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Saw two things this afternoon on the tube. One was the fund manger of PIMCO who is the largest bond trader in the world, and he did not have any great fears of a deflation in the U.S.. Thought inflation would remain low, and that the economy would soon bottom, but that any future growth over the next couple of years would be maybe 2%. Of course nobody knows the latter, but the two former predictions seem easier to come by and it is his job to ascertain these things as they are so intertwined with bond prices. So good news there. Deflation is not an enormous worry.

The second is Don Luskin who was on CNNfn this evening. He loved GX, QCOM, and a few others, but when BEAS came up he said he pretty much hated it. He based this mostly on a IT manager survey indicating only 48% or something would spend more money in the next 6 months.

Given this, I want to discuss BEAS in a little more detail. I want to once and for all get out on the table why installing an app server is a compelling need for a corporation, the pay-off with ROI, what happens if they don't install the app server, what happens if they simply delay a year or so in installing their app server, etc. Is this something that they can just put off for an indefinite period of time?

Any comments appreciated.

Tinker
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No. of Recommendations: 7
Tinker,

IF you are building an eCommerce or eBusiness application which needs to integrate with you legacy data, client server applicaitons or other web applications then you need to buy an appserver of some flavour. The reason for buying BEA is that it eliminates the need for seperate and unintegrate transaction processing, commerce processing, database connections, application connects. BEA is already intgerated with Art, Broadvision, Vignette, PeopleSoft, Siebel and many other applications. This saves considerable money in software licences, integration time and lets you get the application running in weeks or months instead of months or years.

BEA has other advantages but this is the core economic advantage.

IF you are not building an eCommerce or eBusiness application you will probably not hurry to buy BEA.

Paul
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Paul,

IF you are not building an eCommerce or eBusiness application you will probably not hurry to buy BEA.

Not to put words in Tinker's keyboard, but the issue I garnered from his question this: what is the obstacle that has to be overcome in order for companies to feel a compelling need to build an eCommerce or eBusiness application? (Notice that it was no accident that I phrased that in keeping with one of Moore's questions he adivses that investors pose about the formation of a tornado.)

--Mike Buckley
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The obstacle is the cost and difficulty of integrating all the differing systems to make their information and processes available to the eCommerce/eBusiness application. Without the appserver this process takes too long and costs too much money. It is the gaiting factor to deployment and capability.

Paul
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Oooops, I didn't answer your question.

In more and more industries the leaders are insisting/encouraging their products and information and processes to be on-line. The reasons are competitive pressures and lower costs. The cost of self-serve support and sales is significantly lower that phone or in-person service.

If you are in the value chain of such an industry leader you risk your position in that chain by not going on-line. If you sell to GE you need to be increasing you eBusiness over time or GE will start giving business to a competitor who is online.

Paul


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Paul,

Without the appserver this process takes too long and costs too much money.

I agree. I would clarify it by saying that the cost and difficulty you mention places a company in the position of having a competitive disadvantage.

However, neither you nor I are addressing the obstacle to adoption of an appserver that I believe Tinker alluded to. What is the obstacle that has to be removed in order for the companies currently not building an eBusiness or eCommerce app to change their mind and deploy one? I think the obstacle is not realizing that every day they wait they are operating at a competitive disadvantage. Once that obstacle is removed, they'll adopt. Your thoughts?

--Mike Buckley
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I think the obstacle is not realizing that every day they wait they are operating at a competitive disadvantage. Once that obstacle is removed, they'll adopt. Your thoughts?


Mike,

I think that is one obstacle. I think another is the cost of deployment. In addition to the WLS products, you need a Sun server or twelve, a bunch of filers or a SAN, a bunch of firewalls, a bunch of Veritas data management software, a bunch of GigE switches ...

I think the trigger for the mass tornado will be IA-64 servers, Linux and Infiniband. All standard commodity parts which will drive the cost of deployment way down.

Paul

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Paul,

In addition to the WLS products, you need a Sun server or twelve, a bunch of filers or a SAN, a bunch of firewalls, a bunch of Veritas data management software, a bunch of GigE switches ...

Other than the WLS, is that stuff that they wouldn't already have? If they do have already have them, is it possible to deploy them for appservers without disrupting their current purpose?

If the answer to both questions is "No," (which I assume is the correct answer), then the obstacle isn't just that the stuff costs too much. It's that the cost isn't percieved to be sufficiently offset by the gains of deploying eCommerce and eBusiness apps. My guess is that the gains of deploying apps will increase over time while the costs of the infrastructure stuff will decrease. That combination will remove that obstacle pretty quickly. Add to that the issue about being at a competitive disadvantage, and the obstacle is removed even more quickly.

--Mike Buckley

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My guess is that the gains of deploying apps will increase over time while the costs of the infrastructure stuff will decrease.

