BEA Finds a Friend's Hand in Its Pocket

Updated from 10:04 a.m. EST

BEA Systems(BEAS Quote), already challenged by IBM (IBM Quote) and Oracle(ORCL Quote), now has a new competitor -- Sun Microsystems(SUNW Quote), one of its most important partners.

On Tuesday, Sun announced plans to roll key middleware elements into new versions of its Solaris operating system. Sun, in effect, will be turning products that are central to BEA's core business, including application and integration servers, into low-cost add-ons.

Although both companies say the partnership is alive and well, the competitive tension between them was evident at Sun's annual analyst meeting on Tuesday, at which a top Sun official boasted of a big win against BEA. Upon closer examination, the win is more likely to be a large hardware sale (with software thrown in at little or no cost) to Vodafone(VOD Quote), a BEA software customer and partner.

Nevertheless, having a major partner selling against you -- more than half of BEA's sales are to companies running Solaris -- is potentially dangerous.

"With a brand name like Sun, the technical advantage of highly integrating the application server with an industrial strength operating system and the price advantages Sun can offer, we don't expect BEA to fare well in a customer justification process," analyst Trip Chowdhry of Midwest Research Securities said in a client note.

Project Orion, as Sun calls it, is an effort to make its software simpler to install, run and pay for, said Jonathan Schwartz, the company's executive vice president in charge of the software business.

"Project Orion is a total redefinition of our software. All will be part of a single product called Solaris," Schwartz said at the analyst conference.

When customers install Solaris, Schwartz said at a press conference Wednesday, they will have a choice of also installing all -- or none -- of the software stack. Customers will pay for the functions they use, via a variety of licensing plans. Schwartz claims that the Sun's integrated approach could save customers 90% over the cost of buying and deploying software via a more conventional method.

Although BEA may be damaged by Orion, Sun is aiming at bigger game, including Microsoft(MSFT Quote), which already offers customers an integrated software package. IBM and Hewlett-Packard(HPQ Quote) are eroding Sun's share of the high-end server market, with inexpensive servers, some running Linux, powered by Intel chips. Sun is positioning itself as a platform company that can be counted on to support applications made by anyone. The company will even continue to offer free trial versions of BEA's WebLogic Application Server with Solaris. "The point is to give the customers a choice," said a spokeswoman for Sun. "That's our strength."