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Published on 12/15/1999 All articles from this issue

Inside a stock success

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By Leslie K. Martin

Town Crier Staff Writer

How BEA Systems Inc. planned for e-commerce explosion

BEA Systems Inc. stock is up 845.92 percent since Jan 1. Last quarter the San Jose company did $126 million in sales. Management hired 208 employees between Nov. 1 and Dec. 3.

The company's skyrocketing stock value marks the biggest 1999 jump among a whole slew of big successes in the Town Crier Stock Index. The index represents companies whose leaders live in either Los Altos or Los Altos Hills.

"A year ago the company's market cap was $1 billion or $2 billion. We have an almost $11 billion market cap now," Bill Coleman, BEA chairman and CEO, said in an interview last week. "And I think that this stock, if we execute and maintain leadership, can double several times in the next five years."

Coleman, a vibrant 52, is a visionary who barely contains his excitement and passion for the future of e-commerce. Coleman and his chief financial officer, Steve Brown, are both Los Altos residents, and president Alfred Chuang is building a home in Los Altos Hills.

On a leave of absence from his job as vice president of systems software at Sun Microsystems in 1993, Bill Coleman laid out the concept for what would become BEA Systems Inc.

He thought about "all the fiber that was being planted," and realized what the Internet lacked was what Microsoft had done for the home computer. Coleman explained, "Like we said at Sun, the network is the computer. The concept was simple. You needed something like Windows that runs over the whole network so its applications can run safely. There wasn't anything."

The other thing that made Windows work, Coleman said, was that Visual Basic allowed programmers to "draw" applications in days rather than program them over years. Coleman saw the need to be able to do the same for large business applications. Such applications required millions of data transactions, like those necessary for Federal Express to be able to carry and track a package from one state to another.

In 1994 Coleman, Ed Scott and Chuang wrote a three-phase business plan. The plan assumed that the market for network-based computing would take off. Bill, Ed and Al became the B, E and A in BEA Systems. E-commerce and Java were born, and network-based computing exploded; though, if Coleman is correct, it's still in its infancy.

When the boom happened, Coleman said, "If you weren't already a half-billion- to a billion-dollar company, you wouldn't be big enough to survive. It doesn't matter if you have the first user advantage if you're not big enough to exploit it. That's what all the Amazons and Yahoo!s spending so much money without making money's about - being big enough to own the market before someone else comes in and takes it away."

In order to be big enough, fast enough, Phase I of the BEA plan called for buying the leader and distributors of a technology called transaction processing. Purchased in 1996 from Novell Inc., Tuxedo became the BEA core.

In Phase II, BEA re-implemented Tuxedo into WebLogic, now an enterprise Java server, which created a software platform for Internet businesses.

Creating the basic platform wasn't enough. Clients like Federal Express, Amazon.com and E*Trade required standard application components, like an online shopping cart, that could rapidly be jig sawed together to create a Web site with a unique look and feel. BEA wanted to supply those basic components.

The third phase was to create market leadership by supplying the standard components. Every car manufacturer "makes a different car in look and feel. You know that's a Mercedes and you know that's a Chrysler," Coleman said, "but none of them make the windshields, or the headlights or the tires, and I want to make all that so that everybody else can then build their cars."

In Phase I, BEA was a one-product Tuxedo company of classical applications. Now, at the end of Phase III, most of the company's revenue comes from e-commerce businesses. "We have three product lines," Coleman said. "We have the platform for e-commerce that people build their applications on, and then we have a product line called components. You can literally assemble things in weeks or months. And then we have a product line, we call it 'eLink,' for plugging those applications into the ones you currently have, like an Oracle application, so that it all works together."

It seems that Microsoft might have missed a market. The only competitor in the ballpark is IBM, and what they have, Coleman said, "is not very mature yet, so we have about four times their market share.

"What e-commerce did was, it took all of the control of the software that's being built away from Microsoft. Because all the software's running on a server somewhere, you don't download Amazon onto your PC. What's happening in our base is most people are developing on NT and deploying on UNIX, because they don't trust NT to work, so Microsoft's not even in the horizon," Coleman explained. "That means that, all of a sudden, in the last year, every medium- and small-sized-business in the world is open to BEA and other companies besides Microsoft."

Coleman believes that's a pretty good position to be in.