So more and more for less and less, kind of like the PC industry? Didn't Bill Coleman say this is exactly what he wants to happen, that the real value will come from the applications created on top of WLS?


Erik
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No. of Recommendations: 7
Paul,

what is the obstacle that has to be overcome in order for companies to feel a compelling need to build an eCommerce or eBusiness application?

This is a rather important question isn't it? I started thinking about this after someone posed a similar question a couple of days ago. Last year and the year before companies thought they had to be on the web doing eCommerce because it was the cheaper way of doing more business. This is not so it would appear now, at least not yet, as many companies are losing a good chunk of change due to their eCommerce initiatives. The, perhaps, obvious answer is that more consumers will have to buy online and busineses will have to find a way to increase margins on what they do sell online (hello, Amazon).

eBusiness is more promising as an application as businesses can transact with one another more efficiently.


ab

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No. of Recommendations: 24
I think the obstacle is not realizing that every day they wait they are operating at a competitive disadvantage. Once that obstacle is removed, they'll adopt. Your thoughts?

--Mike Buckley


As a generic statement what you write above pretty much sums it up. If you go looking for details as to why companies still don't adopt the Internet more agressively you would find many different answers that all revolve around the issue of money (cost).

Many of the traditional businesses (the brick and mortar guys) were really excited about putting more funcionality on the web a couple years ago, spurred on by the New Economy Paradigm -- you will be eliminated by your Internet based counterpart that is springing up around you if you don't do something now -- coming from Wall Street, Consultants and the whole buzz about it. Heck people were literally scrambling around trying to find ways to get to the Net.....do something.....ANYTHING.

Now that the dust has settled and many who did not jump immediately and are still standing strong are now saying to themselves we don't have to hurry. So they are kicking the tires. Nonethless, darn near everyone (who we'd identify as pragmatists - the mass market, main street) is internalizing the DotBomb fall-out as the Internet is/was over hyped and they see all the failures of these start-ups and the failed migraton attempts by their peers. It has paralyzed them into fear. When you take that psychological profile and marry it to some of the price tags and deployment time frames associated with building out these applications then add two cups of a declining economy and stir those ingredients together you've got the perfect potion for an IT spending freeze. On the other side of that coin, your words about "if you wait you could be operating at a competitive disadvantage" is so true. This is another fear factor that is driving the pragmatist herd. This is what Andy Grove would identify as the Strategic Inflection Point. Those that hesitate will see their business fall off while those that do not will go on to greater success. It is the unkown about what course of action to take.

App Servers is a relativley new and novel concept to main street. I know, in my industry, that many of my peers (you would identify us as a prototypical paragmatist in the main street herd, annual revenue about $100 million, we don't have huge IT budgets) are using AS/400 and have IT saffs who are PERL and RPG programmers, they are not JAVA people. There is an additional cost in either re-training or replacing them. UPS, TNT, FedEx they've got the money to go ahead of the herd and can afford to make mistakes. They do 10-15 times more in annual sales than we do. There is a degree of complexity to what is made available as a product solution set by companies like BEA and IBM AppServers. It manifests itself in the cost to implement such platforms and applications. Casual observers only see the price of the software and hardware, there is more to it than that. I highlighted one as it refers to our companies IT staff. This is not exclusive to us. It is industry-wide in the demographic of our company size. We are the mass market. The fact that BEA is continually trying to improve on this feature of their product, requiring less programming skill to implement the product incrementally lowers the barrier to adopt such a product with each incremental improvement in that complexity feature. Choosing to focus on this area of the product will bring more success to the AppServer adoption by the mass market than trying to bundle eBS applications with it.

I think the trigger for the mass tornado will be IA-64 servers, Linux and Infiniband. All standard commodity parts which will drive the cost of deployment way down.

Paul


So, when Paul makes that statement, he's correct also, I think. The thrust of the collaboration between Intel and BEA is to pre-build more of this programming functionality into this combined architecutre that will make the offering even more pallatable to the likes of our company. It is likely that we may not see the AppServer really move up the S curve as a product category until these things start hitting the market. And I'm cetainly not privy to any specific details about the collaboration of the two companies. I've only seen words written by BEA that that is what the intended outcome of this project is about -- the small and medium size market. It doesn't mean they'll get it right. But, Intel needs this to be a success as much as BEA does (more on that this evening, I have to go into the office and finish a project for an interior company that supplies the Dodge Ram plant in Ramos Arizpe, Mexico - a new optimization program from their US suppliers - oh joy).
Later,
Tom
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Tom,

Great post! Thanks for all the clarifications. Makes perfect sense to me.

One question: In the world of enterprise-wide applications software, the differences between the top-tier and mid-tier companies are so different that, depending on the product category, they are very different products. They're so different that they result in two different tornados and often two different sets of competitors. Considering that an appserver is an enabling product, I doubt that's the case. Am I right in my understanding of that?

