BEA Systems Rides Software's New Rage

Updated from 8:05 a.m. EDT

After more than two difficult years of executive departures, declining license revenue and a stagnant share price, BEA Systems(BEAS Quote) is once again on the radar screen of investors.

After losing 28% of their value in 2004 and gaining just 6% last year, shares of the business-software vendor have appreciated by 31% in 2006, despite a 3% drop in the value of the tech-heavy Nasdaq and a 9% drop in the Goldman Sachs software index.

Not surprisingly, the company's recovery has a lot of moving parts -- but one factor stands out: BEA's management was quick to embrace one of the industry's hottest trends -- a new way to design software known as service-oriented architecture, or SOA.

SOA is creating a new revenue stream for software vendors, such as BEA, IBM(IBM Quote), Oracle(ORCL Quote) and Salesforce.com(CRM Quote), which have been savvy enough to jump on board.

And because SOA relies on reusable modular components, it's removing at least some of the complexity from software development. That, in turn, could spell trouble for companies that make a living integrating complex software systems. It may even speed the commoditization of software, a trend that favors the major vendors. "You won't see small software companies coming out of nowhere and becoming successful," says Daryl Plummer, chief of advanced information technology research at Gartner.

SOA, together with a closely related trend known as Web services, helps developers write reusable programs that can draw data from disparate sources and run on any software platform. Some of the programs are simple "mash ups," such as housingmaps.com, which links real estate listings from Craigslist to a mapping program that shows where properties are located. Others, such as enterprise applications that handle billing and credit card authentication or supply-chain issues, are much more complex.