Skip to main content

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) 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


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) - Get International Business Machines Corporation Report



(ORCL) - Get Oracle Corporation Report


Scroll to Continue

TheStreet Recommends

(CRM) - Get Salesforce Inc. Report

, 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, 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.

In the past, wiring together data from different sources and applications could take days or weeks of expensive custom coding. Today, the same job can be done in hours, or even minutes, provided the underlying software infrastructure supports SOA. And selling that infrastructure, and the consulting services to support it, is how software vendors are cashing in on SOA.

In its most recent quarter, more than 10% of BEA's total revenue came from sales of SOA-oriented products sold under the AquaLogic brand. SOA actually adds even more revenue to BEA via sales of other products, says BEA Senior Vice President Rich Geraffo, but the company doesn't break out those additional sales.

Web services, says Geraffo, give BEA's salesforce a chance to sell additional software and service into its base of some 16,000 customers. SOA-related wins include the City of Chicago, for which BEA built an application called "make payment" that allows residents to pay taxes or a water bill or register a car. It taps 27 data sources and is used by all of the city's many agencies.

At IBM, Web services and SOA are driving sales of middleware, development tools, security software and consulting services, says Rod Smith, vice president of Big Blue's Emerging Technology Software Group. Smith, an enthusiastic evangelist for software's new big thing, likes to call his approach "Q.E.D." -- quick and easily done.

But there is a downside. "Web services are a threat to traditional integration," says Smith. (Integration is the blending of disparate applications and computer systems.) But now that software is being designed with integration in mind, the once-thriving subsector of integration vendors has dwindled to two significant players --





( WEBM). SOA could even threaten some of IBM's own integration revenue, but Smith figures that other SOA-related opportunities will more than make up for the potential loss.

It's not only software vendors that profit from Web services and SOA. PayPal, now part of



(EBAY) - Get eBay Inc. Report

offers its checkout process for use by other Web sites, and eBay itself offers its auction marketplace software, says Dave Nielsen, who marketed Web services for PayPal and now works for StrikeIron, which runs an online marketplace for Web services. PayPal gives away the Web applications and eBay charges a small fee, and both then charge on a per-use basis, he says.

SOA and Web Services never would have arisen without the rise of standard programming tools and languages like Java, Ajax and XML. Although


(MSFT) - Get Microsoft Corporation Report

is seen as something of a laggard when it comes to supporting such industrywide standards, BEA's Gerraso says the software giant is one of the competing vendors he sees the most when his company goes after an SOA-related contract.

But Microsoft, says Gartner's Plummer, "doesn't even use the term (SOA) at all. They run the risk of being stuck with the same old stereotype, a nonenterprise toy."

There's also some disagreement about Oracle's position as an SOA vendor. Some analysts say the company is too wedded to its own technology stack too succeed in this venue, while others say its enormous customer base and technological prowess give it a leg up.

BEA has emerged as an early leader in the SOA race. But there's plenty of competition, and before long it will be impossible to find a software company that doesn't at least pay lip service to software's hottest trend.

As originally published, this story contained an error. Please see

Corrections and Clarifications.