--Mike Buckley
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Tom,

Killer post. This is Post of the Day material (are the powers that be listening?).

Paul
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One question: In the world of enterprise-wide applications software, the differences between the top-tier and mid-tier companies are so different that, depending on the product category, they are very different products. They're so different that they result in two different tornados and often two different sets of competitors. Considering that an appserver is an enabling product, I doubt that's the case. Am I right in my understanding of that?

--Mike Buckley



Well, Mike, I'm not exactly sure I understand your question completely. I'm sure that's more my fault, though. Are you tlking about the difference between, say, i2 and Siebel resulting in a SCM tornado and a CRM tornado? Creating two different sets of competitors, say, i2 and Manugistics in SCM and Siebel and youCentric in CRM?

Or two different software categories altogether like ePS and eBS resulting in two different tornados and two different sets of competitors?

Tom
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I read Mike's question like this: A company that supplys a product used in a major national bank for example is very different from a company that supplys a product used by a small town bank. They both might do very similar things, but the national bank has the need for different applications to be built on that platform. The national bank also handles many more transactions in a single day, so they need a product that is able to handle that as well. So the product used by the large bank is going to need to do more and enable more things than the product used by the small bank. To apply this to BEAS, they could release a version of Weblogic for small business or something similar so the small bank wouldn't need to buy a product that can handle one million transations in a day.

Erik@IHopeYouCanUnderstandMyRamblings.com
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Tom,

Thanks for being patient with me. I should have given an example to illustrate the specifics of my question.

In CRM software, the product being marketed to the small- and mid-tier customer is so different from the product being marketed to the top-tier companies that they are really two different product categories even though they are both CRM software.

Additionally, the nature of the product and the needs of the customers are so different that they are marketed differently. The top-tier companies require a direct sales approach and/or use of a systems integrator. The small- and mid-tier companies require only a telemarketing approach and an Internet site to make a purchase decision.

The combination of product differences and customer needs are so different that in the case of CRM, there were two tornados -- one for the top-tier customers and one for the small- and mid-tier customers.

I assume that because an appserver is an enabling product, the situation exemplified by CRM software wouldn't occur in appservers; there would probably be only one product category that would meet the needs of all customers. Am I right about that?

--Mike Buckley
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Mike

Strong network effects, horizontal business model and enabling technology go hand in hand. As Weblogic is an enabling technology, it only will become a genuine gorilla if it will be adopted en masse in the top, mid, and small tier. Its market share will easily surpass 50%.

Siebel is an application company that is characterized by weaker network effects and a more vertical focused business model. For these reasons Siebel will never achieve the same dominance of an enabling gorilla as it is tough for an application company to have a marketshare higer than 30%.

I'm sure you were aware of these things, but thought it would be interesting to mention them again.

Alex
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Mike,

The closest example I see is the database market where Oracle dominated the high end and Microsoft SQLServer dominated the low end. I think something quite similar may happen with eBiz infrastructure and .NET may be the low end product for much the same reason SQLServer is the low end database product.

Paul@SimplySepculating.com
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Mike asked:

In CRM software, the product being marketed to the small- and mid-tier customer is so different from the product being marketed to the top-tier companies that they are really two different product categories even though they are both CRM software.

Additionally, the nature of the product and the needs of the customers are so different that they are marketed differently. The top-tier companies require a direct sales approach and/or use of a systems integrator. The small- and mid-tier companies require only a telemarketing approach and an Internet site to make a purchase decision.

The combination of product differences and customer needs are so different that in the case of CRM, there were two tornados -- one for the top-tier customers and one for the small- and mid-tier customers.


Mike,

It's well outside my field of expertise to know the differences in the software products competing in a product category, particularly the CRM vendors. I think part of the reason small and medium sized businesses make the evaluation process and purchase decisions in the manner you describe is two-fold. The product they could be buying is a comparably scaled-down product and the vendor is a scaled-down company relative to its larger counterpart, such that the cost and operating structure of this vendor can make money doing business in this demographic. They don't have multiple offices around the country and the world, field sales agents, hundreds of R&D experts.....etc. Hence the conduit for the product is over the net and direct mail, both sales and delivery.

Does this mean, though, that this type of company can not grow? Absolutely not. These are the one's that the Siebel's and i2's of the world need to watch out for. The mass market is larger than the top-tier market and it has more churn in it than the top-tier. These companies can grow up into the top-tier if they have success in making that evolution and can scale their offering in their products to the top-tier and maintain the proper product design for the small and mid-tier customer. Manugistics is a wonderful example of this.
The reverse is something that is quite difficult for the top-tier vendor to do, though.

