Doing The Math

During the past two years, the BEA Systems chairman, CEO and president has faced some of his toughest challenges to date. Chuang has had to manage his company through a punishing economic climate that has shredded BEA's market capitalization. He's overseen substantial staff layoffs and tumultuous management shake-ups.

As if that wasn't enough, San Jose, Calif.-based BEA, which put the commercial J2EE application server on the map, now operates in a market that puts it up against the industry's most formidable competitors, including IBM, Oracle and Sun Microsystems, all much larger than BEA. The company's flagship product, WebLogic, has lost 5 percent in market share in the past year, while IBM's WebSphere has gained 6 percent.

Yet it isn't all gloom and doom for the 41-year-old Chuang, a computer science engineer and former Sun manager. He points out that BEA has consistently met its numbers even through a difficult economy. Its stock price has climbed from a low of less than $5 and now hovers around $10. He has hired executives from Microsoft, IBM, Hewlett-Packard and Tibco to help him conceive and execute a strategy for growth.

Most importantly, he says, BEA is adding 300 new customers every quarter. And that means, BEA, with 3,500 employees and not known as the most channel-friendly company, must come up with a viable plan for working with solution providers.

"The math is very simple," Chuang told CRN in a recent interview. "A company [like BEA] that is adding 300 new customers in every quarter,I need help. I know that partners are the only way I can get to these customers."

To address the situation, Chuang and BEA channel executives recently outlined plans to strategically re-engineer BEA's existing channel program and resources to make sure it is working with the right number and mix of partners so that both the vendor and its partners are successful.

"I don't think as a company I can imagine that we could possibly be any more channel focused and committed to partners," Chuang said.

It hasn't always been this way.

BEA operated via a direct-sales model for its first five years in business. Then, in early 2000, under the direction of channel chief Rauline Ochs, the company unveiled a formal channel program, the Star Partner Program. BEA executed for some time on the plan, but seemed to get off track when Ochs departed the company in April 2002.

Within the past year, BEA has added two executives to drive the company's alliance strategy and re-engage with partners. Under Mercedes Ellison, senior vice president of alliance marketing, and Morris Beton, senior vice president of business development, BEA has begun the slow process of reviving BEA's partner programs and reallocating resources with the goal of making sure partners are satisfied. They say BEA also will seek new partners that are the right fit for the company's strategy to continue to maintain dominance in the enterprise, as well as expand into the midmarket.

Ellison said plans are in the works to include more marketing resources to help partners in lead generation. The company already has launched a call center, the BEA Partner Resource Center, to help solution providers attain information and referrals to other partners and BEA sales reps.

To gear up for the general availability of its new WebLogic Platform 8.1 later this summer, BEA will host a "Power of Partnering" day June 24 as a way to give partners a preview of the new software suite as well as go-to-market information, Ellison said.

Also later this summer, Ellison said, BEA will provide partners with the same information it is providing its salespeople about WebLogic Platform 8.1, which is a significant upgrade to BEA's software and is a switch in mind-set, offering application development and integration in a unified platform.

BEA is leveraging its close partnership with Hewlett-Packard, including tapping some of HP's VARs, to reach new customers and help it compete against Sun, BEA's traditional hardware partner, which plans to build its own Sun ONE Java software directly into its Solaris operating system through Project Orion, thus eliminating the need for another vendor's Java software.

BEA also is using HP's growing professional services arm to distribute WebLogic 8.1 among new customers. In September 2002, BEA made HP Services a premier consultant for WebLogic implementations on HP servers after HP dropped its own Java middleware strategy to go with WebLogic.

The company's relationship with HP is a feather in BEA's cap, said Marc Maselli, president of Needham, Mass.-based solution provider Back Bay Technologies. "HP has a channel, a huge channel, and that's not a bad partnership for BEA to offset the dependency on Sun," Maselli said. "HP Services is aggressively pushing their own services, and they're tightly coupled with BEA. HP's saying, 'We have the channel, BEA is a big selling item.' "

However, Maselli said the relationship between BEA and HP could also pose a problem for solution providers, which view HP Services as a competitor.

