Startup poses threat to IBM, BEA

NEW YORK: A small, upstart company that gives away its software for free is threatening to play spoiler to big rivals IBM and BEA Systems in the hotly contested market for business software that pipes data between applications.

"We have turned the heat up," JBoss Group founder and CEO Marc Fleury said of the privately held Atlanta, Georgia-based company's challenge to established players.

JBoss, which relies on a voluntary network of developers to build "application server" software, has won major corporate customers like motel chain Best Western International Inc. and telephone network operator MCI, formerly WorldCom Inc. Fleury says JBoss, which sells services to users of its free software, has revenues of between $1 million and $10 million per year.

Like Linux, JBoss is "open source" software that can be freely used, copied and modified. By contrast, IBM and BEA employ hundreds of in-house engineers and charge thousands of dollars for their programs. Users of BEA's flagship WebLogic software are not free to install, modify, or redistribute it without permission.

While JBoss is not making huge sums of money itself, analysts say it is sapping revenue from companies such as BEA (BEAS.O: Quote, Profile, Research) and International Business Machines Corp. (IBM.N: Quote, Profile, Research) , two of the world's top 10 software companies.

"The pricing pressure is very strong," said Trip Chowdhry, an analyst at FTN Midwest Research. "Just like Linux has put pressure on other vendors."

JBoss bets it can make money selling services to make its software work with other programs its customers use. The company's Web site boasts that 50 percent of its staff time goes to building free software with the other half devoted to for-fee consulting work on behalf of clients.

In an era of cost-conscious development, JBoss, along with another rival, Apache Software Foundation, have wooed millions of programmers to try their free software.

JBoss expects its server software to be downloaded three million times this year, a 50 percent jump from last year. Companies such as German chemical conglomerate BASF AG and Nielsen Media Research use JBoss.

JBoss, whose software speeds communication between databases and computers on far-flung networks, remains puny compared to the $934 million in sales reported by BEA Systems Inc. last year. JBoss has only 30 employees.

"JBoss is a very credible threat to BEA," Fulcrum Global Partners's analyst Cheng Lim said. "But it shouldn't be a real concern in the near-term."

Chowdhry compared JBoss to Linux software distributor Red Hat Inc. in 1997. Back then, few believed in the future of a software company that gave away its products and relied on service revenue as its lifeblood.
BEA, which has 35 percent of the application server market, shrugs off the JBoss threat, saying price for the software is not the dominant factor when companies make buying decisions.

© Reuters