The price of software and implementation complexity makes the offering too over-whelming for for the small and mid-tier customer. And, from the software vendor side of the equation the top-tier vendor doesn't see the possibility for making a sale to the small and mid-tier customer for two reasons. They know their product is too "pricey" for them. They have nothing else to offer. This leads these type of comapnies to hit a wall after about 5-8 years. They either continue to try to make their living in that top-teir market which is already starting to slow on the growth curve for them. Then they have to decide if we are going to continue to grow we need to be able to sell into the mass market. But, their product offering is such that they cn not with current cost structure of their company. They have to reengineer their product into smaller pieces ( into a modular components of functionality) for the smaller sale. Most importantly, if they are going to sell into the mass market and the sale is smaller in revenue this will not support the size (cost structure) of the company so they have to reengineer that as well. i2 is wonderful example of this. But I think Manugistiics is too far ahead of them already. As Andy Grove said, "When a technology opportunity comes your way, grab it and get out front of your competitor." Manugistics took a chance on a new technology offering, a platform software layer that they could modularize their product on. This gives them the ability to sell smaller offerings into the smaller markets and add on components that are written in the same language as the platform (and their components) to give scale and go into the top-teir markets and compete their as well. These other client/server gorillas need to be watchful of this same thing in their respective eBS categories, in my unprofessional humble opinion.

Let me say a little more about i2. I think i2 is wonderfully successful growth story with great products that's made them a dominating force in the top-tier. I have no axe to grind. I have no investments in either i2 or Manugistics.

I assume that because an appserver is an enabling product, the situation exemplified by CRM software wouldn't occur in appservers; there would probably be only one product category that would meet the needs of all customers. Am I right about that?

Not necessarily. This is the threat that a company like Microsoft can wield. This is also what surprised me a little when I read recently something about Microsoft not allowing JAVA to run with .Net or XP or something like that. In effect leaving 50% of the market free to the JAVA people. Microsoft could certainly come up with some sort of platform (isn't that what they already are?) that could run on a stand-alone CPU or cluster several together, slap in two Ethernet Cards in the host CPU one to serve the cluster and one two serve your small business intranet and the Web. You could run eBS applications on that for a small business. Pretty cheap if you ask me. Anyway, their is a window of danger for BEA and that is the .Net threat for the mass market and the time it takes BEA to roll out the new small-medium market product in the second half of 2002. I'm getting outside my area of expertise, though. Who says someone can't develop something skybluewater describes in the next year or so. It's great concept. http://boards.fool.com/Message.asp?mid=15590535

Let me touch on another reason why small and mid-tier companies make the choices they make. To be fair, though, I'm speaking only from the relationship of a company like mine in the industry I'm in, but somehow, I'll bet it applies to other industries structured like mine.
Right up to today, we have to be very careful of the financial commitments and technology adoptions in IT. This is because of the pecking order of our company when you look at the Extended Enterprise Value Chain we participate in. I alluded to that a little in a recent post in a response to TinkerShaw. Whereby, I said, we are being driven to move more business functionality to the Web by our customers, the Tier 1 and Teir 2 suppliers in the Auto Biz as they are being driven by the OEMs, the Big 3.

If our company goes out and spends in the low to mid 6 figures and makes a commitment to a certain technology that we want to standardize our business on and our customers and thier customers (up at the top of the chain) do something different that is not compliant with what we've just commited to or does not run as well as it should, we've just made what could be a fatal mistake. We have to listen to our customers for what they want us to be technologically compliant with, with what they choose. It's the same thing with EDI. We have to maintain that capability because they require it. So when you have limited resources like we do you have to move very cautiously.

This does not bode poorly for BEA for two reasons. BEA has gone after the the top-tier with some degree of success, so far. I don't know of that's the reason why, (because often times the OEM is driving the technology adoption, the glue, that binds together the Extended Enterprise Value Chain) but it will probably contribute to the success of JAVA and J2EE into the small and mid-tier value chains.

The fact that IBM being J2EE adopters with WebSphere does as much good for BEA as anything, believe it or not. Because of IBMs installed base of databases clients and EDI and J2EE being adopted by IBM and the interoperability with IBM product lines it makes BEA a credible choice to a larger universe of customers. It is not too unlike IBM going into the PC business in the early 80's. This signaled to the world that the PC was an industry and will have far-reaching positive impacts on productivity. The PC was very much viewed as a novelty for the technology hobbyists before IBM took it seriously. If IBM were pushing some other language for a platform BEA would not even be in the discussion at our company, even though BEA could be IBM compliant with their J2EE platform and WLS the only reason companies my size have even heard of BEA is because of the IBM/BEA race.

Anyway, I've gone too long again.

Thanks,

Tom
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Hey tomheadrick--

Incredibly compelling, clear post on the meaning of an appserver as a foundational platform. THanks.

By the way, did you catch "Almost Famous" with "Tangerine" for the final credits? A very Zeppy moment.

Best, Dash
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