard way to fear lock-in.
Moreover, lack of standardization had created the problem that he intended to solve through superior expertise in integration. The Internet's success had blossomed by the TCP/IP protocol becoming a universally accepted standard; this standardization created an open and competitive global market that erased time and space boundaries that had favored established incumbent companies. Now, the global Internet rewarded the agile adaptors to change. Established companies feared for their futures and wanted to capture a share of the new possibilities. One solution solved multiple problems created by lack of standards and opened the door to a new Internet niche for BEA: it could become an anti-lock-in infrastructure gorilla by developing an enabling platform for interoperability, integration, and collaboration over the Internet. So, BEA proceeded to do it.
I do believe that BEA is in a tornado. It has it grown its value chain and sales very rapidly. BEA was the fastest software company in history to reach a $1-billion dollar annual revenue run rate. It has logged 22 consecutive quarters of increasing revenues, and management has no issued any warning. WLS is the world's # 1 Java application servers, according to Giga, IDC, and Gartner. Through it Star Partner program, BEA has 1,900 partners growing, by 100 per month. More than 250,000 developers registered at the BEA Developer Portal in its first year, which ended in June.
Both Coleman and Janeway, a venture capitalist from Warburg Pincus, who provided BEA with venture capital, declare that BEA is a gorilla. Geoffrey Moore is a consultant. Coleman claims that BEA has the 70% to 80% market share that demonstrates it is a gorilla.
Growth rates for the product category of application servers are in the tornado range: according to IDC in July 2001, after increasing 110% in 1999 ($975m), revenues accelerated to 128% ($2.2 billion) in 2000. The product category is, thus, in a tornado.
In 1999, according to Giga, BEA had a 32% market share, compared to IBM's 16%. In 2000, according to Giga, BEA has a 48% market share, compared to IBM's less than 20%, with no others over 10%.
When Coleman looked beyond the market share estimates in May, he argued that financial results strongly supported the view that BEA had gained market share faster than its competitors. At the beginning of 2000, BEA had the larger customer base for WLS compared to IBM's WS. IBM had reported 53% yoy growth for WebSphere in its last quarter in 2000, whereas BEA reported 168% yoy for WLS's quarter that ended in January 2001 and 200% yoy growth for 2000. Given a larger market share beginning 2000, BEA, therefore, grew its customer base faster than IBM.
How does the press treat BEA and IBM? In April, SD Times' Binstock wrote, "Sitting at the top of the heap is the 800-pound gorilla, BEA Systems, Inc.'s WebLogic. There used to be two big gorillas-the other being IBM Corp's WebSphere-but there is so much air-space now between IBM and BEA that WebSphere can be described only as one of the pack." In May, according to InformationWeek.com, after reviewing its revenue for the first quarter, "BEA's WebLogic application server may be lengthening its lead over IBM's WebSphere and other rivals. Lehman Brother's analyst Neil Herman says that BEA's quarterly results provide compelling evidence that the company is gaining market share faster than any other major player."
Whereas, in July, IDC claimed the IBM was making up lost ground and that both BEA and IBM were "two leaders," in what, last year, was a four-horse race (Sun and Oracle). This puzzled me. I thought that IBM might be adding in hardware sales, but Paul Philp provided a better analysis. He argued, on 7/19 on NPI, that IDC's method of using total revenue from all vendors that is then divided by company's revenues to get market share is flawed. Moreover, the IDC numbers did not include channel value-added revenues (and BEA has indirect sales over 25%) and do include vendor professional service, which is IBM's new game plan, and BEA outsources a lot of service to build its value chain. For example, BEA and KPMG Consulting just announced on July 10 that KPMG was building an arsenal of solutions based on BEA WebLogic Integration. Having that explanation from Paul of the market share data confirmed for me that BEA was an enabling technology gorilla in a tornado.
Moreover, I believe by the criterion of acceptance by a pragmatist majority, BEA is a gorilla, well past the bowling alley. BEA powers the most demanding enterprise-applications in the largest U.S. and global companies. This set of customers comprises the heart of the business infrastructure of the world. Among its 10,000 customers around the world, BEA own many bowling pins in the Fortune Global 500. Beginning with the Fortune Global 500, BEA has 100% of the: Telecommunication companies, Financial Securities and Diversified Financial Companies; Computer/Office Equipment manufacturers, and Pharmaceutical companies. Also, BEA has the majority of the Fortune Global 500 in the: Healthcare companies, Airline and Delivery Service companies, Aerospace companies, Electronic Equipment companies, Insurance companies, Motor Vehicle and Parts companies, and Commercial Banking companies. It is not surprising that BEA includes the majority of companies in the entire Fortune Global 500 in its list of customers. In addition, BEA's customers include the majority in the Fortune 500, Fortune e-50, and Business 2.0 100 lists.
To me, this rings of pragmatist majority acceptance. IT technologists of such major companies, according to Moore, act as a herd, neither wanting to be first to adopt major infrastructure, because of cost and delay in working-out any problems, or last, and lose competitive advantage. Furthermore, a recent survey of the Fortune 500 and Global 500 indicated that 4 out 5 companies selected BEA in comparison to IBM as their platform to run their mission-critical business applications. Maybe, this is the 80%, but I suspect Coleman has better data. I believe these data related to signs of a gorilla indicate that the market is standardizing on the BEA platform.
Such prestigious widespread adoption of the BEA platform attests to its enterprise quality and gorilla status. Also, BEA's network effects are influential in creating sales. For example, in June, TNT, Europe's largest logistic company, became a BEA customer. Who would you choose if you knew that Federal Express, UPS, and DSL had already adopted BEA? This is the power of the network effects of popularity and reach.
Hope this helps.
Don |
