Analyst Encourages Microsoft Acquisition of BEA

Will a Microsoft acquisition of BEA Systems make headlines in 2004? According to a report released Tuesday by The Yankee Group, it's not such a farfetched notion.

In a report titled, "Why Microsoft Should Buy BEA Systems," Dana Gardner, an analyst at The Yankee Group, said a combination of the two companies would "deliver powerful synergies, give the marketplace more choices for IT software and blunt the competitive threat facing Microsoft."

It's clear in the industry that the Microsoft .Net framework and J2EE software, of which BEA is a leading software vendor, are the two dominant platforms solution providers will use to build Web services. The two are not mutually exclusive, however; experts agree most companies will have a mix of both in their IT systems.

Because of this, it would be advantageous for Microsoft, Redmond, Wash., to buy a leading J2EE software vendor such as BEA, according to Gardner. In his report, he wrote that Microsoft could use BEA to stave off competition to .Net from IBM in the J2EE software arena, where IBM's WebSphere has taken a chunk out of BEA's market share in the past year.

Microsoft also could leverage BEA's Workshop tool, which uses visual controls to build J2EE Web services and applications, to appeal to Java developers in the same way Visual Basic appealed to Microsoft developers. The combination of this and BEA's WebLogic Platform, a popular Java software stack, could help Microsoft "blunt the spread of open-source server components up the enterprise software stack," particularly if Microsoft were to slash the price of BEA's software, which currently is set at relatively high prices aimed at enterprise users, according to Gardner.

BEA, too, would benefit. Pointing out that both BEA's aforementioned market share and stock price have languished in the past year, Gardner wrote that Microsoft could help bolster the company's financials and help it compete against foes like IBM, which is much larger than the San Jose, Calf.-based BEA.

All-important ISVs also would like the deal, Gardner wrote. He said the merger of Microsoft and BEA would "help nail down new, large design wins among ISVs" because their applications would run on both J2EE and .Net if they supported the combined company.

Of course, the deal would not be without its drawbacks. Gardner said because the combined company's strategy mirrors IBM's plan to develop J2EE software yet supporting .Net through licensing, it would face regulatory scrutiny because "balancing IBM's potential dominance in the market has long been a goal of regulators."

However, "the inevitable review of such an acquisition likely would show it would spur, not limit, competition," according to Gardner, making it likely that such a deal would be finalized by regulatory groups.

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