Chuang said BEA is conscious of the problem its ties to larger systems integrators could cause with smaller solution providers and is trying to send business down the food chain. He said BEA worked more with larger partners as the economy tanked because IT customers continued to trust them, and therefore they could send business BEA's way.

"Some of the partners that we've had a lot of success with, like HP and Accenture, it's not because of us, it's just because of the nature of the beast,that the very large corporations are looking to do business with fewer people," Chuang said.

To address these concerns, Beton said BEA is preparing to widen the scope of a pilot program launched last September that allowed several regional solution providers in the South and West to resell BEA software in the hopes of reaching midmarket customers. Beton said the program will be extended to the East and Central regions to give solution providers an additional revenue source and help BEA gain visibility among midmarket customers.

It is "too early to tell" if allowing solution providers to resell WebLogic software will be a successful strategy for BEA, said Todd Underwood, business development manager at Los Angeles-based iRise, one of the solution providers in the pilot program. "My overall impression is it's good for BEA, it's the right thing to do," Underwood said. "Is it something we'll hang our hat on? No. But is it something we're encouraged by as a partner? Yes."

Underwood said it's not the margins solution providers can make on reselling software that is the attractive part of the option to resell, but the message it sends to partners.

"It's all about empowering the channel," Underwood said. "It's not critical [for] our relationship to BEA that we resell, but from a psychological standpoint for certain companies it is important that they resell. This is a way for BEA to gain additional mind share [with] those companies."

Chuang said that during the past couple of years it has been a challenge to try to address the needs of a large group of partners in such a depressed selling environment. "I think we've been trying our very best to pass our fortune to [partners]. %85 But there's a limit [to what BEA can do] because we're under pressure as well, as growth is what we're really achieving now. We have great margin in our business, but I can only do so much."

To some solution providers, which say BEA's channel participation has dropped off in the past year, that "so much" has not been enough. At a time when BEA needs partners to grow its business,and solution providers need vendors they can count on to back them up,they say BEA has not been doing its part to help solution providers.

"I don't know what BEA's channel strategy is," one solution provider who requested anonymity told CRN recently. "It used to not matter because WebLogic was still selling, so we didn't need a lot of help. But now we do and all we see from BEA is [employee] turnover and no support."

Some solution providers say that, because of BEA's small size and the loss in market share of WebLogic to IBM's WebSphere software in the past year, they are now working more closely with IBM because they feel more secure the tech giant will be around in the foreseeable future.

They say IBM is offering them substantial discounts to target midmarket accounts with its WebSphere Express strategy, and IBM continues to make inroads in the enterprise by driving WebSphere through IBM Global Services.

These efforts by IBM appear to be working. In a recent report by research firm Gartner, analysts said IBM is the new leader in the Java application server market, BEA's traditional business. Gartner also reported that IBM leads in both the portal and integration server markets, areas BEA is targeting with WebLogic Platform 8.1.

BEA has other adversaries, too. The JBoss Group, Atlanta, is being heralded as a disruptive force to BEA's presence in the application server market, as many developers use JBoss' free server for development. And Oracle has launched a full-scale assault on BEA, giving away software and services to BEA WebLogic Server customers that switch to Oracle's Java platform, 9iAS. Then there's Sun, which plans to begin rolling out Project Orion in the fall.

Chuang said he is prepared to take on these competitors. He said he is determined to make BEA's WebLogic the standard platform for Java development and take partners along for the ride. Chuang's commitment to improving BEA's relationship with the channel is evident. But observers say the company has to execute his good intentions in the field on several fronts.

First and foremost, they say, BEA must prove its relationship with HP Services won't jeopardize its relationships with smaller solution providers. Further, BEA's salespeople must shift their focus in the field from selling individual software products just to drum up license revenue to providing real business solutions in conjunction with partners that know what customers need.

Most of all, they say, rather than pay lip service to partners by creating channel programs that are then neglected when the going gets tough, BEA must remain consistent in providing resources to a reasonable amount of solution providers, while maintaining an open door policy to add new partners when there is potential for a mutually beneficial relationship.

"This [market] opportunity is bigger than anything we have seen," Chuang said. "Why would I want to give up that opportunity after spending how many 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."