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BEA Isn't Scared of Big Blue

For a software company that holds the distinction of being the fastest to reach $1 billion in annual revenue, BEA Systems Inc. seems to have a chip on its shoulder lately.

In the last week, the company released statements with headlines like "BEA WebLogic Server Kicks Apps" and "BEA Sets the Record Straight on Web Services Leadership."

BEA has reason to feel defensive. After enjoying a comfortable lead in the booming application server market, the San Jose, Calif.-based company saw its wide margin of leadership shrink under pressure from IBM Corp. . Now, it appears the two companies are locked in a defining battle for the lead in the market.

A Two-Horse Race
In the latest research on 2001 license revenues, IBM pulled into a near dead heat with longtime leader BEA. BEA has cast its lot with its WebLogic application server, which runs on Java. IBM launched its own Java-based WebSphere application server two years ago. Since then, WebSphere has closed the gap.

The 2001 figures appeared to be a sharp turnaround for BEA, with its lead in the market shrinking from 11 points to 3 points. IBM used the more cautious spending environment to capture business from Sun and vendors like Borland, Sonic Software and Fujitsu-Siemens. Despite the attention paid to IBM's gains, BEA actually grew its market share, albeit only by 1 percent.

"Even in the face of IBM's massive marketing machine, BEA has continued to be the leader," says John Kiger, BEA's director of product marketing. "That speaks to the value that BEA brings to its customers."

But it also set up a clear fight between BEA and IBM for the lion's share of the market.

"There's been a big winnowing out among the top vendors," says IDC analyst Michele Rosen. In IDC's research, BEA and IBM had accounted for 58.4 percent of the market. Now they take up 75 percent.

BEA, in many ways, has been a victim of its success. The market for application servers is huge and growing fast. According to Gartner Group, it grew 92 percent from 1999 to 2000, scraping the $1 billion mark. But growth slowed to 20 percent, to $1.2 billion, as the economic downturn continued to take a bite out of corporate capital spending.

Gartner predicts the market will continue to grow steadily, reaching $3.2 billion by 2006. The size of the market attracted IBM, which has aggressively used its sales-and-marketing juggernaut to push WebSphere.

"They're in the rearview mirror," says Gartner Group analyst Joanne Correia. "It's no longer a technology game, it's a brand-marketing game, and IBM's the king of that."

Continue with BEA's Five-Year Plan on page 2...