BEA Finds a Friend's Hand in Its Pocket - TheStreet

Updated from 10:04 a.m. EST

BEA Systems

(BEAS)

, already challenged by

IBM

(IBM) - Get Report

and

Oracle

(ORCL) - Get Report

, now has a new competitor --

Sun Microsystems

(SUNW) - Get Report

, 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) - Get Report

, 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) - Get Report

, which already offers customers an integrated software package. IBM and

Hewlett-Packard

(HPQ) - Get Report

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."

Tod Nielsen, BEA's chief marketing officer, said enterprises are unlikely to bet their business on free software. "Customers look at the application server as core to their IT infrastructure. They need to know that the company selling it will invest in innovation. When you give it away free, what's your customer commitment?" he said.

Nielsen said Orion "is a creative software bundle that won't have any impact on the race between us and IBM

in the application server market."

He added that BEA still receives a majority of its revenue from customers running the company's products on Solaris, but the percentage has dropped to 55% from 63%. At the same time, revenue derived from customers running BEA on an H-P platform has nearly doubled.

Even so, Nielsen was quick to note that BEA salespeople and Sun salespeople often make joint visits to potential customers. "Software sales drive hardware, and sometimes hardware drives software. That's not changing."

Maybe not, but with friends like Sun, does BEA really need enemies?